COLORADANS ARE FREE TO ELECT “LOW TAX” POLITICIANS. COLORADO POLITICIANS ARE FREE TO CREATE A “TAX HAVEN.” HOWEVER, COLORADO VOTERS CANNOT EMPOWER POLITICIANS TO BREACH THE STATE’S CONTRACTS.

Outrageous.

The Colorado General Assembly has been the primary contributor to the creation of Colorado PERA’s unfunded pension liabilities in recent decades. For this body, the author of the PERA pension underfunding “problem,” to argue that the existence of this “problem” should somehow justify its breach of contractual public pension obligations is simply . . . outrageous.

Colorado is a relatively wealthy state. There are sixty-four counties in Colorado. Ten of these counties are among the 100 richest counties in the nation. According to the U.S. Department of Commerce, Colorado now has the 15th highest per capita income in the nation. I consider any attempt to breach contracts by a state that ranks 15th in the nation in per capita income to be outrageous.

As we have chronicled at saveperacola.com, the Colorado General Assembly has traditionally and intentionally slashed its available revenues . . . revenues that would otherwise have been available to the General Assembly to meet its contractual pension obligations. The General Assembly has ignored its PERA pension contractual obligations. It has directed one-half BILLION dollars to fund public pensions that are not its responsibility. It has repeatedly and inexplicably made $100 million discretionary grants from its purportedly “tight” revenues.

Further, over a 17-year period, the Colorado General Assembly has artificially reduced its available financial resources through its own faulty legal reasoning. The Colorado General Assembly’s own ineptitude (a 1992 OLLS legal opinion’s misinterpretation of the Arveschough-Bird fiscal limitations) artificially diminished revenues available to the State of Colorado for a 17-year period. How much damage has this legal blunder done to state coffers over this 17-year period? How much revenue did the state lose as a result of this faulty legal analysis? Tell me why a relatively small group of Coloradans, PERA pensioners, should have their contracts with the state discarded due to the General Assembly’s claims of insufficient revenues. Particularly, when the General Assembly’s actions have significantly reduced these available resources. Why should PERA pensioners bear the burden of the Colorado General Assembly’s past legal mistakes?

As we have seen, the Colorado General Assembly: has ignored $4.3 billion of its annual required contributions to the PERA pension in just the last decade, has ignored legal pension funding options adopted by other states, and has succeeded in transforming the State of Colorado into a “tax haven.” Over the decades, the General Assembly has given Coloradans one of the lowest tax burdens in the country, and in doing so, has intentionally cut available revenues that might have shored up the PERA pension plan. The General Assembly has voluntarily made grants from its General Funds for purposes of discretionary property tax relief, while simultaneously claiming that it faces fiscal strife. Who cannot see that this claim defies logic?

Many members of the Colorado General Assembly have supported the severe restriction of public resources available to the state. Many supported the adoption of the TABOR constitutional amendment in 1992, and continue to support TABOR’s extreme restriction of public financial resources. Indeed, the author of 1992 TABOR constitutional amendment has served as a member of the Colorado General Assembly.

In 1999 and 2000, the Colorado General Assembly, at the prompting of Governor Bill Owens, enacted tax cutting measures that significantly reduced the state’s future revenue stream. This constituted a nearly criminal disregard for the ability of the state to meet its contractual obligations over time. A Colorado General Assembly that has, by design, decimated its tax base, now beseeches the courts to license the abandonment of its contractual obligations.

The General Assembly has slashed the pension contributions of PERA-affiliated employers over the years. A quotation from the Colorado Statesman:

“PERA’s troubles date back to 1999-2000, when the pension plan peaked at 104.7 percent on its ratio of assets to obligations (liabilities). The Legislature was feeling flush, and passed bills reducing the employer contribution.”

Link:

http://www.coloradostatesman.com/content/991527-state-retirees-ready-pounce-pera-fix

The group “Friends of PERA” tells us on their website:

“Rate cuts to PERA (affiliated employers) between 2000 and 2005 equaled some $325 million.”

Ten years ago, the Governor of Colorado allowed his own political preferences to harm the fiscal soundness of the PERA trust funds. From the Silver and Gold Record archives:

“PERA reacted promptly to the market downturn in 2001. In 2002, it developed a proposal that would have saved PERA millions of dollars in payments and brought in millions of dollars in additional revenue. This plan was passed unanimously by the General Assembly in 2003 but was vetoed by Governor Bill Owens.”

How much damage to the PERA trust funds was caused by Governor Owens veto of this bill? PERA retirees will not relinquish their vested pension rights in order to compensate for past pension mismanagement by politicians.

In 2009, the Colorado General Assembly could not be bothered to appoint a commission to study pension funding options prior to breaching pension contracts. So it abdicated this policy-making responsibility to pension administrators and lobbyists. Colorado PERA is one of the public pension plans in the United States that actively lobby its sponsoring governments, spending $400,000 for that purpose each year. PERA pension administrators have used the trust funds of pension beneficiaries in a long-running and continuing program to influence members of the Legislature. This fact alone should give pause to elected officials.

One should also remember that the Colorado PERA Board determines the asset allocation for the PERA trust funds. The PERA Board determined the portion of PERA’s portfolio that was exposed to equities prior to the most recent equities market downturn. In lieu of increasing equity exposure in the PERA trust funds, the PERA Board had the option of requesting that the State of Colorado and other PERA-affiliated employers provide additional resources to invest in less volatile securities. Has this ever occurred to the PERA Board? Have they ever made this request?

