Debate turned around House Bill 1142, sponsored by Rep. Brian DelGrosso (R-Loveland), which would grant the 500,000 or so employees covered by PERA the right to opt out of the “defined benefit” plan and choose instead to enter the “defined contribution” plan. The defined benefit plan commits the state to providing set retirement coverage and assets. The defined contribution plan, on the other hand, gives over responsibility to individual employees to manage their own retirement cash and “live or die by the success of [those] investments,” as Stapleton has put it.

Rep. Daniel Kagan (D-Englewood) lead the opposition to the bill and went back and forth with Stapleton during the hearing.

“Would you like to see us offer a choice even if we knew that it would increase the unfunded liabilities of PERA?” asked Kagan.

“Sure,” Stapleton said, adding that having to reduce PERA’s solvency is “not a happy consequence” of the proposed policy change but worth it if it meant more members of the retirement plan would win the choice to “determine their own retirement futures.”

Kagan suggested Stapleton was putting economic ideology over the obligation of his office.

“I am shocked that you as the treasurer of the state of Colorado would say, as you just said, that to you the concept of giving the consumer choice is more important than making sure that PERA is fully funded.”

The Finance Committee passed the bill on a party-line vote.

A release from the Colorado House Democrats on the exchange pointed out that state law specifies that the treasurer must “secure the maximum rate of interest consistent with safety and liquidity” for the PERA fund and makes no mention of offering employee choice.

The recession and dipping state revenues has made sustaining public-employee pension plans a pressing concern coast to coast.

The number of U.S. state governments carrying fully funded public-employee pension plans in 2008 had dipped to only four, as former Democratic Colorado Treasurer Cary Kennedy noted on her way out of office last year. Colorado wasn’t one of those lucky states.

PERA provides retirement and other benefits to the employees of more than 400 state agencies. It was established by state law in 1931.

PERA-type plans were intended to be the primary source of income for retired public employees and so the plans stressed predictable and adequate benefit delivery.

Proposals to convert state-based PERA-type plans as well as federal social security to 401(k)-type private investment plans have increasingly entered mainstream discussion. Detractors see looming disaster in such proposals and see them as a step back into the past, where lack of investment or bad investment or see-sawing markets effectively wipe out retirement funds on a vast scale and result in a ballooning class of impoverished American seniors.

[ Image: Colorado Treasurer Walker Stapleton ]

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Progressive politics coalition Campaign for a Strong Colorado says state Treasurer Walker Stapleton should follow the advice he provided to the U.S. House Ways and Means committee this week when he argued in favor of the Public Employee Pension Transparency Act. “Greater transparency and better information is important for the fiscal health of our states and for our taxpayers,” he said. Strong Colorado agreed and urged Stapleton to bring his point home to the taxpayers he serves by opening up his full current employment records so the Colorado public can see how he’s earning his money and spending his time.

“Stapleton should follow his own testimony that ‘greater transparency and better information is important’ –- not just for pensions and public employees, but for public officials too,” said Strong Colorado Executive Director Ellen Dumm.

The deal in the news

Stapleton came under fire almost the same week he took office in January when a Politics Daily report based on public Securities and Exchange Commission documents (pdf) detailed how Stapleton had signed a lucrative consulting contract with SonomaWest Holdings, the Northern California real-estate firm he headed for years as CEO. Stapleton arranged to consult with Sonoma for $250 an hour for up to $150,000 per year while acting as Colorado’s treasurer.

The arrangement drew the attention of government watchdogs, who took comfort from the fact that the records filed publicly with the SEC would continue to provide some level of transparency into the deal. Coloardo Ethics Watch called it a “back-door form of transparency” and said full or front-door transparency was warranted because the deal as revealed “could potentially take up a huge portion of the state Treasurer’s time.” Toro said there was also no real way to verify Stapleton’s claim that there was “no potential for conflict of interest between the state and SonomaWest.”

As the Colorado Independent reported in March, the question of transparency gained new urgency when Stapleton’s family business, Denver-based Stapleton Acquisitions Company, announced it intended to buy out SonomaWest shareholders and take the company private, putting an end to SEC filings.

The roughly $6 million deal, financed with loans taken from Wachovia/Wells Fargo, is now close to complete. It will mean no more public records from which to monitor Stapleton’s moonlighting as a consultant. In effect, the back door has been closed to the public and it is up to Stapleton to open the front door. Four months after the moonlighting story broke, however, Stapleton has yet to report to the public how much and what kind of work he has done for SonomaWest.

The story in Washington

Stapleton, who as part of his treasurer’s duties serves on the board of the Colorado Public Employee Retirement Association (PERA), has been critical of the group’s investment strategies, arguing in op-eds and now on Capitol Hill that a lack of transparency around public employee investing has left not only the employees but also government leaders and the public out of the loop, giving insiders free rein to take up risky approaches.

