Sitting in the chamber of the State House of Representatives and listening to the Governor’s first State of the State message, two thoughts hit me. First, we need to back up some of the governor’s good general concepts with solid, pro-taxpayer specifics. Second, we need to get busy on reforms, including our ailing state pension system, which wasn’t talked about in this important annual address.
It is good news that, after a four-year hiatus, we are once again talking about the central role that small business plays in job creation — and how state government too often stifles job growth through excessive taxation and regulation. I applaud Gov. Hickenlooper for proposing that new legislation contain an analysis of the direct cost of each bill to business and jobs. Let’s move now to turn this rhetoric into reality, since the legislative clock is already ticking, and put strong and specific rules in place, in consultation with the business community.
I also applaud the governor for suggesting that the state must start measuring the results of the programs that we spend money on. Again, it’s in the details of these accountability measures where we’ll see whether the state is serious about taking a clear-eyed look at government programs and services. If done aggressively, candidly and transparently, this could be a step towards ending automatic ratchets in Colorado’s budget. With a deficit north of $1 billion, we can no longer afford to automatically increase or preserve a program just because it exists. Let’s measure results, reward what works, and get the most out of the State’s scarce tax dollars.
As detailed above the governor put forth some interesting and possibly productive ideas, unfortunately, there was also a glaring omission in the speech. While a Governor can’t get everything into one annual address, it is impossible to talk about Colorado’s fiscal future without a detailed discussion of the ailing state pension system and the long-term liability it represents for Colorado taxpayers One of my central duties as State Treasurer is to help craft a long-term fix to this system that’s headed for a massive train wreck. We can no longer just close our eyes and hope that this train rights itself on the track. Taxpayers and state workers demand — and deserve — more.
For example, PERA — as the state pension system is known — has made overly rosy projections on its return on investments, which masks a much higher liability going forward. If, for example, you set your household budget on getting an annual 8 percent raise, and, you get a 2 percent raise, you quickly end up with more monthly spending than money in each paycheck. That’s what PERA has been doing, overestimating their projected yearly returns thereby underestimating their long term liability. The first step to fixing PERA’s long term unfunded liability is taking an honest look at the severity of the problem, regardless of how ugly reality actually is.
More importantly, it’s time to mirror what the private sector has been doing for decades – and what smart state pension systems are focused on. That’s phasing out the current, antiquated “defined benefit” system and replacing it with a “defined contribution” system.
Under this current, outmoded system, pensioners are guaranteed a fixed benefit. This is risky, and, over time — as we are seeing now — unsustainable. By replacing it with a “defined contribution” system where workers partner with the state, and have significant control over their own mix of funds, the pension system is healthier, taxpayers have less risk, and retirees end up with a much more flexible and robust retirement fund.
The fiscal challenges ahead are tough, but not insurmountable. It’s time to take the ideas our new governor has put forth, along with those of Republicans in the legislature and in statewide office, and work to put solid specifics behind interesting proposals. Together, we can craft the no-nonsense, pro-taxpayer, pro-jobs reforms that Colorado desperately needs. The time is right, the climate is right and our fellow citizens are watching. I’m optimistic that 2011 can and will be a year when we put our state back on the path to progress.
Walker Stapleton is Colorado State Treasurer. Readers can e-mail Stapleton at email@example.com.