Why should PERA pensioners, who bear no market risk, be forced to relinquish their property to compensate for asset allocation decisions made by the PERA Board? The PERA Board intentionally places a significant portion of PERA trust funds into volatile common stocks and then is surprised that common stocks are volatile. Then, the PERA Board argues that this volatility should permit their breach of contracts?

At the core of a defined benefit public pension plan is the assumption of market risk by the public pension plan sponsor. This fact draws workers to the public employer members of the pension plan as part of the employment exchange transaction. Will PERA’s administrators deny the very nature of public pension plans?

Further, administrators of public pension plans cannot reasonably claim ignorance of market volatility, even extreme market volatility. They have experienced extreme market volatility on a number of occasions in just the last decade. Public pension plan administrators are paid to manage this volatility, not to shift the consequences of their unsuccessful investment strategies onto others through the breach of contracts. To paraphrase the author of a recent law review article: “The unanticipated severity of an anticipated event does not justify unilateral modification of a contract.”

Instead of adopting legal, prospective pension reforms (as have been adopted by numerous states) the Colorado PERA Board insisted that PERA pensioner contracts be breached. This decision could ultimately delay true PERA pension reform in Colorado by 4-5 years. These are years during which the PERA trust funds might have been on the road to financial strength through legal reform.

Make no mistake: Colorado taxpayers will eventually be forced pay billions of dollars in additional costs resulting from the Colorado PERA Board of Trustees’ decision to delay true, legal pension reform and instead pursue fruitless litigation.

A commentator in another state that is addressing public pension liabilities put it well:

“ . . . a short-lived pension reform that is invalidated by court order after protracted litigation . . . would be a disservice to the taxpayers.”

Gino L. DiVito, Tabet DiVito & Rothstein LLC, Chicago, ILL

Colorado law allows the Governor to submit questions to the Colorado Supreme Court regarding the constitutionality of proposed legislation. This option was available to Governor Ritter and (through him) it was available to the General Assembly. The Denver Post editorial board encouraged the General Assembly to make this request prior to enacting SB 10-001. In addition to the Denver Post editorial board, Colorado PERA itself encouraged the General Assembly to send an interrogatory to the Colorado Supreme Court regarding the constitutionality of its proposed pension reforms. The General Assembly failed to do so. From the Colorado Statesman:

“PERA also is hoping the Legislature will ask the Colorado Supreme Court to review the matter through interrogatories before the end of the session.”

Link:

http://www.coloradostatesman.com/content/991527-state-retirees-ready-pounce-pera-fix

Question: If the Colorado PERA Board of Trustees possessed such confidence in its SB 10-001 pension reform proposal, why did the PERA Board of Trustees encourage the General Assembly to check the constitutionality of the proposal with the Colorado Supreme Court? Obviously, the Colorado PERA Board of Trustees lacked confidence in the constitutionality of the proposal (contained in SB 10-001.) If the PERA Board had complete confidence in the proposal . . . if the PERA Board had complete confidence in their 2009 outside legal opinion supporting the proposal . . . if the PERA Board had complete confidence in the legal advice they received from internal and external attorneys, then the PERA Board would not have desired that the Colorado Supreme Court check their work before they plunged headlong into litigation.

Question for the PERA Board and administrators: How did the leadership of the Colorado General Assembly explain their decision to forego a Colorado Supreme Court interrogatory on the constitutionality of SB 10-001’s provisions? Who communicated this decision to you? Senate President Brandon Shaffer? What was the rationale?

Colorado is a Wealthy State, and . . . Colorado is a “Tax Haven.”

Should one of the wealthiest states in the nation (and a state that also enjoys one of the lowest tax burdens among the states) be permitted to breach its contractual pension obligations in order to further reduce that tax burden?

The Colorado Fiscal Policy Institute publishes a “Colorado Tax Fact Sheet.” The source of much of the data in this fact sheet is the staff of the Colorado General Assembly. The fact sheet is available at this link:

http://www.cclponline.org/postfiles/Taxes_fact_sheet.doc

What does a “tax haven” look like? The Colorado Tax Fact Sheet shows us:

- Colorado’s state tax collections are the second lowest in the nation.
- Colorado’s combined state and local taxes are the seventh lowest in the nation.
- Total Colorado taxation per $1000 of income has decreased over the past ten years.
- Colorado’s corporate income tax rate is 4.63%, the same as the individual income tax rate.
- Colorado ranks 42nd of 46 states in corporate income tax collections.
- Twenty-nine states have a flat corporate income tax rate. The lowest is Utah. Colorado’s is the second lowest.
- In 2001, Colorado’s sales tax rate was lowered from 3.0% to the current rate of 2.9%.
- Colorado taxes the fewest number of services of any state.
- There are a total of 71 exemptions from state sales and use taxes in Colorado law. In 2009, Colorado’s exemptions accounted for $1.8 BILLION in lost revenue.
- Colorado ranks 44th of 45 states in sales and use tax collections.
- All other states include more services in their sales tax mix than does Colorado.
- Colorado ranks 32nd out of the 50 states in fuel tax collections.
- When the combined state severance tax and the local property tax is considered, Colorado ranks 4th of 5 western states (Wyoming, New Mexico, Oklahoma, and Utah).
- Colorado has no statewide property tax. It was repealed by the legislature in 1964. (My comment: In the decade following the repeal of the statewide property tax Colorado PERA’s actuarial funded ratio hit a low of 54.5 percent, yet there was no call to breach the state’s pension contracts.)

