Amendments targeting public pension funds won't reduce liabilities
By Melanie Zanona | October 29, 2012
A handful of constitutional amendments on the Nov. 6 ballots across the U.S. would affect public pension plans in a variety of states, but none goes very far toward reducing existing unfunded pension liabilities, even in the worst-funded states.
Voters in Illinois, which was ranked by the Pew Center on the States as the worst-funded pension plans with a funding ratio of 45%, will be asked to vote on the Illinois Public Pension Amendment. The measure would require a three-fifths supermajority vote by the General Assembly, city councils and school districts to enhance any public pension benefits.
While the measure would make it tougher to increase benefits, the simple majority needed to decrease them would remain the same.
“Arguments in favor of this say it would prevent future unfunded liability, but it does absolutely nothing to address the $200 billion crisis we face,” said Diane Cohen, general counsel of the Liberty Justice Center, a public interest litigation center started by the Illinois Policy Institute. “It requires a voting approval to increase benefits, but as we have seen historically, the votes on these things have passed overwhelmingly, so it won't do anything in terms of stopping a vote.”
Benefits not necessarily the problem
According to a report by the Illinois Commission on Government Forecasting and Accountability, benefit increases in 2011 were less than 1% of the reason for increased pension debt among the five public pension systems in Illinois, while 51.2% of debt was attributed to insufficient employer contributions.
“We should all be concerned that our legislators undertake this effort with a do-nothing, window-dressing political reform,” Ms. Cohen said. “Amending our constitution is a pretty significant thing and this particular amendment isn't worth it.”
In Louisiana, which was ranked by the Pew Center as having the fifth-worst funded state pension plans with a ratio of 56%, there is an amendment on the ballot that would deny pension benefits to any employee or official convicted of a felony related to their public job.
The measure — which aims to limit corruption more than pension underfunding — would apply to those hired or elected after Jan. 1, 2013, and would result in the employee forfeiting contributions made by the employer, not by the employee. However, if a public corruption case ends up going to federal court, the state amendment would no longer apply.
New Jersey seeks judges' contributions
Meanwhile, in New Jersey, voters will decide on a ballot measure that would allow increases in mandatory contributions from all state judges' salaries. Gov. Chris Christie backed and the state Legislature passed a pension reform measure in June 2011 that raised employee contributions for pension and health benefits, but it was ruled unconstitutional for judges because the increases were deemed a “diminution of salary” and the current state constitution mandates that judges' salaries cannot be reduced during their tenure.
“After it was ruled unconstitutional, within days, the Legislature approved to have this on the ballot as an amendment,” said John Weingart, associate director of Eagleton Institute of Politics at Rutgers University. “Judges ruling on whether judges can receive less money can at least appear to be a conflict, so to give this question to the voters overcomes that.”
The New Jersey Judicial Retirement System has a funding ratio of 53.1%, according to the most recent data available from the New Jersey Treasury Department, while all of New Jersey's public pension systems combined have a funding ratio of 71%. But Mr. Weingart suggests that increasing contributions to the Judicial Retirement System would have a negligible effect on overall system funding levels, since the system only has $264.7 million in net assets, compared to New Jersey's $71.8 billion public pension system overall.
“There's not much organized opposition to the ballot question that I have heard of,” Mr. Weingart said. “But there are two arguments against it. One is that the constitutional provision protects against the wrath of a governor who disagrees with a judges' ruling and punishes them by lowering salaries. The other is a good government question: Is this enough to warrant a constitutional amendment?”
There are also amendments on ballots in Michigan and Arkansas that could be relevant to public pension systems, despite the fact that they are not specifically pension-related.
In Michigan, voters will have the option of repealing the state's emergency manager law, which allows the governor to appoint a manager for financially troubled municipalities and school districts. The emergency manager would be responsible for all operational aspects of the jurisdiction deemed to be fiscally troubled, including pensions and investments.
Arkansas tax proposal
In Arkansas, the amendment if passed would allow cities and counties to create districts where they could levy a sales tax to back bonds for infrastructure improvements, but the tax revenue also could be used to retire unfunded liabilities of closed local police and fire pension plans.
Voters in two Oregon counties also will have the opportunity to consider pension measures at the polls. A measure on the ballots in Multnomah and Clackamas counties to amend the Portland City Charter in relation to the Portland Fire and Police Disability and Retirement Program would prohibit combining service by a city employee with another employer in calculating service credit for pension benefits; prohibit altering benefits for part-time employees; and change the vesting period for non-service related death benefits to five years from 10.
While the measure would save the city an estimated $46.6 million over 25 years, according to Portland City Commissioner Dan Saltzman, the Portland Firefighters Association and the Portland Police Association both oppose it because they say pension fund changes should be made through collective bargaining, not by voters.
Barry Burr, Randy Diamond, Arleen Jacobius, Rob Kozlowski, Kevin Olsen, Robert Steyer and Christine Williamson contributed to this story.
This article originally appeared in the October 29, 2012 print issue as, "Amendments targeting public plans won't reduce liabilities . . .".