John MacPherson, a former teacher, administrator and interim executive director of the DPS Retirement System, says valid concerns are being raised about Denver’s pension debt.
If it looks like something is wrong, something probably is wrong. That’s the ongoing story of the 2008 DPS $750 million PCOPs (pension certificates of participation) transaction and the related risk to the DPS pension.
The latest chapter came in a Denver Business Journal story last Friday. Reporter Heather Draper opens with a synopsis of the current DPS ballot issues asking voters to approve an additional half-billion dollars in DPS debt. She moves on to note that there are continuing concerns about past DPS bond issues and unfunded pension obligations that have grown to over $600 Million since the PCOPs were issued.
Quoted in the article is Lynn Turner, a Public Employees’ Retirement Association – or PERA – Board of Trustees member and a former chief accountant for the U.S. Securities and Exchange Commission. He asserts that past DPS bond issues (including 2008) have “only shifted who they owed money to from the pension plan to the bond investors. They never changed the fact they still had to come up somehow with money to cover the debt and cash-flow shortfalls.”
Turner goes on to say, “DPS officials have long been trying to figure out ways to make up for unfunded pension liabilities without hurting the district’s cash flow. DPS has had shortfalls in cash flows since the late 1990s that have led to the underfunding of their pension plan obligations. DPS, instead of addressing the core issue, has put their heads in the sand and issued bonds trying to make it look like their pension problem has been solved, when the reality is that it hasn’t.”
Specifically addressing the 2008 DPS PCOPs transaction, Turner concludes, “DPS gambled with taxpayers’ money when they decided to enter into interest-rate swaps — and they lost. To date, that gamble has taken a lot of money out of the classroom that would have otherwise benefited students. And instead, money has gone into the pockets of bankers.”
Later, in her blog perfectly titled, “DPS pension in a nutshell: If it doesn’t hurt us now, let’s promote savings,” Draper notes she has written seven articles on this subject in the last two years. When questioned about the 2008 PCOPs transaction, the DPS response is always the same in that “ … they mostly just discuss the “savings” they’ve gotten from the pension financing.”
Those savings result largely from legislation passed in 2009 which allows DPS to reduce its employer contribution to PERA by the annual amount of debt service it pays on the PCOPs. Since July 1, 2009, DPS has not contributed enough to its pension plan to cover even the annual cost of pension benefits earned by active employees. In this manner, DPS is systematically defunding the DPS pension depriving current employees of their deferred compensation and all members of the DPS pension plan of their long-term retirement security.
This is a situation created entirely by DPS in search of budget relief for past sins. In a November 9, 2007, letter to DPS employees touting the merits of what became the 2008 PCOPs transaction, former Superintendent Michael Bennet and current Superintendent Tom Boasberg said, “We are not going to leave an insoluble mess for future generations at DPS.” In the years ahead, we likely will find that is exactly what they have done.