“The Public Employee Pension Transparency Act makes a lot of sense,” he said before the Ways and Means Committee. To Coloradans with an eye on national politics, however, the fact that Stapleton, a Bush family scion, is staking ground on the especially charged partisan topic of public-sector workers and that he traveled to Washington in support of the Republican-backed bill authored by GOP budget leader Paul Ryan, suggests there may be more at work in all of this than just good sense.

Some suspect Stapleton is adding his voice and the resources of his office to the national movement to undercut public workers, a movement on display most prominently these days in Wisconsin. Indeed, Stapleton’s congressional testimony is sure to fuel those suspicions.

His shorthand references to the unreliability of public employee investments, impenetrable decision-making bureaucracies, coming government expenses and the potential need for “federal bailouts” do sound like the kind of talking points designed to give wind to anti-government privatization efforts and composed in the think tank offices of the conservative American Legislative Exchange Council.

“While it is not mandatory for states to adopt, [the act] categorically states that the federal government will not bail out a state’s public pension system,” Stapleton told the committee.

This act increases transparency standards for public pension systems. Unfortunately, the Government Accounting Standards Board (GASB) refuses to require this minimum level of transparency from public pension plans in its accounting standards. The GASB currently does not and will not in the future require plans to disclose a sensitivity analysis of discount rates so that plan members, local government leaders, and the public can assess for themselves what the underlying liabilities in these plans may be.

Greater transparency and better information is important for the fiscal health of our states – and for our taxpayers – to use when it comes to evaluating the significant liabilities associated with public pension systems in this country.

The devil in the details

Colorado Coalition for Retirement Security spokesperson Lynea Hansen told the Colorado Independent that Stapleton has been using unreliable numbers in his writing and public talks to rail against PERA. She stands by the numbers compiled by PERA and the lawmakers and staff who have worked over the last years to stabilize the state’s public employee pension plan.

“Last year, to stabilize PERA, Senate Bill 1 was developed in a bi-partisan manner,” she wrote in a memo she shared with the Independent. “And Senate Bill 1 is working. All of the divisions of PERA are projected to be fully funded within 30 years which was the bi-partisan goal.” Yet Stapleton, she said, continues to argue against the facts.

[He] argues that PERA’s assumed rate of return is too high at 8 percent…. Even taking into consideration the market crashes of 2001, 2002 and 2008 PERA’s average rate of return for the past 25 years is 9 percent. The rate of return for PERA in 2010 looks like it will be well above the assumed rate of 8 percent.

Nationally, the facts back up PERA’s assumed rate of return. For the 80-year period from 1930 to 2010, a portfolio of 60 percent stocks and 40 percent bonds earned 8.0 percent, and for the last 25 years the median annualized public pension fund investment return was 8.8 percent. Add that to the fact that the average expected investment return of corporate pension plans is 8.0 percent and it makes PERA’s assumed rate of 8 percent look well thought out and appropriate.

Hansen says she is scheduled to debate Stapleton on Denver talk radio KVOR 740 and KHOW 630 in the coming weeks and is looking forward to additional opportunities to compare her numbers with his.

——–
Note: The original version of this story reported that Stapleton contracted with SonomaWest to work 250 hours for up to $150,000. That was an editing error. He has arranged to work for $250 an hour for up to $150,000 per year (or about 11 hours a week).

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The long bill budget plan was introduced Tuesday after the Joint Budget Committee (JBC), under the pressure of a looming Senate budget plan, came to a compromise. Democrats said while they gave up considerable concessions, they gained close to $100 million for schools and removed of an amendment that would have required teachers and local government employees to contribute more to their retirement plans.

After a week of deadlocked negotiations, concessions were made on both sides of the aisle Tuesday, as Democratic members of the JBC told the press after the meeting that securing a reduction in cuts to education was their main priority. They said finding a way to reduce cuts from $332 million to $250 million was their largest success, but other concession will help medicaid patients and public employees.

One of those ancillary concessions was an amendment that many teacher and government employee advocacy groups feared would strike another blow at government workers and teachers.

Sen. Mary Hodge, D-Brighton, said that the negotiations will see an amendment by Rep. Brian DelGrosso, R-Loveland, that would give Colorado school districts and local governments the ability to increase employee contributions to PERA by 2.5 percent dropped.

“It was a big enough cut to our state employees that it would have hurt,” Hodge said.

For their part, Republican members of the JBC said that they got real concessions that would help the Colorado economy and bring back some jobs. All three Republicans pointed to the return of a vendor fee, which allows vendors to keep a portion of the taxes they collect to administer the collection of sales taxes. Sen. Kent Lambert, R-Colorado Springs, said it would help employers who have been suffering in wake of the recession.

