There’s an old saying about holes and digging that the Louisiana Legislature can’t quite work its way through when it comes to state pensions.
We believe lawmakers and Gov. John Bel Edwards ought to think about the long-term financial interests of the state and the credibility of the state’s recent efforts to rein in pension costs. Tackling pension reform won’t help the immediate problems with the state budget. But the state’s ongoing fiscal crisis, which recently prompted lawmakers and the governor to approve about $1 billion in new taxes, underscores the importance of making prudent financial decisions now to avoid new problems later.
There are giant unfunded liabilities in Louisiana’s main public pension systems. Those billions of dollars in debts are not due tomorrow, but they are real debts, which represent a failure over many years of the state to pay its bills.
In 2014, the Legislature adopted a go-slow law that placed restrictions on when the underfunded pension systems can give cost-of-living raises. Two of the three requirements in the law have been met, but one of them is the rate of inflation. That’s the reason for a “cost of living” raise in the first place. But inflation is very low, and the 2014 law requires it to be higher to allow a COLA.
More than 120,000 pensioners is a potent political bloc. Legislators tried to pass a COLA last year, in complete defiance of the law they had passed only a year before. In a display of financial prudence, then-Gov. Bobby Jindal vetoed that bill.
Protecting taxpayers’ interests, and indeed the long-term interests of pensioners themselves, is now apparently out of fashion.
Edwards was elected with the support of many union leaders. He said he will sign a COLA, but even the senator proposing the bill admits that the inflation trigger in state law has not been met.
To make the COLA bill more palatable, state Sen. Barrow Peacock, R-Shreveport, tied Senate Bill 2 to two other bills that would make improvements in the accounting rules for pension systems. Senate Bill 5 would require the retirement systems to timely pay administrative costs rather than roll those charges into the 30-year debt; Senate Bill 18 would reduce the amortization period — paying off debt on a fixed schedule — from 30 years to 20 years.
The rest of the package is fine, except that SB2 does not follow the law.
Steven Procopio, policy director at the Public Affairs Research Council of Louisiana, noted that the 2014 law specified inflation for the previous 12 months. That is not met in Peacock’s bill.
Circumventing the criteria is not prudent, Procopio said. “It basically undoes what the law does,” Procopio added.
That it does. The principle of “when in a hole, stop digging” was far less important than the political gains to be made from a COLA.
Over time, inflation adjustments have to be made. We are not forever opposed to COLAs. What we can’t get over is that the vast debts of the systems are being waved away, as of no consequence, when, at a time of low inflation, the state could indeed put more money into its pension debts instead of granting a COLA this year.