EDITORIAL
Skimming from ERS mortgaged our future

An actuary's projection that the state may need to contribute a half-billion dollars a year to the state Employees' Retirement System by 2006 illustrates the dangers and the difficulties in trying to predict the stock market and other investment environments.

Lawmakers thought they had a handle on the market when, between 1998 and 2001, they cut contributions to the retirement fund so they could pay for union pay raises and balance budgets.

They decided they could trim the contributions by state and counties by any amount earned by ERS investments above 10 percent. They were right that, as long as the ERS realized that 10 percent, it could pay its obligations. They were wrong, however, in supposing the ERS would always make 10 percent. As most everyone knows, the market has delivered much less over the last two years.

State Auditor Marion Higa warned then that skimming ERS earnings above 10 percent was "detrimental to the system's unfunded actuarial liability."

Because lawmakers bet wrong on the market, instead of diverting ERS "excess" earnings to their own needs, they now find themselves in all likelihood required to begin huge and increasing payments from their already tight budgets into the retirement fund to keep it from falling short of its obligations.

That will be difficult. The state faces an estimated tax shortfall of $300 million over two years; the counties are similarly challenged.

The problem hails from lawmakers' predilection to pay for today's wants and needs with tomorrow's resources. These included ERS earnings and raids on special funds earmarked for future needs.

Of course, a vigorous market recovery might reduce the amounts needed for the ERS, again illustrating the risks of market forecasting. Still, this experience should convince lawmakers to practice a pay-asiyouigo approach, rather than insisting on mortgaging our future.