While Tuesday represented a breakthrough in negotiations for Republicans and Democrats, the reality was time seemed to be running out for them to reach a consensus as both the legislative clock and Senate patience was dwindling. The Senate had said that if the talks, which were influenced far more by legislative members outside the JBC this year, broke down, a bipartisan Senate-sponsored budget would start a public debate about the future spending of the state. The move would have created a political circus far larger than most members wanted and is perhaps one of the reasons the bill never dropped.

Both Lambert and Rep. Jon Becker, R-Fort Morgan, told the Colorado Independent that that while the Senate proposal was part of the discussions they didn’t feel it had considerable affect on the negotiations.

“As far as it being a big pressure on us moving forward, I think that it was a conversation inside of the negotiation as we moved forward. I think it was respectful and I think we got to the point where everyone wanted to be on the JBC,” Becker said.

However, Sen. Pat Steadman, D-Denver, said that the JBC was dangerously close to losing its relevancy as the negotiations at times appeared to be breaking down the day before.

“The path we were about to all embark on yesterday, at 3 and then at 4, would have been a path that undermined the institution of the Joint Budget Committee,” Steadman said. “I hope that we don’t ever have to venture down that path.”

Steadman said that though it has been a good thing that members of the General Assembly took a greater interest in the budget, the best decisions for Colorado had happened at the JBC table.

Lambert, who was also a member of the JBC last year, made news by voting against the budget plan last year. However, he said this year his vote would be aye.

“I think that some of things in the long bill the last couple of years have been objectionable. I didn’t agree.” Lambert said. “But I think this has made it a lot easier for me and many people in the Republican caucus who didn’t go for it in the past, to go forward on a bipartisan basis.”

The budget establishes a 4 percent rainy day fund, transfers $71 million in severance tax funds to balance the General Fund, reinstates the agriculture tax exemption a year early, and suspends the sales tax exemption on tobacco products, which is expected to create $31 million in revenue for the General Fund, and keeps a $100 million balance in the State education fund.

Rep. Cheri Gerou, R-Evergreen, said that the process this year allowed for voices that have not been heard for years when both houses were controlled by one party.

“The wonderful thing about this budget is the equal conversation,” Gerou said. “…there are people in Colorado that have felt silenced.”

If I was doing it myself, would I have come up with the same conclusions? Probably not.” Rep. Mark Ferrandino, D-Denver, said. “But that is why we have democracy and that is why we have compromise and give and take by all side.”

Ferrandino said that at the end of the day, the JBC came to a good agreement.

The surplus of  $172.6 million transferred to the education fund in the governor’s 2010-2011 FY budget isn’t expected to do much to save school districts from having to make deep cuts that would see teachers and staff lose jobs.

School officials from across the state testified before the Senate Education Committee Thursday, pleading their case for lighter cuts to K-12 education as $332 million in cuts, scheduled in Gov. John Hickenlooper’s budget, loom on the horizon. The officials provided a tale of systems cut to the bone with only bone left to remove.

They said if Hickenlooper’s proposal was to go through, programs such as international baccalaureate, advanced placement, sports, music and many teachers would disappear from the school system, leaving a generation of children undereducated and a future economy robbed of their still hidden talents.

“I do not believe that the cuts before you for K12 are in concert with the values you have already legislated,” Cherry Creek Superintendent Mary Chesley, said. She said that success in teaching 50,000 students does not come about by teaching the same thing 50,000 times, but from teaching 50,000 different ways.

“Without a change in what is currently proposed there is a possibility of not that 50ish loss of staff last year [of Cherry Creek School District employees], but probably the reality of a 300ish loss of positions for next school year,” she continued.  Chelsey said that the district had saved a reserve fund that has so far helped to dampen the effects of funding losses, however, those funds are near their end and further cuts would cause a compounding visibility of budgetary woes to one of the top tier school districts in the state.

Other programs have not been so fortunate and have made serious cuts for a number of years.     

District 11 in Colorado Springs, which has been suffering for over four years, likened schools to Walmart.  District reps said they had tried to use a business model to streamline the education system. In doing so they had closed schools and shut down products as cuts continued to diminish their capacity to serve their customers.

District 11 Chief Financial Officer Glenn Gustafson said that the district’s job is to serve the customer and in this case that is the students and their parents. He said that, as a result, teachers and other members of the district would likely see pay decreases and furlough days.   

“We saw the way to save money is to work on your facility costs,” Gustafson said. ”You don’t see Walmart keeping  stores that aren’t used open. They close those stores. So we are looking at our school buildings. District 11 actually closed nine different schools.”

