Posted on: Monday, June 7, 2004

EDITORIAL
Skimming from ERS mortgaged our future

And so the chickens come home to roost. We've been warning for years that the state's cavalier approach to its Employees' Retirement System was courting disaster.

The first tangible sign of trouble is in fiscal year 2005, when projections show that the state must pump an additional $93 million into ERS to keep it on track to meet its obligations.

The shortfall soars to more than $400 million in fiscal 2006.

This isn't a surprise. In 2002, an actuary warned that the state might need to contribute as much as a half-billion dollars in 2006.

These projections illustrate 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 been more than fickle in recent 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, especially given the generous pay raises lawmakers have recently given state workers.

The problem hails from lawmakers' predilection to pay for today's wants and needs with tomorrow's resources. These included ERS earnings and years of raiding 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.

It's also a warning that lawmakers have been overly generous with other people's money, as they agree to early retirements, paid healthcare for retirees and other benefits for state workers that comparable private-sector workers only dream of.

It makes sense, rather than cutting taxes or cutting ever more deeply into essential services to raise the money for ERS, to reduce some of these retirement benefits for new state hires. But given the way Democrats in the Legislature have marched to the tune of the public worker unions in recent years, we're not holding our breath for that.