Democrats made big changes to a bill to fill a $32 billion hole in the state’s pension plan for public employees Monday in a partisan fight that’s likely to play out more before the session adjourns in three weeks.
Senate Bill 200 passed the House Finance Committee 10-3 on Monday evening after more than four hours of debate.
“This isn’t perfect,” said Finance Committee chairman Dan Pabon, D-Denver, who co-sponsored the bill. “Everyone isn’t happy. In fact, I think there’s enough testimony you heard to see everyone’s a little unhappy, and that’s how you know we might have found the right balance.”
If lawmakers can’t reach a deal, the state risks damage to its credit rating. Retired teachers, police officers and other public employees also would continue to live under the risk of an economic downturn burying the Colorado Public Employees’ Retirement Association, harming the nest egg plan for 585,000 members.
Among a dozen amendments Monday, the most significant proposes the state pay $225 million annually into the pension, with annual increases. The amendment scraps the Senate proposal to have current employees pay more from their salaries.
The bill passed the Senate 19-16 on March 27 and appears destined for a conference committee to work out a compromise for both chambers to vote on before the General Assembly’s May 9 adjournment.
Senate sponsor Jack Tate, R-Centennial, signaled that he wasn’t satisfied with the bill just yet.
“I can appreciate why the House Democrats have watered down certain provisions of the bill in the interests of some of their key stakeholders, but it doesn’t change the cold hard reality that we at the General Assembly confront: which is a huge pension fund that could go bust if hard choices and shared sacrifices aren’t made now,” he said in a statement. “At the end of the day, I’m very confident that we’ll get to a good discussion that also takes the interests and viewpoints of taxpayers into account.”
The bill continues to lower retirees’ annual cost-of-living increases from 2 percent to 1.25 percent. It also maintains an adjustment mechanism – affecting contributions and benefits – to make sure the pension doesn’t get in deep fiscal hole again.
If the state does not balance the pension plan within 30 years – or show credit-rating bureaus it’s getting there – and interest rates rise, millions of dollars would be steered into paying higher interest rates on bonds and other loans, instead of supporting public programs and projects, or helping ward off higher taxes.
Rather than asking public employees to put an extra 3 percent from their paychecks to shore up their pension, as the Senate version of the bill proposed, the House committee on Monday amended the legislation to take that money directly from the state budget each year. That annual appropriation, presumably, would come out of future salary increases or other money from the state budget.
Rep. Kevin Van Winkle, R-Highlands Ranch, said it’s “looking at the economy through rose-colored glasses” to assume the economy and state budget could afford to put in that much money each year, even during a recession, “and the state will continue to grow on the backs of the taxpayers.”
Taking it out of paychecks comes with lots of administrative costs and risks that could instead go toward the pension, proponents told the House committee.
“Over the life of the 30 years, the state will save billions of dollars because of the direct appropriations,” said Denver Public Schools chief financial officer Mark Ferrandino, the former Colorado House speaker.
The bill includes a trigger to address future situations when the pension gets out of balance and lowers the retirement age from 65 to 60. The House committee also amended the calculation of retirement benefits from the average from the three years of highest salary to five.
The bill now allows employees to retire at 60 instead of 65.
Lowering the retirement age seemed counterintuitive to state Rep. Polly Lawrence, R-Roxborough Park.
“Five years is a significant amount of retirement benefits to be paying out,” she said. “I’m concerned this is not going to get us where we need to be in the long run.”
The House committee stripped out an option that would have allowed future employees to opt out of the pension and steer money into 401(k)-type retirement plans. Under the Senate plan, the state would have put supplemental money into the pension fund to offset the cost of an employee leaving for another plan.
“This change is not necessary to fixing the PERA system,” House Majority Leader KC Becker of Boulder told the committee when she proposed the amendment to take out the private retirement investments option.