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Tuesday, April 26, 2011

DUSTIN GAWRYLOW: THE NORTH DAKOTA PUBLIC PENSION SHORE-UP (BAILOUT)

The Public Pension Shore-Up (Bailout)

 

Earlier this year, the N.D. House of Representatives declined to reform either of the public pension programs:  PERS (state workers) or TFFR (teachers). 

Currently, the pension plans are roughly 70% funded.  While many legislators have said the pension problem was solely created by the downturn in the economy, as usual, the numbers show a different story. 

In the case of NDPERS, the fund was 111% funded in the year 2000 (meaning the fund actually had a surplus), by 2006 it had dropped to 88% fund, and in 2010 it was down to 73% funded.  More than half of the decline in funding status came BEFORE the market crash of 2007-08.

A plan to shore-up NDPERS was passed a few weeks ago.

Yesterday, a plan to "shore-up" the teachers' pension fund was passed.  In reality, it is simply a way to bail out the plan without cutting a check right now.

Currently, teachers' pay in 7.75% of their salary and their employers (school districts) pay in another 8.75% of their salary. 

In order to "shore-up" the pension fund, those figures have to increase to 11.75% for teachers, and 12.75% for school districts by 2014.

In the coming years, you can be assured that local school districts will be complaining about the new unfunded mandates place on them by this plan.  The sad part is - they are right.  This pension shore-up/bailout will eat into state spending designed to buy-down local property tax rates (which is bad policy in the first place).

To make that clear, in order to ensure solvency of the pension fund, 24.5% of every teachers' salary must be paid into the fund.

It doesn't take Warren Buffet to figure out that when it takes 1/4th of the salary base to keep the pension fund afloat, the system is bound to collapse at some point.

The 2011 legislative session was a major lost opportunity to fix these pension funds.  With a 70% Republican Majority, the situation may never get any better for making genuine policy reforms.  All it will take is another hiccup in the stock markets to massively increase the state's unfunded liabilities.

If you examine the big picture:  education funding, property tax transfer payments, pension bailout mandates - you see that every policy decision regarding education funding over the last half dozen years has just been a shell game.

Like all shell games, it can only go on for so long until there just isn't the money to keep flipping things around.

Eventually all of these policy decisions will backfire, and if the oil tax revenue is not there to actually fix the problems, it will be ugly.

Every other state would have loved to be in our position.

Unfortunately, the policy decisions made during this legislative session will put us on a course to be in their positions at some point.

Click here to email your elected representatives.

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