Colorado’s fiscal condition slips, thanks in part to PERA

The latest installment of an annual study of the fiscal conditions of all 50 states shows that Colorado fell eight spots, from 22nd to 30th. PERA’s unfunded pension liability is one factor contributing to the drop. This places Colorado barely in the “average” category relative to other states’ fiscal health.

The study, “Ranking the States by Fiscal Condition 2017 Edition” is produced by the Mercatus Center at George Mason University. According to the study, unfunded pension liabilities are $93.72 billion, or 34 percent of state personal income. Here’s the overall conclusion:

Top-performing states tend to exhibit fiscal discipline in the form of having high levels of cash, maintaining revenues that exceed expenses, and keeping debt levels low relative to resident income. These factors can easily be threatened if a state relies too heavily on narrow tax bases and volatile revenue sources or if pension plans are not adequately funded, leading to persistently large and growing liabilities.

Mercatus also released a report earlier this year focused on how states can effectively and fairly reform their public pension plans. Their arguments echo what we’ve written on this blog. But they present their case cogently, so here are a couple of highlights:

Failing to facilitate real reforms to public pension plans increases the risk of a deeper crisis, even as some policymakers who resist reform claim to be relying on future market returns to improve their plans’ solvency. Short-term tweaks such as minor adjustments to plan benefits or marginal funding increases fall short of addressing the structural problems of public sector pensions. Tinkering with the level of benefits provided only partially addresses the surface-level symptom of growing unfunded liabilities.

A long-term reform strategy requires addressing the root of the issue by altering the incentives facing policymakers. True reform must address the inherent problems of public-sector accounting and management of pension funds and consider the benefits of defined contribution plans for public-sector workers. Reforms should be equitable for all generations, fund retirement benefits adequately, and have a plan for funding legacy obligations.

 

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