Bitter Pill

Teachers union opposes 401(k)-like provision in Colorado pension overhaul bill

PHOTO: Denver Post file

Colorado lawmakers Wednesday unveiled one of the most anticipated bills of the session – an overhaul of the public employee pension system in which most public school teachers participate – and the teachers union immediately raised alarms about a central provision.

Along with increasing employee contributions, cutting benefits for retirees, and raising the retirement age, the bill calls for the creation of a defined-contribution option within the Public Employees’ Retirement Association, similar to the 401(k)s available to many private sector employees, for workers hired after Jan. 1, 2020.

“The alarming provisions in this bill to expand a defined-contribution or 401(k)-style plan do absolutely nothing to achieve the goal of fully funding PERA in 30 years,” Colorado Education Association President Kerrie Dallman said in press release. “A drastic overhaul to PERA with political ornaments like defined-contribution are only being driven by well-funded, out-of-state interests such as the Koch Brothers and the Arnold Foundation. Our legislature needs to ignore the outside voices and instead focus on solutions informed by reliable data.”

The bill, whose sponsors include state Sen. Jack Tate, a Centennial Republican, and House Majority Leader K.C. Becker, a Boulder Democrat, also calls for:

  • Employee contributions to increase by 3 percentage points over the next two years
  • Taxpayer contributions to increase by 2 percentage points during the same period
  • Annual cost-of-living raises for retirees to go down to 1.25 percent from the current 2 percent
  • An increase in the retirement age, not just for new employees but also for current employees who are 46 or younger
  • The creation of a legislative oversight committee
  • A fail-safe mechanism to allow automatic adjustments of benefits and contributions if necessary for the financial stability of the fund

As The Denver Post’s Brian Eason reports, Republicans consider the creation of a defined-contribution plan to be the necessary sugar that allows them to swallow the bitter pill of increased taxpayer contributions. But this proposal as introduced doesn’t have the votes to get out of the Democratic-controlled House, which means the final version will look different – if we get a PERA bill at all out of a divided legislature in an election year.

Ushering the bill through a split legislature in an election year will be tricky, and there’s something in the bill for each side of the pension debate to hate. The defined contribution provision, coupled with the steeper cuts to benefits backed by Hickenlooper, will likely draw significant opposition from public-sector unions and Democratic lawmakers. The plan also increases government contributions, an idea that (Gov. John) Hickenlooper, (Treasurer Walker) Stapleton, and many conservative lawmakers oppose.

Dallman stressed that the teachers union understands that shoring up PERA’s solvency will require “shared sacrifice.” What that means in practical terms is that increased employee contributions and reductions in cost-of-living increases for retirees are negotiable and very much on the table.

But the union considers the 401(k)-like plan unacceptable. Dallman tied the issue to the difficulty many districts have in hiring enough teachers in certain subject areas and in certain parts of the state. PERA’s defined retirement benefits, so rare now in the private sector, help teachers tolerate low wages and sometimes challenging working conditions.

“Educators who teach our children for a long career have earned a stable income that affords them a good quality of life in their retirement years,” Dallman said. “The defined benefits of PERA allows retirees to remain solid, dependable contributors in their local economies in all market conditions, and demonstrates Colorado’s dignity and respect for public employees who continue to make our state a great place to live, work and raise a family.”

Past proposals to create defined-contribution plans have been expensive, the Post reports, because the system needs money from current employees to pay retirees. This bill tries to avoid that problem by requiring public agencies to backfill some of the lost contributions of non-participating employees.

PERA, which replaces Social Security for public school teachers and many other public sector workers, has roughly 566,000 members statewide. The program has only 58 percent of the necessary assets to pay its retirement obligations, with an unfunded liability between $32 billion and $50 billion.

Earlier this year, Eason looked at how the program ended up in trouble less than a decade after it was supposedly fixed the last time.

Correction: An earlier version of this story described PERA’s unfunded liability in the millions. It’s in the billions.

