Education finance reform - buyer beware

Walker Stapleton Published: May 30, 2013 | 12:00 am 0

This November, Colorado will be given the opportunity to vote for a more than $1 billion tax increase to fund Colorado education. This initiative will be sold to taxpayers as money for books, computers and better student/teacher ratios - all the necessities our kids need to have a better, more fulfilling education. But, as voters take a closer look, this tax increase, masked as education funding, is also another mechanism to keep our sinking public pension system afloat. In other words, this bill is not "as advertised." To fully understand how this works, we have to start at the beginning.

Our public pension system (PERA) has a roughly $20 billion debt. This equates to a massive amount of money the state owes to current and future public retirees. Because of how PERA is funded - by a combination of tax payer and employee contributions - a shortfall of this magnitude will have an enormous impact on our education system for many years to come. As the liability grows, more money will be diverted from the classroom to support the retirement system. In the last decade, this has already happened twice.

In 2004 and 2006, the legislature changed the amount of money that each school district pays into PERA. With these changes, by the year 2018, school districts will match 20.15 percent of school teachers' salaries into PERA. To put this number in perspective, in the private sector, you would be lucky if your employer contributes 4 percent of your salary. PERA is the recipient of a 20.15 match. If it sounds outrageous, it is!

While PERA is currently $20 billion underfunded, its debt grows every year it does not achieve an 8 percent return on its portfolio. This 8 percent return is not an inflated conclusion simply contested along partisan lines. To the contrary, Michael Bloomberg (no one's idea of a staunch conservative) recently stated that even a 7.5 percent return is unachievable. However, PERA continues to maintain an 8 percent average rate of return.

To quickly recap, Colorado's PERA has a $20 billion unfunded liability and maintains an 8 percent return assumption on their portfolio of stocks and bonds. If PERA falls short of this 8 percent, PERA can only look to the state and its taxpayers to pay more money to make up the difference, like they did in 2004 and 2006. Finally, since school districts have only a finite amount of money, when they have to put more of their precious dollars into PERA, school districts are effectively taking money out of the classrooms and putting it into the PERA.

Let's now bring this back to how this relates to the current legislation you will be voting on in November. This legislation does not mention PERA's impact on school district budgets, it does not mention the 20.15 percent match, nor does it have any provision to prohibit even more funds being taken out of classrooms and put into PERA. Nothing in this bill prevents the legislature from going back and mandating a 30 percent match by 2025. This additional PERA funding is not some doomsday scenario I have concocted since it has already happened twice. We cannot allow more taxpayer money to be taken out of our children's classrooms in order to backfill obligations in a bankrupt retirement system.

When I explained the funding shortfall to different stakeholders and legislators crafting this bill they told me that PERA was off the table. I was shocked that one of the biggest drivers of school budgets would not even be considered during a discussion of school funding.

When I suggested that at a minimum we must ensure all new money gets into the classroom and is not used to backfill the pension system, by simply adding a provision to the bill capping PERA contributions at 20.15 percent (an already outrageous number) the crafters of this tax told me they would look into my concerns. I am still waiting.

Critics will attack me and frame this as a partisan issue. Unfortunately PERA's $20 billion unfunded liability is a severe math problem which is not defined by partisan labels. It is a growing tsunami that Coloradans will have to face one way or another. And now, this math problem is creeping into our schools and negatively impacting our children. If we want to have a conversation about school finance, I encourage it. But let's have an open and honest one that puts our children's interest first.

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Walker Stapleton is Colorado's State Treasurer.

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