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House committee seeks clarification on its PERSI vote of last week

House committee seeks clarification on its PERSI vote of last week

Idaho Freedom Foundation staff
January 24, 2013
PERSI director, Don Drum, answers questions in the House Commerce and Resources Committee.

Sometimes the best step forward is to take a step back. To be clear that what you did is what you thought you did. To take some time to resolve questions that have come up in the meantime.

To that end, Rep. Stephen Hartgen, R-Twin Falls, chairman of the House Commerce and Resources Committee, at a hearing of his committee on Wednesday said some members of the committee had requested clarification and more information on a vote the committee took last week concerning the Public Employees Retirement System of Idaho (PERSI).

Specifically, members wanted information on PERSI’s unfunded liabilities, costs to the state’s taxpayers, if the rate of return projected by PERSI is realistic and if the various public agencies contributing to PERSI are aware of added costs coming their way.

“After last week’s committee meeting, we had some members of the committee take a look and realize that we needed further clarification on what we had just voted on,” said Hartgen. He then introduced Don Drum, director of PERSI, asking him to stand for questions from committee members.

At issue was a committee meeting and vote on Jan. 15 during which the committee unanimously approved a retirement pension contribution increase for PERSI members. The committee’s approval came despite the fact that an outside analyst’s projection says that the agency carries an approximately $10 billion unfunded liability and that government records obtained by IdahoReporter.com show that Idaho taxpayers are now contributing $2 for every $1 that PERSI members contribute to their own retirement accounts.

PERSI provides retirement benefits and services to a majority of state and local government employees throughout Idaho. PERSI membership includes full-time state employees and local school district employees, as well as employees of most other city and county government agencies.

At Wednesday’s hearing, Hartgen asked Drum what the annual cost would be to government agencies that employee PERSI members, in light of the committee’s previous approval of retirement contribution increases.

Drum said the added costs to state government agencies amount to an estimated $11 million annually, whereas school districts, and county and city government agencies will face an additional $24 million in operating expenses annually. Last December, a PERSI spokesperson told IdahoReporter.com that the costs to government agencies for the proposed contributions amounted to $15 million annually.

“Is it accurate to say that PERSI carries an unfunded liability?” asked Rep. Neil Anderson, R-Blackfoot, during the committee’s questioning of drum. Drum acknowledged that PERSI carries an unfunded liability that impacts the state of Idaho and the other government agencies that employ PERSI members, “but most of the burden belongs to the state.”

During questioning about the estimated $10 billion unfunded liability immediately following last week’s committee hearing, Rep. Doug Hancey, R-Rexburg, told IdahoReporter.com that “I have never heard anything about a $10 billion unfunded liability. Where did that figure come from?”

The figure comes from Bob Williams, a researcher with the private, nonpartisan State Budget Solutions organization. Not only does he have concerns about an unfunded liability, Williams also worries that PERSI is mistakenly assuming that its funds’ investments will produce a return of 7-8 percent annually.

“The state is using budgeting gimmicks—unreasonable expectations on the rate of return in their investments, writing off financial losses over several years and so forth—in estimating that they have only $1.2 billion in unfunded liabilities,” Williams has told IdahoReporter.com. “They aren’t being realistic.”

Hartgen noted in Wednesday’s hearing that PERSI currently projects a 7 percent annual return with its investment portfolio. He asked Drum if that expectation might be overly optimistic.

“We are confident with this figure,” Drum replied, and explained that the current expectations are lower than they have been in previous years.

During questioning, Hancey asked Drum if city and county agencies, and school districts have been notified about the increased operating expenses that are entailed in the retirement contribution increases.

“I don’t know that they’re welcoming them with open arms,” Drum replied, “but yes, they have been anticipating this, and as I travel around the state I have been notifying them.” Drum added that “school districts, in particular, recognize that we need these contribution increases to attract and retain good talent.”

“Unfunded liabilities are ultimately the responsibility of the state,” Anderson told IdahoReporter.com after the committee hearing. “If we’re going to make up for that by collecting extra money from our citizens, then that’s something that we’ll have to do, but I think we’ll leave that as a last resort.”

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