Colorado’s Public Expenditures Per Capita are 62 Percent Below the National Average.

The Colorado Fiscal Policy Institute also publishes a “Colorado Tax Primer.” A PDF of the Colorado Tax Primer published on January, 2011 is available at the following link:

http://www.cclponline.org/uploads/files/COLORADOTAXPRIMERBudgetWorks2011.pdf

Below I provide a few relevant excerpts from the Colorado Tax Primer:

“Adequacy Compared to Other States:”

“ . . . adequacy is measured by whether the system generates
sufficient revenue to fund legislatively-enacted priorities.”

“Certain states (such as Colorado with the implementation of the Taxpayer Bill of Rights) have ignored the fundamental principle that the need for public services should drive the collection of tax revenue. Instead, these states have flipped the principle on its head by capping tax revenue based on a formula that attempts to define the need for public services based on allowable revenue.”

(My comment: Recall that the constitutional TABOR amendment recognizes Colorado public pension obligations as “debt.”)

“There are multiple ways of measuring the adequacy of revenue as it translates into services. One such measure is state rankings. Colorado consistently ranks low on expenditures when compared to other states. Overall, in 2009 Colorado ranked 47th in spending per $1,000 of income. A recent analysis shows that in order for Colorado to reach the national average in total spending per $1000 in income, the state’s General Fund spending would need to grow by $4.9 billion or 62 percent.”

“The amount of taxes paid by Colorado taxpayers is low compared to other states. Colorado’s state taxes, per $1,000 of income, rank second from the bottom (49th) in the nation. Alaska has the highest and New Hampshire the lowest.”

“The income tax rate was subsequently reduced to 4.75 percent for calendar year 1999 and 4.63 percent beginning on Jan. 1, 2000. This is the current tax rate. Referendum C, adopted by the voters in 2005, allows the income tax rate to decline to 4.5 percent under specified circumstances after 2010.”

“Colorado ranks 42nd out of 46 states for corporate income taxes per $1,000 of income. The national average for all 46 states is $3.29. Colorado businesses pay $1.55 per $1,000 of income.”

“In addition, many more income tax exemptions and special deductions are not reported at the state-level since they are applied to the calculation of federal taxable income.”

“There were a total of 71 exemptions from state sales and use taxes in Colorado in 2008. In 2009, Colorado’s exemptions accounted for $1.8 billion in revenue.”

“Colorado’s sales tax ranks 44th of 45 states per $1,000 of personal income. Five states have no state sales tax. The average amount of sales tax paid by all states is $19.68 per $1,000 of income. Colorado taxpayers pay $10.86.”

“Colorado is one of only four states in which the state government generates less tax revenue than the local governments. Revenue collections by Colorado state government rank 47th per $1000 of income. However, revenue collections by state and local governments combined move Colorado to 44th per $1000 of personal income.”

Observations From the Colorado Legislative Staff Regarding Colorado’s Level of Taxation:

“Since 1935, Colorado has enacted 71 sales tax exemptions. For FY 2009-10, estimates show that the total revenue impact of these exemptions was over $1.86 billion.”

Source: Colorado Legislative Council Staff:

Link:

http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251606116378&ssbinary=true

“Colorado’s combined state and local taxes were the seventh lowest in the nation —$95.53 per $1,000 of income, which was 14.7 percent below the national average of $111.99 in FY 2007-08.”

“Colorado had the second lowest state tax collections ($40.89) per $1,000 of personal income in FY 2008-09 in the country. The state tax burden was nearly the same (the state ranked 47th ) ten years ago in FY 1997-98, although collections were higher at $54.68 per $1,000 of income.”

Link:

http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application/pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251653454036&ssbinary=true

Clearly, over the decades, the Colorado General Assembly has obliterated its tax base . . . it now seeks to obliterate its contractual pension obligations. Nevertheless, the Colorado General Assembly is the creator of the Colorado Public Employees’ Retirement Association. The Colorado General Assembly freely entered into contractual relationships with all PERA members. Having created these contracts, the General Assembly must now honor them.

“No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”

Please continue with your razor sharp, critical analyses of our situation, and excellent commentary!

John A. Dunaway, PhD

DID THE COLORADO GENERAL ASSEMBLY ACTUALLY REQUEST THAT COLORADO PERA MAKE RECOMMENDATIONS TO ADDRESS THE DECREASE IN PERA ASSETS IN 2009?

OR, DID PERA LOBBYISTS PUT THIS LANGAUGE INTO LAW TO PROVIDE COVER FOR A PREMEDITATED BREACH OF PENSION CONTRACTS? ENQUIRING MINDS.

Admittedly, my trust in Colorado PERA has worn thin.

