Governor pushes pension reform

Gov. Brian Schweitzer contends that his plan for funding the state’s overdrawn pension plans can be accomplished within the decade and without raising taxes.

The pension plans currently are underfunded by about $3.4 billion over the next 30 years, but without action the liability will continue to grow, Schweitzer told the Daily Inter Lake editorial board Tuesday.

“You can’t kick the can down the road forever,” Schweitzer said, adding that the Public Employees and Teacher Retirement programs should be a priority.

Schweitzer proposes separate rescue plans for the two retirement systems.

In the case of the Teacher Retirement System, he would divert $25 million per year from State Lands revenue that is dedicated by law to benefiting education. He would also increase the employee contribution by 1 percent, raising $8.5 million per year, and would add a one-time-only $14.7 million employer contribution.

For the Public Employees Retirement System, Schweitzer proposes that employers and employees each contribute an additional 1 percent to the retirement plans, raising $13.7 million per year from each source, and the state would contribute an additional $18.1 million per year from coal-tax severance funds. There would be an additional local government contribution as well, which for Flathead County would amount to an additional $158,451 out of current spending of $78 million.

Local governments and school districts should be able to come up with additional money for the funds without raising taxes, Schweitzer said, citing his own ability to accrue general fund surpluses under difficult economic circumstances.

The Democratic governor explained that the pension shortfall came about in part because the of legislation passed in 2001, when state coffers were flush, that increased the state’s contribution to employee pensions by 3 percent per year, up from 1.5 percent.  

That legislation, approved by a Republican Legislature and Republican Gov. Judy Martz, has been a major cause of the retirement fund liabilities, Schweitzer said, noting that GOP gubernatorial candidate Rick Hill had been Martz’s chief economic adviser.

Schweitzer said the 3 percent has been rolled back to 1.5 percent only for newly hired employees, helping to lessen the crisis, but not to solve it. Schweitzer said his plan is needed to bring the pension plan into the black.

“By the year 2020 we will be actuarially sound and no longer in violation of our Constitution,” he said, referring to the state Constitution’s provision that retirement systems be funded on an actuarially sound basis.

Schweitzer’s plan has run into resistance from Republican gubernatorial candidates who are hoping to succeed him.

Former Congressman Rick Hill objects to using increased school trust revenue from natural resource development to go to the teachers’ pension funds.

And he favors using a “defined contribution” system where new government employees would contribute to their retirements in a manner similar to 401(k) plans in the private sector.

State Sen. Ryan Zinke, who is GOP candidate Neil Livingstone’s running mate, said he also favors the defined contribution approach.

“We are 401(k) advocates,” Zinke said. “That doesn’t mean dismantling the entire system but it does mean providing more flexibility and modifying the pension system to the modern era.”

Schweitzer counters that taking new employees out of the pension mix is “doubling down on crazy” because new contributors are needed to fund the benefits of those who retire, and without them the fund liabilities are bound to grow. He pointed to the fact that new employees get only a 1.5 percent annual increase as opposed to the 3 percent increase for earlier employees as an incentive to bring them into the system, where their benefits will bring the average cost down.

Hill and Cory Stapleton, another GOP candidate for governor, both want any increased natural resource revenues to go toward property tax reduction to improve the economy.

Stapleton said the state needs a “jobs first, pensions second” approach.

But Schweitzer said using school trust revenue to make the teacher retirement system sound “is a legitimate function for education dollars.”

Schweitzer, who leaves office at the end of the year, acknowledged that he won’t be able to shepherd his plan through next year’s Legislature, but he said he wants the media and the public to be aware of the problem and put pressure on state lawmakers to address it.

“You will put pressure on them to fix this. Force this Legislature to do what Congress won’t do... We don’t work like Congress,” he said, referring to Congress’s continuing inability to address deficit spending and entitlement reform.

Reporter Jim Mann may be reached at 758-4407 or by email at jmann@dailyinterlake.com