Rural districts where per pupil funding will see a considerable dive said they were struggling to keep schools open and teachers in place. Many had already closed school buildings and combined schools under the funding crunch. In one case, a representative of a rural school district said decreasing student numbers were causing families to leave the area all together. 

Rep. Keith King, R-Colorado Springs, who sits on the Education Committee, asked a number of those testifying whether they would be amenable to allowing school districts to “swap” PERA fund contributions in the same manner that many public employees are already doing. Most said they worried what the effect to PERA would be in the long term as a result of changing the formula of employer/employee contributions.

In addition, King used the event as a sounding board for a potential state-matched mill levy increase sponsored by local governments that would help to decrease the gap between local and general fund funding of K-12 education.  Gustafson said the complex array of constitutional provisions that lower the local share of education dollars and increase the share the state pays out, often referred to as Colorado’s Gordian knot, was a problem they were greatly interested in solving and a discussion worth having.

It was a position almost all shared in the room.   

Educational mandates were also discussed, as Greeley Mayor Tom Norton said many of those policies were burdening school districts, and he asked for their reduction.  

Former state Sen. Norma Anderson agreed and said the often controversial CSAPs, which she helped to create, need to be eliminated to save money. “Get rid of them,” Anderson said. “I carried the bill, but get rid of them.”

After the hearing, Committee Chair Rep. Bob Bacon, D-Fort Collins, said the hearing had brought a face to the challenges faced by K12 education.

“We have reached a place where we can no longer protect the classroom from cuts, and that is why we chose to hold this hearing,” Bacon said. “The economic future of Colorado depends on how well we educate the next generation. Businesses considering relocating to Colorado want to know their investment in our state will be met by our investment in their future workers. Colorado employers considering expansion want to know Colorado can attract the best talent. Those workers will consider the quality of Colorado’s schools before deciding to come to our state. Therefore, we must continue to fight for our kids and our schools.”

Republican chair of the House Finance Committee Brian DelGrosso, Loveland, Wednesday moved to advance Democratic Gov. John Hickenlooper’s budget agenda by pushing an amendment that would have nearly doubled the extra amount government employees are paying into their state pension in order to help shore up the state budget. With Colorado employee partnerships calling the move Wisconsinesque, it was a Republican crossing party lines that drove the final nail into the amendment’s coffin.

DelGrosso offered two amendments to expand a bill brought by the Joint Budget Committee to help eliminate Colorado’s $1.2 billion shortfall. The bill, as written, compels state employees to continue contributing an extra 2.5 percent of their paychecks into their Colorado Public Employees Retirement Association fund, removing that burden from the state during the next fiscal year. If the bill is signed into law, many government employees would continue to contribute 10.5 percent of their monthly earnings into the pension. Teachers and local government employees are not affected.

The bill’s most recent fiscal note shows the state saving $61.7 million in employee benefits while losing income tax revenue of $1,850,204.

After close to an hour of testimony against the bill from state employees concerned further reductions to income would only serve to exacerbate the tenuous condition of many of their lives, DelGrosso offered his amendments to expand those cuts. While stating he did not relish even continuing with the 2.5 percent increase in employee contributions, he said with the possibility of bringing a tax increase to the vote of the people too far off, increasing contributions to 4.5 percent seemed like one of the most humane options.

“We are looking at: do we want to make cuts to K-12 education, do we want to have to continue to lay off state workers, [do we want to do] several different things that are out there or do we want to ratchet this up another 2 percent and potentially save money for K-12 education…?” DelGrosso asked.

DelGrosso modeled his amendment after Hickenlooper’s plan that calls for state employees to contribute an additional 2 percent of their salary on top of the 2.5 percent they were already asked to pay last year.

Democrats including Representative Dickey Lee Hullinghorst, Niwot, said the bill was out of step with the established process of allowing the bipartisan joint budget committee to develop long bill recommendations and said DelGrosso’s process would create greater partisanship over the budget in a year when hard choices had to be made. Hullinghorst went on to say she disagreed with a bill that would more greatly affect people “at the lower end who are going into bankruptcy, who are going to food stamps. That is just shifting the costs. It is the government that pays for those bankruptcies and food stamps.” Hullinghorst said. “I don’t like this Mr. Chair, it is pushing more people into these situations.”

DelGrosso said he was simply trying to start the process of discussions not create partisan battle lines.

“We are starting the process by running this bill. I don’t feel that there is anything wrong with starting this process. The time to start making those cuts and the time to start making those difficult decisions has to start somewhere and I feel today is the day we will start trying to make real difficult decisions.”

Rep. Cindy Acree, R-Aurora, said while she sympathized with state workers, she would be voting for the amendment. “I think we are going to lose jobs if we don’t do this.”