Nevertheless, given: Colorado PERA’s track record in its attempt to escape its contractual obligations,

- its apparent indifference to all moral, and legal restraints,
- its disregard for an on-point Colorado Attorney General opinion,
- its disavowal of unmistakable, adverse legal authority,
- its cavalier abandonment of the rule of law,
- its creative interpretations of the term “fiduciary duty,”
- its habits of deception and demonstrated desire to mislead,
- its lack of good faith and fair dealing with PERA pensioners,
- its eagerness to “change the ground rules in the middle of the game,”
- its use of trust fund beneficiary assets to finance litigation to breach the contracts of those beneficiaries,
- its use of trust fund beneficiary assets to finance PERA propaganda, as well as political, and lobbying campaigns to breach PERA pensioner contracts,
- its unabashed manipulation of elected officials to achieve desired policy outcomes,
- its summary rejection of legal, prospective, “less drastic” alternatives to the breach of pensioner contracts (that have been adopted across the nation),
- its hypocrisy in placing a 100 percent funding threshold into pension reform legislation in light of its own past policies of underfunding the pension,
- its complicity in creation of the “problem” it now uses to justify pension contract breach,
- its ridiculous boasts of “transparency,”
- its willingness to use a position of power and trust to take earned benefits from elderly, powerless pensioners,
- its historical failure to emphatically and regularly implore the General Assembly and other PERA-affiliated employers to meet their annual required contributions,
- its disingenuous characterization of market volatility as a rationale for pension contract breach,
- its employment of the complex and confusing nature of public pension administration as a means to mislead,
- its construal of what is in essence a “crime” as something laudable . . . a “model” for other states,
- its desire to inflate away legitimate government debts through seizure of contracted COLA benefits,
- its attempt to shift the public debt onto the backs of a relatively small group of pensioners,
- its pride in having successfully breached pensioner contracts,
- its use of tactics to breach contracts that shock the conscience,
- its casual preference to welch on the public debt, and most reprehensible of all,
- its betrayal of the trust of PERA pensioners who held up their end of the bargain,

. . . given the countless misdeeds of Colorado PERA that we have documented here, I do not believe that raising legitimate questions regarding the motives of Colorado PERA’s board members and administrators is unwarranted.

2010 PERA Board: We had to breach contracts due to the market downturn.

Yet Meredith Williams, Colorado PERA’s former Executive Director assured PERA retirees in the past that market volatility has no impact on their contracted pension benefits:

“The value of your PERA benefit is based on highest average salary and years of service (a “defined” formula) and does not fluctuate based on market performance.”

Link:

http://www.copera.org/pera/about/askm.htm

And yet again in 2010, State Treasurer and PERA Board member (at the time) Cary Kennedy tells us that SB 10-001 was enacted as a result of market volatility:

“Responding to this unprecedented drop, some states, including Colorado, took steps to shore up the solvency of their pension funds.”

Link:

http://blog.ednewscolorado.org/category/pension-morass

The Colorado PERA Board claims credit for SB 10-001 as well as for the “100 percent” actuarial funded ratio threshold in SB 10-001:
Colorado PERA, “The Colorado PERA Board’s recommendation largely became SB 10-001.”

Link:

http://www.copera.org/pdf/5/5-21-10.pdf

From the PERA website:

“The work of the Colorado PERA Board culminated in the crafting of Senate Bill 10-001 (SB 10-001.) The Colorado PERA Board supported the recommended bipartisan changes to the bill by Senate President Brandon Shaffer and Senator Josh Penry since the changes still accomplished the Colorado PERA Board’s goal of reaching 100 percent funding levels for each of Colorado PERA’s divisions in 30 years.”

Link:

http://www.copera.org/pdf/5/5-21-09.pdf

Again, will the members of the PERA Board please explain how the decision to place a 100 percent actuarial funded ratio in SB 10-001 was reached in light of the PERA Board’s historical policy of capping the actuarial funded ratio of the PERA Trust Funds at a 90 percent level? Did no board member take note of the hypocritical nature of this recommendation? It has historically been Board policy to maintain a degree of PERA pension underfunding (10 percent), and yet it is now Board policy to breach retiree contracts to the point that a 100 percent actuarial funded ratio is achieved. As we have seen, the 1999 George K. Baum study performed under the auspices of Colorado PERA (it’s on PERA letterhead) for State Treasurer Mike Coffman asks:

“Why does PERA appear to have a policy to keep a 10% unfunded liability?”

Colorado PERA’s propaganda has emphasized that the Colorado Legislature requested that the PERA Board of Directors make recommendations to shore up the PERA trust funds. I ask if this Colorado PERA assertion is an attempt to mislead.

Colorado PERA went so far as to emphasize the General Assembly’s “legislative mandate” in a Response Brief submitted to the Denver District Court:

“By LEGISLATIVE MANDATE the PERA Board extensively studied the underfunding and consulted with its members . . . before proposing a solution to the General Assembly.”

Link:

http://www.ednewscolorado.org/wp-content/uploads/2010/05/PERASuitResponse5-10-10.pdf

I ask: Did Colorado PERA plant this request language into SB 09-282 at the end of the 2009 legislative session in order to lend a patina of legitimacy to what was in fact a premeditated attempt to breach pension COLA contractual obligations?

Recall Senator Lundberg’s statement on the Senate floor during the SB 10-001 debate: “This bill is a deal that was cut before this body met.”

