Gretchen Morgenson, the current dean of financial reporting, covers the DPS pension debate as part of a series on private and public debt. This particular political pigskin has been kicked enough to shame Jason Elam, but I’m glad it is getting more attention, because the critical issue — underfunded pensions — is not going away on an election cycle.
Why do I think the critical issue is underfunded pensions and not any specific financing? Well, follow the money.
First, here is the part of the article I think most parties will gloss over while trying to estimate their political pundit hang time:
While it is possible that the annual costs of the Denver deal will come down in the future, they are now roughly in line with what the school system would have paid in a fixed-rate transaction.
Let me paraphrase: right now it’s a wash, and there is some chance costs will decline. The district has not lost money as a result of the transaction, and may still benefit. So the first number is currently pretty close to zero.
What’s the other number? Well, as of a year ago, PERA was underfunded by an estimated $27.5 billion (yes, that is a “b”). I’ll try to find the 2010 estimate, but I have not yet seen it published. But for fun, let’s round down to, oh, $25 billion.
Now, anyone care to argue that zero is a bigger problem than, say, $25 billion?
And just to cover all the bases here, I’m no one’s political hack, paid or otherwise, and if there is someone out there who publicly raised concerns about the DPS transaction earlier than I did, I’d like to see it.
But what I don’t get is this: the pension problem (on which I have written here, here and here) is primarily the creation of our elected officials, including yes, Denver school boards — who have largely hidden their collective heads in the sand (some deeper than others).
DPS got into this problem, as Morgenson notes, because there was a $400 million gap in its pension fund. Now, $400 million is also a lot greater than zero. But accountability for that $400 million gap is apparently not an issue — because in the bureaucratic black hole of previous superintendents and school boards, no one is responsible for much of anything. Say what you want about the debated transaction, but it was the first time in years that the DPS Administration confronted the pension shortfall directly, instead of just kicking the can hard and long into the future. And some school board members looking to cast stones might want to look a little harder at their historical counterparts.
I thought first (and still think) that the DPS transaction was more complicated than need be, and I don’t believe school districts should be engaged in complex risk management. But I’ve looked at this issue in considerable detail, and I find the criticism of the DPS transaction a lot like a crowd on the beach complaining — well after the fact — that the lifeguard who jumped in and saved people from drowning was a little too rough.
The DPS transaction enabled the merger of the DPS retirement plan with PERA, and if you think PERA looks bad, well you should have seen the other guy. The merger with PERA helped a lot of DPS teachers (current and former) avoid future financial waterboarding, and bought a little time — very little — with which to tackle the larger pension problem.
For PERA is indeed in bad shape. PERA’s School Division is currently underfunded by about 30% and is predicted to be insolvent within 50 years. That time frame is well out of the range of anyone in or vying for elected office, but there are a lot of 20- and 30-something teachers who will be retiring about then.
So perhaps our political fiddlers, and their accompanying public wails of regret, might find this an opportunity to step up and confront the very real and far greater problem of overall pension reform. For this is an issue that requires far more political courage than mud. If now is asking too much, than maybe starting on, oh, August 11th? No, well maybe November 5th?
UPDATE Aug 6th: The other cogent article in the NY Times on pensions and Colorado http://nyti.ms/9ic6Lk