Rep. Daniel Kagan, D-Englewood, disagreed with what he called a false choice between a PERA shift and furloughs.

“Do we lay off employees or do we furlough employees or do we increase the employee contributions? That is not the only way that this budget gap can be narrowed,” Kagan said. “This committee has voted for tax exemptions worth tens of millions of dollars. So I just want to put on record that I don’t agree with the choice between furloughs and a PERA shift.” Kagan earlier in the committee raised the same issue by asking a state employee if he would prefer furloughs, a PERA shift, or a 2.9 percent increase on soda.

The amendment would have passed if not for the vote of Rep. Keith Swerdfeger, R-Pueblo West, who, without comment, lent his vote to the Democratic opposition.

DelGrosso brought a second amendment that allows school districts and local governments to decide whether to make teachers and local government workers contribute an extra 2.5 percent of their wages in place of the government contribution to PERA. DelGrosso said the amendment would allow school districts to possibly save teachers’ jobs. Despite Hullinghorst’s concerns over the effects it would have to the unfunded liability of PERA, the amendment was passed on a party-line vote.

Colorado WINS, the state employees partnership, attacked DelGrosso’s amendments.

“What we saw today was an attempt to “Wisconsinize’ the bipartisan budget process.” Scott Wasserman, Colorado WINS political director, said. “In one case cooler heads prevailed and in the other, they failed.”

The bill passed out of committee 8-5.

The bill would dramatically change the composition of the Public Employees Retirement Association pension fund board by moving the balance of power away from PERA members and toward political appointees who do not and will not receive PERA retirement benefits.

“How can someone who is involved in the benefits themselves make rational decisions about those benefits. It is a conflict,” Kerr said. “We need someone on that board that will say we need to reevaluate how we are doing things here. If you do the same things over and over again the same way and expect different results, that is the definition of insanity.”

Rep. Joe Miklosi, D-Denver, disagreed with Kerr’s assertion, explaining that it was precisely because board members had a vested interest in the PERA fund that the fund would remain strong.

“The reason that I am opposed to this legislation is that it would take individuals who really don’t have the vested interest that the current board members do and place them on that board,” Miklosi said. “And talking to some of the stakeholders in this discussion, to me it is really an effort to change the current makeup of the plan… to change it from a pension plan to a 501k plan. … I am very much opposed to that for a variety of reason.”

Miklosi’s opinion was one that the PERA board had already given voice to after voting to oppose Kerr’s legislation. PERA’s CEO, Meredith Williams, told the Colorado Independent that the board does not control the benefits plans and that those are voted on by the Legislature.

“They probably do have some interest in what the benefit structure is, but they have no control over it. Nor do they have any control over the contribution structure,” Williams said. “The board is an oversight administrative board… The power to do those things is vested in the general assembly.”

Democrats expressed the opinion that those on the board are voted on for their experience in financial and actuarial fields and said that once voted on to the board, members receive considerable training.

However, Republicans said that while on-the-job training is useful, it is no substitute for life-long experience and outside perspective. Democrats countered by pointing to findings that showed similar pension programs with vested members outperformed those that did not have such members.

Currently three members are statutorily required to have financial, actuarial or other forms of experience with investments and pensions.

Williams told the Colorado Independent in a previous interview that PERA’s pension plan pays for itself.

“We take in less than a billion dollars in taxpayer dollars, and we pay out three billion dollars into the Colorado economy–so, it isn’t a bad trade off,” Williams said.

Rep. Spencer Swalm, R-Centennial, said that he stood behind Roberts’ belief that the board is unbalanced and controlled by the unions.

“We still have very serious problems with defined benefits plans in this country, as I said there is almost none left in this country. This bill is not a full fix for that.”

As part of the Gov. John Hickenlooper’s budget balancing plan, he is calling on government employees to reach into their wallets and put an additional 4.5 percent of their monthly salary into the state pension plan, money that the state normally contributes as part of the contract. Both Sen. Pat Steadman, D-Denver, and Colorado WINS have come out questioning the decision.

“Again this is a budget plan, but you can’t change the numbers. The four letter word is math. If we can’t get it one place we will have to get it from somewhere else,” Hickenlooper told The Colorado Independent. “I know how hard it is to motivate a workforce. I have been through difficult economic times and didn’t give anybody a raise. That is tough. It is hard if you went two or three years without a raise and you take a pay cut with PERA, it is hard for people to get up and put their all into a job. But they can and they will.”

Hickenlooper’s plan calls for state employees to contribute an additional 2 percent of their salary on top of the 2.5 percent they were already asked to pay last year. Those additions would see many employees paying upwards of 12.5 percent into the system. The change will save the state’s general fund an additional $15.7 million on top of the $19.5 million realized in the continuation of the 2.5 percent PERA “swap.”