Was Colorado PERA’s ostensible, impartial examination of pension reform options in 2009 in reality an elaborate ruse constructed by PERA lobbyists to add legitimacy to a process with a predetermined conclusion? To falsely portray a preordained conclusion to breach pension COLA contracts as the result of an extensive, deliberative process?

We should know the answers to these questions. (If Colorado PERA is such a “transparent” organization as it boasts, why do we not know the answer to these questions?)

I wonder, did the request for a PERA study actually come from the Colorado General Assembly? Was this request the product of SB 10-001 co-prime sponsor Senator Josh Penry’s mind? Did he conceive this idea to request PERA recommendations? Or, was this idea planted in the Penry brain by PERA’s lobbyists?

After all, if you intend make extreme recommendations . . . that the State of Colorado, and PERA-affiliated employers breach their contractual pension obligations, would it not be useful to later claim that the state Legislature requested that bold recommendations be made? That such recommendations should be sufficiently extreme to restore the PERA trust funds to a 100 percent actuarial funded ratio? (In spite of the fact that the PERA Trust Funds had visited this lofty 100 percent perch only twice in its 81-year history? And, that the PERA Board had historically sought to cap the PERA Trust Fund AFR at a 90 percent level?)

Would that not provide useful cover? “They told us to make the recommendation!”

Where was the scheme to breach PERA contracts actually born? Will we ever know?

Does the genesis of SB 10-001’s COLA theft provisions lie in the minds of a pension administrator? Or, in the hopeful heart of a self-interested lobbyist?

Did the PERA Board of Trustees conceive the idea to take contracted COLA benefits? If so, which PERA board member gets the credit? Or, was the idea to breach pension COLA contractual obligations brought to the PERA Board by an outside organization? A public sector union lobbyist perhaps?

Well, it should be possible to discover the answer.

In 2009, the Colorado General Assembly enacted legislation (SB 09-282) to merge Denver Public Schools with Colorado PERA (specifically, to merge the assets and liabilities of Denver Public Schools into Colorado PERA.)

A provision of SB 09-282 required that the PERA Board of Trustees submit recommendations to the Colorado General Assembly regarding methods of responding to the decrease in the value of the association’s assets on or before November 1, 2009. Here’s the language in the bill:

24-51-211, C.R.S. (2) ON OR BEFORE NOVEMBER 1, 2009, THE BOARD SHALL SUBMIT SPECIFIC, COMPREHENSIVE RECOMMENDATIONS TO THE GENERAL ASSEMBLY REGARDING POSSIBLE METHODS TO RESPOND TO THE DECREASE IN THE VALUE OF THE ASSOCIATION’S ASSETS, INCLUDING REAL ESTATE, PRIVATE EQUITY, AND OTHER INVESTMENTS, TO DECREASE THE AMORTIZATION PERIOD OF EACH DIVISION OF THE ASSOCIATION AND TO ENSURE THAT EACH DIVISION OF THE ASSOCIATION WILL BECOME AND REMAIN FULLY FUNDED.

Note that this language asks for “possible methods” to respond to the decrease in the value of PERA’s assets. The General Assembly did not ask that the PERA Board dictate a plan that would breach PERA’s contractual pension obligations. Implicit in the request from the General Assembly was the fact that the requested “possible methods” would be constitutional.

On April 21, 2009, Senator Penry, the co-prime sponsor of SB 10-001 amended SB 09-282 on the floor of the Senate.

His prepared amendment to the bill required the PERA Board to make recommendations to the Legislature regarding “possible methods” to respond to the decrease in the value of PERA’s assets. His amendment required that this report be provided to the Legislature by September 1, 2009. Two days later, Senator Sandoval amended the bill (SB 09-282) to move the deadline for submission of the report from September 1, 2009 to November 1, 2009. (The PERA Board wanted more time? It looks like the PERA Board may claim some ownership in the statutory language requiring the “study.”)

Questions for Senator Penry: Did you originate the idea to require the PERA Board to make recommendations to the General Assembly regarding possible methods to respond to the decrease in PERA assets of your own accord? Or, did you offer this amendment on behalf of a PERA lobbyist? Another lobbyist? Another legislative member?

The drafter of SB 09-282 was a lawyer from the General Assembly’s Office of Legislative Legal Services. Her name is Nicole Myers.

Questions for Ms. Myers: Who asked you to draft the amendment requesting that the General Assembly make recommendations regarding methods to respond to the decrease in PERA assets? A lobbyist? A PERA lobbyist? Did a PERA lobbyist make this request on behalf of Senator Penry? Did a PERA lobbyist provide a draft of their desired language in this regard? Please check your records.

It would be interesting if, after years of emphasizing that the Colorado General Assembly requested that the PERA Board of Trustees make recommendations to address the decrease in PERA assets, it turned out that it was in fact PERA’s lobbyists who actually put this language into SB 09-282. It would be interesting to learn if this language was placed in SB 09-282 in order to provide cover for a premeditated attempt to breach PERA retiree contracts.

Questions for Senator Sandoval: Did you decide to move the deadline for the PERA Board to report out by two months of your own accord? Or, was this a request from Colorado PERA lobbyists?

It would be worth listening to the recordings of hearings on SB 09-282 by the House and Senate Finance committees. (For that matter, it would be worth listening to all of the committee discussion from 2009 on PERA bills adopted or postponed indefinitely that year.)