Round up

What Colorado lawmakers did for and to schools in 2018

Jefferson County educators Joel Zigman and Elizabeth Hall march during a teachers rally for more educational funding at the Colorado State Capitol on Thursday, April 26. (Photo by AAron Ontiveroz/The Denver Post)

The Colorado General Assembly’s 2018 session ended with a down-to-the-wire compromise on pension reform that left some teachers feeling bruised, but Gov. John Hickenlooper said there should be no confusion. In a world of competing priorities, education came out ahead.

The 2018-19 budget puts more into K-12 education than the state has spent in years, and Republicans agreed to put ongoing taxpayer dollars into stabilizing the Public Employees Retirement Association system, something they had long resisted.

Making those investments is why lawmakers ended up budgeting far less money into transportation infrastructure, another top priority, than Republican leaders wanted.

“That money went to PERA and school teachers,” Hickenlooper said. “Let’s be bluntly honest about that.”

Hickenlooper, who began the session with a certain futility about increasing education spending, called it “pretty remarkable” that Colorado’s education funding shortfall is down to $672 million, when it was over $1 billion just a few years ago.

“We made major investments in K-12 education,” he said.

The education bills this year were not just about money. Lawmakers also took modest steps to address the teacher shortage, tightened up the school accountability system, made it a little easier for foster children to graduate from high school – and enabled more children from low-income families to take AP exams or just eat lunch at school.

Here’s a look at the education legislation that made it through this year:

School finance

A little more than $7 billion in base spending will go to K-12 education in 2018-19, a 6.95 percent increase from the current school year, with the state portion going up considerably more than the local share.

In addition to mandated budget increases, the bill adds $150 million more for education. That means Colorado fell $672 million short of its constitutionally required level of education funding, a gap known as the negative factor or budget stabilization factor. That gap is the smallest it has been since this budget maneuver was created during the Great Recession, but for some, its persistence is a major source of frustration.

Average per-pupil spending for 2018-19 will be around $8,137, a $475 increase from this year. That translates into millions of additional dollars for many districts. Lawmakers also sent an extra $30 million to cash-strapped rural districts and set aside $5.5 million for state-authorized charter schools to make up for local property tax revenue they don’t get.

This abundance was made possible by a booming state economy and a major compromise last year that eased the impact of constitutional restrictions on state spending. With teachers marching on the state Capitol, legislators urged local school boards to turn some of this new money into pay raises.

Two efforts to change how schools are funded failed to gain traction, though. One bill would have changed how Colorado shares money with school districts, giving much more weight to student characteristics like disability, poverty, and the need to learn English. It would have only gone into effect if voters approved a major tax increase in November.

A proposal to use incentives to get more school districts to ask voters to raise local taxes never even got introduced. It was one solution to the long-standing problem of unequal mill levies around the state, and its proponents hope that an off-season interim committee on school finance will consider it for next year.

Also going to an interim committee: some sort of fix to constitutional provisions that have had the unintended consequence of ratcheting down property taxes in rural districts.

Teacher shortage

Colorado lawmakers set aside $10 million and passed nine bills to address the shortage of teachers in some subjects and in many rural areas. The bills send $2 million to the Colorado Department of Higher Education to work with educator preparation programs and $3 million to school districts to design their own incentives to keep teachers. There are $10,000 fellowships and $6,000 stipends for rural teachers and a “grow your own” program that pays the final 36 credit hours for student teachers if they make a three-year commitment to a district.

There are also two bills that make it easier for teachers moving here from other states to get licensed and another that simplifies the background check process for student teachers.

Several hundred teachers are likely to benefit directly from these programs, but without money to raise teacher pay, especially in rural districts, the impact will be modest. Bills on loan forgiveness and improving school leadership – two strategies supported by research – didn’t pass.

Pension benefits

To address the unfunded liability in the public employee retirement system, legislators raised the retirement age to 64, increased employee contributions by 2 percentage points, and cut retirement benefits. They also boosted contributions from school districts by 0.25 percentage points.

The deal also promises that $225 million a year in taxpayer money will go into the public pension fund, something Republicans had long opposed.