Hickenlooper said that a 4.5 percent pay cut is significantly better than many workers have fared in the last few years. He said many workers would jump at the chance to still have a good paying job even if there was a pay cut involved.

“They would think ‘My gosh, I can get back to a 9-5 job, 40 hours a week and only take a 4½ percent pay cut from what I was getting before. I would be thrilled.”

Steadman told the Independent he was unhappy about the notion of putting further burden on public employees. “I just don’t think that is a really good move. I’m not a big fan of the shift of the 2.5 percent in the bill I am already sponsoring and I think it is a mistake to go any deeper.”

Steadman said he was worried that reducing the benefits package would force competent individuals out of government positions.

While a spokesperson for the PERA board declined comment, instead waiting for the board to take vote on a position, its past arguments are likely to be similar in this case.

Meredith Williams, chief executive officer for PERA, told the Colorado Independent when discussing Steadman’s bill a few weeks ago that the long term solvency of the plan and the constitutionality of augmenting employee contracts were at the top of the list of board concerns.

Williams explained that employee contributions are worth 70 cents on the dollar whereas state contributions are worth the full dollar. He said this occurs due to a number of factors, but the stability of the state dollar is at the forefront of the equation. In many cases, employees drop out of the fund and are allowed to take their contributions with them, plus interest accrued. State dollars can be used with little concern of their removal from the fund.

“Number one, we like dollars that come from employers. When an employee contributes into PERA it goes into an account. If an employee quits and forfeits their service under the system they get all of the money that they have contributed, they get interest on that money and they get a match on that money to give them something for their contribution,” Williams said.

“The other concern is that we question the constitutionality of the swap,” he continued. “The members essentially have a contract with the employer … The courts have ruled in some districts that if you are going to change that contract you have to change both sides of that equation.”

It is unclear at this time exactly what impact the change would have on the program though it is unlikely to contribute positively to the long-term solvency of PERA.

“Over the past three years state workers have absorbed cuts to help balance our budget – furlough days, pay cuts and cuts to benefits. Governor Hickenlooper’s budget proposal includes a 4.5% pay cut to state workers at a time when too many of these workers are already struggling to pay bills and rent. Some are even being forced to claim bankruptcy, use food banks to feed their families, and work second jobs to scrape out an existence.” Robert Gibson, executive director for Colorado WINS, said in a release. “We oppose these proposed cuts as they will further hurt our ability to provide essential state services to Coloradans.”

Hickenlooper said he understood the pain and would work hard to ensure state employees get a raise next year.

Stating that Colorado needs to be more pro-business, Gov. John Hickenlooper cut deep into K-12, further sacrificed state employee earnings, and shut down some state parks and services in the budget proposal he delivered Tuesday.

Hickenlooper explained that many of the budget woes were the result of constitutional mandates that constricted fiscal flexibility. He said voters would be made keenly aware of those mandates this year. 

Gov. John Hickenlooper answers questions from the press on his budget proposal. (Boven)

Hickenlooper’s 2011-2012 budget request of $7.2 billion represents a $570 million reduction from former Gov. Bill Ritter’s proposal submitted in November. The 2011-2012 balancing plan consists of 90 percent expenditure reductions with nearly 80 percent of those representing on-going measures. 

Hickenloopers’s plan calls for a 4 percent budget reserve and invests $18.7 million in tourism promotion. However, it strikes hard at some services many have seen in the past as a sacred cows. The plan calls for $375 million in cuts to K-12 and further increases the amount of state employees’ contributions to their pension plan by 2 percent on top of a 2.5 percent increase already in place from last year. 

Hickenlooper said he is not trying to send a message that a tax increase is needed through severe cuts to the budget. Instead, he said that with 41 percent of the budget in K-12 education there were few other places to look that had not already been stripped to the bone. 

“Why did John Dillinger rob banks? Because that is where the money is,” Hickenlooper said to the press yesterday. While explaining that his own son is in public school and that public education is the single best anti-poverty program on earth, he said “If you don’t have money you don’t have the money. What are we going to do, wipe out higher education?” 

Jane Urschel, lobbyist for the Colorado Association of School Boards, said that while they expected cuts of the magnitude proposed by Hickenlooper, their significance would be felt. She said that thousands of jobs could be lost with further cuts to services, larger class sizes, shorter school weeks and bus fees becoming more prevalent across the state. 

Rep. Mark Ferrandino, D-Denver, told Hickenlooper in committee his proposal is only the start of the conversation. “It is not a conversation that just happens in the Capitol, it is a conversation that needs to happen across the state. I worry about these cuts, while necessary in our budget situation, what they will do to the quality of life for the future of our state. There is another side of the budget we haven’t talked about and that is the revenue side. 