Here are a few excerpts from a summary of the Senate Finance Committee hearing on SB 09-282 on April 14, 2009:

“03:28 PM

Mr. Williams responded to questions about the contribution rates for the retirement plans. He stated that the PERA Board is committed to presenting a proposal to the General Assembly that addresses retirement benefit issues for Colorado PERA.”

“05:20 PM

Ms. Kennedy continued discussing the timing of when to bring the DPS system into PERA’s plan. She also responded to questions about the management of the current pension systems and retirement benefits. Discussion ensued about solvency issues.”

This fact jumps out:

On April 14 at 3:28 PM, Meredith Williams (Colorado PERA’s Executive Director at the time) testified to the Senate Finance Committee that “the PERA Board is committed to presenting a proposal to the General Assembly that addresses retirement benefit issues for Colorado PERA.”

Meredith Williams made this statement one week BEFORE the requirement to report to the General Assembly was even in the bill.

That requirement was placed in the bill on the Senate floor one week after Meredith William’s testimony (on April 21, 2009.)
I suppose that listening to the tape of this bill hearing before the Senate Finance Committee on April 14, 2009 might provide some insights.

Alternatively, we could put the question to Senator Penry, or bill drafter Nicole Myers, or Senator Sandoval.

Premeditated?

According to the periodical Pensions and Investments, four finalists have been named to replace Meredith Williams as Executive Director of Colorado PERA:

“The finalists are:

• Gregory Smith, interim executive director of Colorado PERA and the pension fund’s chief operating officer and general counsel;

• Michael Nehf, executive director of the $62.6 billion Ohio State Teachers’ Retirement System, Columbus;

• Maureen Westgard, director of the $13.7 billion Louisiana Teachers’ Retirement System, Baton Rouge; and

• Thomas Williams, executive director of the $6.5 billion Wyoming Retirement System, Cheyenne.”

Full article at P&I:

http://www.pionline.com/article/20121113/DAILYREG/121119977/colorado-pera-names-finalists-for-executive-director-post

Wyoming has “ad hoc” pension COLAs. Louisiana has automatic COLAs. Ohio has automatic non-compounded COLAs. There have been some rumblings about an attempt at COLA-theft in Ohio.

Here’s an article regarding an investigation of the Louisiana State Auditor into the vested nature of public pension rights:

http://thehayride.com/2012/03/uh-oh-could-jindals-pension-reform-package-be-unconstitutional/

From the Louisiana Legislative Auditor’s legal examination of vested public pension rights:

“As currently drafted, each bill, except the one merging two pension systems, retroactively impairs or diminishes accrued pension benefits contrary to the guarantees in Article X, § 29. Courts must determine whether the proposed changes affect plan members and retirees retroactively or only impact future benefits. Case law from other jurisdictions demonstrates that changes to members’ retirement age, contribution rate, and final average compensation formula retroactively affect members who have accrued and vested benefits based on their past service. Consequently, a reasonable likelihood exists that these bills as currently drafted will not survive constitutional scrutiny.”

The Legislative Auditor’s report:

http://businessreport.com/editorial-pdfs/LegalAnalysisPensionBills.pdf

A municipal reduction of COLA benefits in Cincinnati has resulted in litigation:

“Suits filed in both state and federal courts challenging massive reduction in pension and COLA benefits in Cincinnati.”

http://robertdklausner.com/wp-content/uploads/2010/12/Public-Safety-Officers-Benefit-Conference-00041312.pdf

The Winter 2012 issue of the American Bar Association Journal of Labor and Employment Law includes an article titled: “Public Pension Benefits Under Siege: Does State Law Facilitate or Block Recent Efforts to Cut the Pension Benefits of Public Servants?” The article’s author is Eric Madiar J.D., Chicago-Kent College of Law, currently Chief Legal Counsel to Illinois Senate President John J. Cullerton.

(Note: This ABA Journal article was written prior to the recent Colorado Court of Appeals ruling that Colorado PERA pension COLA benefits are indeed contractual obligations of Colorado PERA and Colorado PERA-affiliated employers.)

Below I provide excerpts from the article of relevance to the 2010 breach of PERA pension contracts by the Colorado General Assembly, (and of course, some of my own observations relating to the excerpted material.)

IN SB 10-001, THE COLORADO GENERAL ASSEMBLY ATTEMPTED TO USE MARKET VOLATILITY TO JUSTIFY THE BREACH OF PENSION CONTRACTS.

From “Public Pension Benefits Under Siege”:

“Rahm Emanuel’s statement after the 2008 election aptly described the current climate: ‘You never want a serious crisis to go to waste . . . [because it] provides the opportunity . . . to do things that you could not do before.’ Thus, for proponents of pension reform the window of opportunity is open.”

(My comment: It is uncanny how closely these remarks from Rahm Emanuel in 2008 track the comments of Josh Penry in 2009 [they both like the word “window.”]

The Penry “Can’t Miss This Window” comments:

“Senator Josh Penry, in a videotaped discussion with Representative Mike May, [videocenter. denverpost.com] said ‘we can’t, can’t miss this window.’ And, . . . we have an opportunity to pass something that Republicans have long advocated, a significant increase in retirement age, which the PERA Board embraced, reigning in the cost of living increases . . .”

