Colorado Gov. Jared Polis has proposed cutting the state’s contributions to the public pension by as much as $38 million next year to help cover the cost of employee raises owed under the state’s collective bargaining agreement.
The move would buy the state government some financial breathing room for next year, when it faces an $850 million deficit. But it would also come at a steep long-term cost that could come back to bite public workers and taxpayers alike.
The legislature’s Joint Budget Committee will consider the proposal between now and March, when it’s scheduled to adopt the state’s annual budget for the 2026-27 fiscal year. If the budget panel and the rest of the state legislature approves, it would mark the second time the state has fallen short of its commitments under the 2018 state pension deal that set PERA on a 30-year path to full funding.
At a JBC hearing earlier this month, Public Employees’ Retirement Association officials told lawmakers that the cuts would add a projected $180 million to the pension’s long-term debt to retirees. That’s thanks to lost investment earnings that PERA would have otherwise made from those payments to the pension, which grow at an expected rate of 7.25% annually.
“Borrowing money from PERA is expensive,” Andrew Roth, the pension’s executive director, said during the hearing. “We’re similar to a fairly high interest rate credit card, and so delaying money owed today significantly increases what’s owed to the plan tomorrow.”
PERA’s balance sheet has improved significantly under the 2018 reforms, climbing from the brink of insolvency to relatively stable ground today. Four of PERA’s five divisions, including the state government, are on track to reach 100% funding by 2048, the target set in state law. The schools division is not far off, with a projected full funding date of 2053.
In large part, that’s because public employers have fully funded their share of employee benefits since the deal was struck — a stark contrast from the 2000s and 2010s, when PERA’s finances deteriorated.
Savings would help pay for raises
In his November budget letter, Polis cited PERA’s “considerable” improvement in justifying the proposed cuts, noting that a one-time reduction shouldn’t have a major impact on the state achieving its funding target. Even at a long-term cost of $180 million, the cut would represent a decimal point on PERA’s $28.9 billion unfunded debt.
When asked for comment for this article, Polis’ office issued a general statement that did not directly address his PERA proposal.
“Gov. Polis submitted a balanced and responsible budget, and the Joint Budget Committee will have to make difficult decisions to deliver a balanced budget to the governor’s desk in the spring,” read the statement from Shelby Wieman, a spokesperson for the governor. “This proposal helps us reach a balanced budget, but it is not a long-term solution.”
The budget letter said the savings would help cover the cost of the state’s collective bargaining agreement, which calls for a 3.1% across-the-board pay bump, plus step increases for state workers. All told, the pay increases add up to $121 million next year, according to JBC staff documents.
Hilary Glasgow, the executive director of Colorado WINS, told The Colorado Sun that the union would “of course” prefer to see PERA’s unfunded debts paid down as quickly as possible. But in a tough budget year, she added, “our priority is ensuring our Partnership Agreement is fully funded so that state employees are paid a livable wage.”
“Like everyone else, they’re grappling with an ever-increasing cost of living, and paying them a living wage is the best strategy for retaining our workforce and keeping Colorado running, especially in the context of a hiring freeze,” Glasgow wrote in a text message.
From a budgeting standpoint, using a temporary cut to pay for ongoing costs like pay raises merely kicks Colorado’s long-term financial problems down the road. And pension officials cautioned that even temporary cuts increase the chances that PERA will trigger another round of retiree benefit cuts and contribution hikes to stay on financial track. If adopted, Polis’ proposal would work against recent attempts by the PERA board to protect retirees from additional benefit cuts.
Moreover, it would once again leave the state paying less than its share of the 2018 pension deal, Senate Bill 200, effectively shifting more of the burden onto retirees and public workers.
In 2020, state lawmakers skipped a $225 million payment to PERA in order to balance the budget during the pandemic. The payment was later restored, but the damage was done; PERA missed out on millions in investment earnings it would have otherwise made while the market boomed in the ensuing years.
Polis’ proposal would temporarily reduce the state’s employer contribution rate from 21.4% of pay to 20.4%. Employee contribution rates wouldn’t change, and neither would the contribution rates for other public employers, such as schools.