“Are the people willing to look for revenue. I think it is these difficult choices that we should be bringing to the voters of Colorado. Ask them do you want these cuts? Do you support these cuts, or do you want to look at other ways to offset future cuts.” 

Gov. John Hickenlooper speaks to the JBC about his budget plan. (Boven)

While Ferrandino and other legislators appeared to point to the need for revenue increases, Republicans were generally happy with the two-year budget cutting measures offered by Hickenlooper.

Rep. Mark Waller, R-Colorado Springs, commented that while no one wants to see money removed from K-12 there should be no sacred cows.  “I don’t think that anybody wants to cut it (the budget) to the bone the way it is going to happen, but the reality is that is what needs to happen. But by the way I do think that we need to make government a little bit leaner and this is an opportunity to do that.”

Rep. Lois Court, D-Denver, pointed to a graph that showed the increase in the state share of K-12 funding in contrast to local funding over time. The graph showed large decreases in local funding of schools since the Gallagher Amendment set commercial property tax levels at 29 percent and mandated that 55 percent of property tax revenue should come from businesses. According to Court, the Taxpayer’s Bill of Rights, the Gallagher Amendment and Amendment 23 create a situation where “There should be more coming from local and less coming from state… that is the problem in a nutshell.” 

“The interconnections of 23, Gallagher and Tabor makes life not only difficult but complicated,” Hickenlooper said. However, he remarked that a discussion at the State Capitol about what needs to happen does not have the same effect as discussions held across the state. “There are a number of discussions the public needs to have over how can we harmonize or synchronize, some would say, our tax structure to attract businesses.” 

Hickenlooper said that he would be very conscious about not talking about raising taxes, but said he would make certain the constitutional mandates are part of the conversation. 

“We are going to talk about the state constitution, what is in there and basic policy decisions about how do we make this state successful.” 

Hickenlooper said he saw a need to change the culture of Colorado to make it more business friendly so that new businesses could increase in size, providing jobs and revenue. 

“When you are [this] far underwater in revenues and voters aren’t reaching out and embracing new taxes, you really have no choice but to reach out and try to make people more conscious of business and try to help each business hire each person,” Hickenlooper said. “It is not necessarily our budget plan or legislation, it is a cultural change in the state.”

He referred to his bill as “a necessary evil”, but pointed to a bill carried by Republican senators as further compounding the problem.

The Colorado Public Employees Retirement Association has come out against bills that would increase contributions while reducing benefits, calling the bills potentially unconstitutional.

Steadman’s bill will compel state employees to continue contributing an extra 2.5 percent of their paychecks into their PERA accounts and allowing the state to reduce its contributions by 2.5 percent in the next fiscal year. Steadman said the general fund savings will be about $19.5 million with individual departments saving additional money. The total savings, he said, add up to $46 million.

The bill will not affect teachers or local government workers.

“There aren’t a lot of good choices to reduce our state budget and reduce the shortfall–there really aren’t. So state employees are going to be asked to continue the sacrifice that began last year,” Steadman said. “This isn’t the best fiscal policy for PERA, and we are going to ask them to hold their nose and be tolerant.”

However, Steadman said a bill sponsored by Sen. Kent Lambert, R-Colorado Springs — also a co-sponsor of Steadman’s bill — would allow local governments to also reduce their contributions to employees’ pension plans while increasing employee contributions. Steadman said he was against Lambert’s bill.

Steadman said there may be a certain amount of hypocrisy in his decision to allow the state to do something that cities, counties and school districts cannot do.

“This isn’t a good policy move. Just because we are forced to do it doesn’t mean that we should compound the problem by letting everyone do it,” Steadman said.

PERA’s Chief Executive Officer Meredith Williams told the Colorado Independent that the board of trustees was against the bills.

“Number one, we like dollars that come from employers. When an employee contributes into PERA it goes into an account. If an employee quits and forfeits their service under the system they get all of the money that they have contributed, they get interest on that money and they get a match on that money to give them something for their contribution.” Williams said. “So an employee dollar coming into PERA is worth about 70 cents as opposed to an employer dollar that is worth a 100 cents.

“The other concern is that we question the constitutionality of the swap. The members essentially have a contract with the employer. And the contract is that the employer will pay in so much and here is the benefit that you ultimately will receive from that. The courts have ruled in some districts that if you are going to change that contract you have to change both sides of that equation… In this case the employee has paid in more and is not receiving any additional benefits.”

Steadman acknowledged both of the problems, but he said his plan was the best of the numerous options he and other Joint Budget Committee members were faced with.