“Penry went on to say, ‘I think it is important to pass something because if you lose actuarial necessity, as you know, it becomes extremely difficult to increase retirement age. You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”)

Link to Penry comments:

http://www.leg.state.co.us/Clics/clics2010a/commsumm.nsf/b4a3962433b52fa787256e5f00670a71/84960fa73d53e222872576c600712e80/$FILE/10HseFin0210AttachG.pdf

SB 10-001 WAS SIMPLY ABOUT TAKING MONEY, THE LAW WAS IGNORED.

From “Public Pension Benefits Under Siege”:

“Second, a legal calculus does not motivate changes portrayed as ‘pension reform.’ Rather, as Eden Martin of Chicago’s Commercial Club candidly explained ‘[this is] not about the law at all, it’s about the politics and arm-wrestling over money.’”

“These two points are significant because they frame our larger discussion of whether the law provides states with a means to achieve a particular political objective: the unilateral reduction of public pension benefits to avoid painful tax increases, service cuts, or both. In Illinois, the answer is unequivocally ‘no’”.

“ . . . the article concludes with a prediction that courts in Colorado . . . are likely to invalidate pension reform efforts . . .”

“Most states follow the contractual approach based on court decisions or specific constitutional or statutory provisions.”

“One issue common to all reform efforts is whether those reforms violate the Contract Clause of the U.S. Constitution or its state equivalent. This issue is paramount because pension benefits are essential components of compensation and largely determine whether public servants and their dependents may live with a modicum of economic independence upon retirement.”

“On its face, the (Contract) Clause provides in absolute terms that ‘No State shall . . . pass any . . . Law impairing the Obligation of Contract.’”

U.S. SUPREME COURT: STATE ATTEMPTS TO BREACH THEIR OWN CONTRACTS, IN THEIR OWN SELF-INTEREST, RECEIVE VERY LITTLE DEFERENCE.

From “Public Pension Benefits Under Siege”:

“In 1977, however, the (U.S.) Supreme Court clarified that state attempts to impair their own contracts, ESPECIALLY FINANCIAL OBLIGATIONS, were subject to greater scrutiny and very little deference because the STATE’S SELF-INTEREST IS AT STAKE. As the court bluntly stated:

A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.”

(My comment: Precisely.)

A STATE’S IMPAIRMENT OF ITS OWN CONTRACTUAL OBLIGATIONS IS UNREASONABLE.

From “Public Pension Benefits Under Siege”:

“An impairment is unreasonable if it targets a known problem that existed at the time of contract formation UNLESS THAT PROBLEM HAS CHANGED IN KIND, not merely in degree. Impairment is permitted only if there are no less drastic alternatives available for safeguarding the important public purpose.”

(My comment: Colorado PERA has always been well aware of the “problem” of dips in securities markets. Colorado PERA employs investment professionals who have made a life-long study of market volatility. Having testified before legislative committees for years regarding potential pension reform measures to address the bursting of the “dot-com” bubble in 2001 it is not reasonably possible for Colorado PERA officials to claim ignorance of the “problem” of market volatility. The problem grew a bit larger in 2009, but it did not change “in kind.”

Less drastic alternatives? Here at saveperacola.com dozens of “less drastic” alternatives to the breach of public pension contracts are on the record.

Finally, it should be noted that PERA pension contracts are formed every day of the year under any vesting scenario that PERA might espouse . . . each day many PERA members reach five-year vested status and many PERA members retire.)

THE COLORADO GENERAL ASSEMBLY HAS FAILED TO PROPERLY FUND THE PERA PENSION.

From “Public Pension Benefits Under Siege”:

“(The Colorado case also raises) . . . the question whether cutting benefits is a reasonable and necessary means to protect the pension system when, for decades, the state failed properly to fund the system.”

(My comment: It is satisfying to have the Colorado General Assembly’s habitual failure to meet its obligations to the PERA pension published in a law journal of the American Bar Association. The entire American legal community should be made aware of the negligence of the Colorado General Assembly.
As we have seen, the Colorado General Assembly has skipped $4.3 billion in annual required contributions to the PERA pension fund [as identified by PERA’s actuaries] in just the last decade.

News accounts from the 1990s reveal that the General Assembly also traditionally underfunded the pension during that decade. As we have seen, it has been PERA Board policy in the past to underfund the pension [90 percent ceiling on AFR.] Moreover, [and incredibly] members of the Colorado Legislature have, in the past, criticized the PERA pension as “overfunded” when its actuarial funded ratio was at 87 percent.

To wit, in 1985 Colorado PERA’s Field Education Services Division Director Dennis Gatlin stated that: “PERA’s funding ratio was at 87 percent, and legislators claimed that the association was ‘too well-funded.’ In 1970, the ratio was 54 percent, he added. According to Gatlin, PERA has been overfunded, when its assets equaled more than its liabilities, only twice in its 73-year [My comment: now 81-year] history, in 1999 and 2000.”

Here’s a link to Dennis Gatlin’s comments in the Silver and Gold Record:

https://www.cu.edu/sg/messages/3851.html

“The Colorado Supreme Court in the McPhail case . . . observed that ‘a cardinal principle of justice and fair dealings between government and man, [is that] the parties shall know prior to entering into a business relationship the conditions which shall govern that relationship.’”

When all of this is taken into consideration, how is it possible that the Colorado General Assembly might consider its breach of pension contracts in SB 10-001 to be in any way “reasonable”?)

