As Sen. Jack Tate stood in the back of the Colorado House of Representatives watching the “exceptionally long” vote on an extensively negotiated and intricately crafted pension-reform bill, he admitted that he was pretty nervous. More than a year of talks hung in the balance, and the bill had to get the backing both of Republicans who thought it didn’t go far enough and Democrats who thought it went too far.
The Republican from Centennial had pulled out every theoretical trick that he had. He’d fought with his own party to tamp down expectations of how much to expand a highly controversial defined-contribution plan option. He’d pushed back on Democrats by noting that even administrators of the Public Employees’ Retirement Association had favored an increase in contributions from employees. He’d even asked the budget director for Democratic Gov. John Hickenlooper to get the state’s top elected official to talk with his party about the need for the bill, which he did.
After extensive pleas from both sides of a debate that crossed party lines, 34 House members agreed to the conference committee report that Tate and the other three sponsors of Senate Bill 200 — Republican Sen. Kevin Priola of Henderson, Democratic House Majority Leader K.C. Becker of Boulder and Democratic Rep. Dan Pabon of Denver — had spent a year discussing in stakeholder meetings that became twice-weekly affairs by January. Over the next hour, the House and Senate then officially re-passed the bill — with just 49 minutes to spare before the mandated adjournment of the session.
On Monday, Hickenlooper signed SB 200 in front of those legislators, Senate Republican leaders and a group of stakeholders who had shepherded reform from the early admission that PERA faced a $32 billion unfunded liability through to its final conclusion. And, all four of the sponsors acknowledged that, despite the pushback and the drama that surrounded the bill, their efforts had left Colorado in a better place.
“It was a classic negotiation. Everybody gave up something that they cared about,” said Hickenlooper, who spent 15 years negotiating deals as a brewpub and restaurant owner before getting into business. “I don’t think anybody was really happy with the final solution. That’s always the sign of a good compromise.”
PERA by the numbers
The compromise was this: In order to pay down that liability in 30 years, employees will be required to pay 2 percent more and employers — the state government, school districts and some municipalities — must pay 0.25 percent more. Retirement age for new hires will go up from 58 to 64, annual cost-of-living adjustments will drop from 2 percent to 1.5 percent and retirement pay will be calculated based on the five highest years of salary for workers rather than their top three. The Legislature will contribute $225 million per year to paying down the liability. And more state workers and city employees can choose a 401(K)-style defined-contribution plan, but school-district workers can not.
That final version of the bill looks somewhat like the final version of the bill that came out of the Senate in structure if not in numbers. But it looks very different than the version that came out of the House, which eliminated any employer or employee contribution increases, choosing instead to rely on the state budget to repay the deficit and leaving Tate adamant that there were principles to which he and the bill had to stick.
Evolution of compromise
While negotiations to close the gap between the House and Senate versions of the bill over the final week of the session were extensive, they had their roots in stakeholder meetings with PERA officials and interests like the Denver Metro Chamber of Commerce that began in mid-2017. It was through those talks that a somewhat lackluster push for reform in 2018 — Democratic legislative leaders in particular said they could push a solution out to the 2019 session — became an urgent push as more people explained the consequences of waiting, including a likely drop in state bond ratings.
Before Tate could hold fast to his belief that contributions had to be raised to solve the problem, he had to get his side of the aisle to back down on the idea that all future pensioners should be allowed to choose a defined-contribution plan — or mandated to enroll in one, as Rep. Tim Leonard, R-Evergreen, unsuccessfully tried to require through a House amendment. Tate explained that while a defined-contribution expansion might stop debt from accumulating in the future, it would do nothing to close the gap that presented immediate problems for the state.
Then he reminded Becker and Pabon especially what the group had heard from PERA leaders themselves — that having employees and employers both contribute to the closing of the debt was a preferred plan. Both of the Democrats acknowledged Monday that they only had so much room to maneuver to a 30-year stabilization, and they relented on the issue of employee contributions.
Pabon went to the biggest stakeholder group, the Colorado Education Association teachers union, and asked its top priority, and the answer was resounding that they did not want to expand the defined-contribution plan option, a move that CEA leaders thought would undercut the financial stability of the defined-benefit plan and lead to its slow erosion. So, when he and Becker sat down at the negotiating table, he insisted that school workers not get the option for such a plan — and that request became part of the bill.
“One might say that the CEA got their number-one priority in this bill,” Pabon said after the bill signing Monday. “One of the most Democratic organizations got their top priority.”
The final push
But as the quartet began to finalize other compromise details — the cost-of-living adjustment would be 1.5 percent, not the 1.25 percent Republicans sought, for example — CEA leaders began to push back on the raising of the retirement age, for new employees, in particular. They wanted an age of 62, not 65; Tate said Republicans would go only to 64 but not lower, acknowledging the need to get people paying into PERA longer as the average life span continues to rise.
CEA leaders put on a fierce lobbying effort on the final day, turning a majority of House Democrats against the compromise, and Hickenlooper arrived at a House Democratic Caucus meeting around 9 p.m. on the final day of the session to explain to explain why waiting to pass a bill until a special session or the 2019 session would only hurt the state’s finances. As Tate watched from the back and Becker said from the House well that everybody would have to give up something to close a liability that had grown so much, votes trickled in slowly until the measure had support.
Becker said Monday that since that night, there has been little noise about the bill. Even opponents of the final language have had to acknowledge that something had to be done for fear of jeopardizing the retirement payments for some 585,000 Coloradans otherwise.
“Uncertainty for your retirement plans is not a good thing,” she said shortly before the signing. “I’m proud that we got it done — and that it puts the state pension plan in a more financially sound position.”
Michael Finke, the chief academic officer at the American College of Financial Services in Pennsylvania who has watched pension battles erupt in states across the country because of liabilities that have ballooned since the start of the Great Recession, said the Colorado Legislature had to figure out like other states how it was going to pay for retirements that cost twice as much now as they did 30 years ago. And it answered what has become a very difficult query about who would have to suffer to come up with that money.
“Basically, this is a negotiation between the taxpayer and the retiree in terms of who has to pay for this new, more expensive retirement,” Finke told Denver Business Journal.
Tate said he felt that the drawn-out final week of negotiations partly was the product of the teachers’ union marches that had swamped the Capitol shortly before then, demanding more money be put to education. But he credited Becker and Pabon especially for understanding the need to push through a final bill despite their caucus voting against the conference committee compromise report by a margin of 24-12, and he lauded House Republicans for backing it 22-5 despite concerns that more structural moves like board reorganization should have been a part of the bill.
Pabon acknowledged that it was difficult at the end because there was “a lot of moving goal posts.” But the term-limited representative said everything fell into place as it should, despite certain stakeholders wanting the plan that has served generations of public employees to go largely unchanged, even in its failing state.
“The world is changing, and I feel like this bill reflects the changes in the world,” he said Monday.