Pointing to furlough days used two years ago to help balance the budget, he said that enacting those both affected total contributions into the fund and in some cases changed the formula used to calculate an employees payout.

“By doing this, every single penny that is supposed to be in the employees benefit account is getting into their account. It is held harmless, and on paper their salary still looks unaffected. Furlough days are with you forever, Steadman said.”

He went on to say the third option was to enact pay cuts across the board for state employees. He said the best option in his mind was to ask individuals to contribute more to their retirement package.

Asked if he thought there would be a lawsuit in response to his bill, Steadman said people can sue anybody anytime for anything in Colorado.

“That risk is always out there. The fact of the matter is that from the perspective of state employees this is a better option than most of the alternatives.”

PERA board members voted unanimously last week to oppose legislation that would radically restructure the board. PERA’s executive director, Meredith Williams, said that contrary to some accusations, PERA is one of the leanest run, most efficient programs in the world and that changing the board would have no effect on legislatively mandated benefits.

Prompted by comments made by Rep. Jim Kerr, R-Littleton, and legislation introduced by him last week to change the structure of the Public Employees Retirement Association (PERA) Board of Trustees, Williams said the changes Kerr wants to make would accomplish little.

Kerr told the Colorado Independent last week that a bill he is sponsoring would help eliminate conflicts of interest on the board of trustees. Kerr’s bill would change the composition of the board by placing eight gubernatorial appointees on the board in place of members who are now elected by their employee divisions to represent them. The board currently has 16 members, one of whom cannot vote, and 11 who now receive or will likely receive benefits.

“The current structure… brings a lot of perspectives to the table.” Williams said. “I’m not sure that concentrating on one perspective actually accomplishes much.”

Kerr questioned whether it was possible for board members to represent the best interests of the taxpayers when the majority of PERA board members are also likely recipients of the pension payouts.

“I hope to create a board with people who do not have a dog in the fight making decisions with about a billion dollars in trust money, that is what I hope to gain.” Kerr told The Independent. “If you think about it, if you have a kid and you give him a choice of broccoli or ice cream, what do you think that kid is going to do?”

Williams said that contrary to concerns like Kerr’s, the PERA board does not control benefits plans, and he said the board recently recommended legislation that led to one of the largest changes to a public pension program in the United States in decades.

“They probably do have some interest in what the benefit structure is, but they have no control over it. Nor do they have any control over the contribution structure,” Williams said. “The board is an oversight administrative board… The power to do those things is vested in the general assembly.”

Williams said that all members of the board, much as in a corporation, have a fiduciary responsibility to the members of the association. He said that was true whether a board member was appointed, voted in by members of the pension or is the secretary of the state.

“There is case law around the country where a trustee might have forgotten that charge and has been sued and has lost. The fiduciary responsibility influence isn’t recognized in the proposal,” Williams said of Kerr’s bill.

Williams pointed to last year’s Senate Bill 1 (pdf), which cut cost of living increases while increasing public employee and employer contributions–among other changes–as an example of a case where the board saw a threat to the pension and acted. He said while they could only recommend legislation to help maintain the integrity of the pension, their work eventually helped set the trust back on track to be fully funded in 30 years.

“The criticism that a board that has a majority of elected members would never do anything to adjust the benefit schedule I think is totally refuted by what the board proposed, which became Senate Bill 1,” Williams said. “Our members will receive less in their retirement years, including those who were already retired. Those who are still working will be required to pay more into the system, to work longer and receive less. So the cost structure of the system was significantly reduced by that legislation and those changes were recommended by the board.”

While Kerr had evoked the personage of Joe Six-pack in describing some taxpayers who may be jealous of what appears to be PERA’s lavish retirement package, Williams said employees have paid for what they are getting.

“Our members do contribute a significant amount of money during their working career. So when they retire they receive what I will characterize as a lifetime formula benefit. It is a statutory formula, it is their years of service times 2 ½ percent–a multi-year salary average,” Williams said. “Our members have contributed about 21 percent of the money that has come into PERA. Their employers, the taxpayers, have contributed about 19 percent. The balance of the money that has come into PERA has come from the earnings in the system. PERA at its very basic terms is a trust.”

According to Williams, one of the board’s primary responsibilities is ensuring the trust’s growth. He said they are responsible for deciding what markets to invest in, though the day to day trades are made by staff or outside advisors. As a result of their role in financial decision-making, members are provided lessons in the trust’s management and access to world-class experts in the field. In addition, three appointed members must have experience in related fields.

In noting that Colorado taxpayers do pay into the system, Williams said PERA pays for itself.

“We take in less than a billion dollars in taxpayer dollars, and we pay out 3 billion dollars into the Colorado economy–so, it isn’t a bad tradeoff,” Williams said.