CHANGING THE GROUND RULES IN THE MIDDLE OF THE GAME IS NOT CONSONANT WITH AMERICAN TRADITIONS OF FAIRNESS AND JUSTICE.

From “Public Pension Benefits Under Siege”:

“The (Colorado) retirees sued under the Contract Clause of the U.S. and Colorado Constitutions to retain the higher COLA rate that was in place when they retired or became eligible to retire. Colorado case law appeared to support their position.”

“ . . . a 2002 Colorado Supreme Court decision may have indirectly modified it (McPhail.) In Estate of DeWitt, the court held that the Contract Clause of the U.S. and Colorado Constitutions only protects a contract affording a plaintiff ‘a vested right.’”

(My comment: As we know, the Colorado Court of Appeals recently found that Colorado PERA retirees do have a vested right to their PERA pension COLA benefits. Colorado Court of Appeals: “We consider McPhail and Bills dispositive [indisputably bringing to a conclusion a legal controversy] of whether plaintiffs here have a contractual right to a particular COLA.”)

“The deferred compensation analogy (construal of public pension benefits as ‘deferred compensation’) exists as a means to achieve a specific objective. That objective was best explained long ago: ‘Whether it be in the field of sports or in the halls of the legislature it is not consonant with American traditions of fairness and justice to change the ground rules in the middle of the game, [Hickey v. Pittsburgh Pension Board, 1954; accord Colorado Supreme Court, Police Pension and Relief Board v. Bills, 1961.])”

THE COLORADO GENERAL ASSEMBLY USED THE PERA PENSION AS A “CREDIT CARD” TO AVOID TAX INCREASES. THE MOST RECENT MARKET DOWNTURN WAS “A POLITICAL OPPORTUNITY.”

From “Public Pension Benefits Under Siege”:

“ . . . public employees have diligently and faithfully paid their contributions while their government employers have failed to pay their required share. Indeed, for decades, states have treated pension systems as a credit card to pay for government services and avoid tax increases or service cuts.”

“Public pensions are under siege because the current fiscal climate in most states presents a political opportunity for change. For lawmakers, it is simply politically more palatable unilaterally to cut pension benefits for public employees and retirees than to raise taxes, cut services, or both.”

(My [extended] commentary: The Colorado General Assembly cannot legitimately blame the constitutional TABOR amendment for limiting their revenue and pension funding options. Nothing prevented the General Assembly from referring a constitutional amendment to the people to address PERA pension funding. Why did the General Assembly not take this step before embracing the breach of its contractual pension obligations? This would have demonstrated “good faith.” Nothing prevented the General Assembly from enacting legislation that would properly place the costs of any pension reform measure on PERA-affiliated employers [who are after all contractually obligated to fund pension benefits.] Instead, as the prime sponsor of SB 10-001 has told us, the bill asked these PERA-affiliated employers to pay a mere 10 percent of the costs of the 2010 pension reform. Nothing prevented the General Assembly from exploring options for increased revenues that could be directed toward pension obligations, from sources beyond TABOR’s restrictions. Why did the General Assembly fail to appoint a study committee to explore potential sources of revenue by which it could meet its contractual pension obligations? Instead, the General Assembly abdicated this role to the lobbyists. One should note that a preponderance of PERA-affiliated employers have already exempted themselves from TABOR restrictions through “de-Brucing.” Most PERA-affiliated employers cannot claim that TABOR presented an obstacle to their ability to raise funds. In fact, just a few weeks ago dozens of Colorado governmental entities succeeded in raising new revenues through ballot measures. Nothing has prevented the General Assembly from historically choosing to place expenditures to meet its contractual obligations above its discretionary expenditures. Nothing prevented the General Assembly from retaining all of its revenues, and directing more of these revenues to meet contractual obligations, instead of making annual $100 million discretionary grants for property tax relief. Further, the General Assembly has been under no legal obligation to historically direct $500 million of its revenues to local government public pensions while ignoring its own PERA pension obligations. Nothing prevented the General Assembly from exploring the issuance of pension certificates of participation and taking advantage of historically low interest rates. The General Assembly was under no obligation to enact legislation under Governor Bill Owens slashing its revenue stream. Nothing prevented the General Assembly from asking its own lawyers to provide a legal opinion regarding the constitutionality of their pension reform proposal [or did they?] Nothing prevented Governor Ritter and the General Assembly from sending an interrogatory to the Colorado Supreme Court regarding the constitutionality of their proposed pension reforms. The Denver Post editorial board encouraged the General Assembly to take this step. Why did the General Assembly ignore this advice? Did the General Assembly simply not want to hear the answer? Or, perhaps it was the lobbyists who did not want to hear the answer?)

COLORADO CASE LAW TAKES A CONTRACTUAL APPROACH TO PUBLIC PENSIONS, THUS, SB 10-001 WILL LIKELY BE FOUND UNCONSTITUTIONAL.

From “Public Pension Benefits Under Siege”:

“The adoption of the contractual approach by Colorado . . . however, make(s) it more likely that pension reform efforts (the COLA provisions of SB 10-001) will be found unconstitutional.”

A PDF of the Madiar paper is available on the website of the National Conference of State Legislatures at the following link:

http://www.ncsl.org/home/search-results.aspx?zoom_query=madiar%20public%20pensions