And the time bomb keeps ticking with little to slow it; this will be the assessment of how the 2011 Louisiana Legislature handled the $18.2 billion and rising unfunded accrued liabilities in the state’s various retirement accounts.
Not that efforts weren’t made to put the state on more solid footing with the recognition that its past generosity to state employees were costing taxpayers unnecessarily. Special mention goes to state Rep. Kevin Pearson who courageously sponsored a slew of bills to create a more realistic system that did not surrender taxpayers completely to the wants of state employees, both to address the problem for the future and to give some immediate assistance. About the only thing Pearson did not pursue was the eminently sensible idea from last session to put all new employees on a defined contribution plan.
For one of the main reasons why the UAL has become monstrously outsized has been that only some employees for universities and a handful of unclassified employees elsewhere (the opportunity for the latter since terminated) have been able to create retirement account like Individual Retirement Accounts, with the remainder in a defined benefit scheme that decades ago was made overgenerous.
As noted previously, compared to the private sector or even some other public employers, overall Louisiana state employees, especially those in the classified service, ride a compensation gravy train, thereby increasing taxpayer costs to fund this.
As a result, the UAL has grown so that it’s almost twice large as the actual assets in place to fund expected claims. Also contributing to this is the UAL is calculated on a return basis of 8.25 percent. That figure would be the envy of any Wall Street fund manager and often has not been reached, especially in recent years where the average annual return has been much lower (for example, the largest of them, the Louisiana State Employees Retirement System, has experienced only 5.5 percent average growth since 2005). And the UAL cannot be ignored – the state constitution mandates that the UAL go to zero by 2029, the imperative of which caused the state to pay an extra $690 millions in taxpayer funds last year to try to meet that goal.
Among other more technical things, Pearson’s bill tried to have employees pay a fairer share of their retirement by raising their contribution for most by three percent, have their benefits calculated over a five-year rather than three-year average, and to have the electorate vote on contributing more episodic money to paying down the UAL. Only the latter looks to have a chance at success (which even if it passes may never have any effect if the state doesn’t see any non-recurring excess revenues before 2029). Unfortunately, enough legislators in an election year felt pressure from whiny state employees (who don’t realize it’s their tax money too going to pay off the UAL) and/or continue to see them as a special interest that needs feeding from the trough that provides support at the ballot box to scuttle the others.
A more conservative legislature may improve prospects for passage of these needed reforms next year, but that’s uncertain given the prevalence even among conservative legislators of that attitude of keeping as many state jobs with as many happy state employees as possible earns greater numbers of votes. Even if the rejected measures of 2010 and 2011 can find their way into law in 2012, needlessly lost time increases the burden on all present and future Louisiana taxpayers, as the transfer of the people’s resources to those who run the state continues at a rate higher than necessary.
Posted by Jeff Sadow at 09:40