Colorado appears to be at a crossroads similar to that in California in the late 1980s. At that point California was a dynamic growing economy. That prosperity reflected a fiscal constitution that kept the growth of government in line with the growth of the private economy. California’s GANN Amendment, which was a precursor of the TABOR Amendment in Colorado, limited the growth of state revenue and spending to the sum of inflation and population growth. In the late 1980s, under pressure from the education employee lobby, the California legislature abandoned the GANN Amendment, and the rest is history.
READ MOREColorado’s Public Employee Retirement Association (PERA) is experiencing a financial crisis. The current financial crisis has resulted in a significant decrease in the value of PERA’s portfolio. But the financial crisis in PERA is not just the result of the current financial crisis. PERA’s defined benefit pension plan is fundamentally flawed; the problems in the plan have emerged over several decades. While the current financial crisis has exacerbated these problems, PERA is facing a long-run deterioration in its financial condition.
The legislature has enacted several reforms over the past decade to address PERA’s financial problems. These reforms have included changes in benefits, increased contribution rates, and administrative changes. Unfortunately, these reforms have failed to address the fundamental flaw in PERA’s defined benefit plan.
This Issue Paper explores the financial crisis in PERA. Different measures of the magnitude of the crisis are examined, and the flaws in PERA’s defined benefit plan are analyzed. The failed legislative reforms of PERA are critically evaluated. The Issue Paper concludes that the legislature should consider declaring a financial emergency and enacting the fundamental reforms needed to solve PERA’s financial crisis. Other states have successfully reformed their own state employee pension plans by replacing a defined benefit plan with a defined contribution plan.
READ MORETax and spending limits (TELs) are budgetary rules that determine how much taxes and/or expenditures can increase from one year to the next. TELs can be statutory or constitutional rules. Statutory TELs can be modified by legislative action, while constitutional TELs can only be modified by a majority vote of citizens. TELs may originate through a legislative statute or referendum, or they may be initiated by citizens in states that provide for this form of direct democracy. TELs are now in place in 26 states.
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