The Colorado Education Association, the state’s largest teachers union, sees the compromise approved in the final hour of the 2018 session as putting too much burden on teachers.

Accountability

Struggling Colorado schools being monitored by the state will have to show more sustained improvement to avoid intervention under legislation passed this session. Requested by the Colorado Department of Education, this bill also clarifies the next steps after a school or district implements a state-ordered improvement plan, allows the state to step in earlier, and requires more communication with parents.

Lawmakers also approved changes to the READ Act, which requires schools to identify struggling readers in the early grades and provide additional support. The update seeks to ensure that schools are using appropriate materials and that they’re using money for its intended purposes. The law also creates a working group to study the READ Act plans developed by schools and recommend additional changes.

There were two changes to the factors schools use to reach state accreditation. One bill gives schools credit for the number of students who enlist in the military after graduation, similar to the credit they get for students who enroll in college, and the other gives schools credit for students who take Advanced Placement or International Baccalaureate classes or who enroll in college classes while in high school.

Colorado lawmakers also took an additional step to prevent schools from pressuring students to take state assessments, prohibiting the use of rewards like pizza parties or raffle tickets.

College credit

Colorado has had a big push in recent years to expand access to concurrent enrollment and AP courses, particularly for low-income students and students of color. Because the courses allow students to get college credit while they’re still in high school, they’re seen as offsetting some of the cost of college, allowing students to graduate with less debt.

Lawmakers created a $500,000 grant program to help high schools cover AP exam costs for students from low-income families. At $94 apiece, the cost can really add up, yet a passing score on an exam can excuse a student from an entire college course. A federal program that reduced the cost of the exam ended in 2017.

Legislators also continued an existing pilot program that pays rural school districts for every student who takes an AP class and exam. The goal is to encourage school districts with fewer resources to offer more college-prep courses.

Lawmakers also passed a bill that requires school districts to provide more information to students and parents about the benefits of concurrent enrollment options, along with deadlines and requirements.

At the same time, they voted to restrict the expansion of so-called “early college” high schools that allow students to stay in school a fifth and sixth year while taking college classes. These programs in Eagle County and Denver Public Schools are small now, but state budget writers feared that their expansion could put a strain on school finance.

Foster youth

Youth in foster care have the lowest graduation rates in the state, much worse than homeless youth. One bill makes it easier for these children to make it across the finish line. It provides money to pay for transportation to allow them to stay in their home school, and it also provides flexibility in graduation requirements.

This makes Colorado one of the first states to comply with federal requirements about providing school transportation for youth in foster care.

School security

After a deadly shooting in Parkland, Florida, students twice marched on the state Capitol, many of them calling for more gun control. In Colorado’s split legislature, gun control is a non-starter. Instead, lawmakers voted to set aside $30 million for school security. The money can be used to provide additional training to school resource officers who are already employed, to train school staff in crisis response, and to improve the physical security of school buildings. It can’t be used to hire new school resources officers, a provision drafted in response to advocates concerned about the criminalization of students of color.

Legislators also dedicated $5 million for interoperable radio systems to allow rural school districts to more directly communicate with emergency responders.

Schools will have to apply for grants to use this money.

Well-being

Colorado elementary school students who qualify for reduced-price lunch could already get the meal for free, thanks to a state program that picks up the 40-cent cost not covered by the federal lunch program.

A new law extends that benefit to middle school students. School nutritionists had seen a big drop-off in lunch participation in middle school, and they hope this program encourages more kids to eat at school. Advocates also hope it reduces the practice of “lunch shaming,” in which kids are denied hot lunch and given crackers or other small snacks to get their parents to pay outstanding lunch debt.

Lawmakers also made a small step to address youth suicide, the second leading cause of death of people aged 10 to 24 in Colorado. Grants will help schools train staff in recognizing the warning signs of suicide and in how to get help for children in crisis.

Early childhood

Lawmakers extended a tax credit for people who donate to child care centers. This credit, which allows donors to take half the value of their donation as an income tax credit, is an important incentive in the eyes of people who run these businesses.

Another bill created a licensing process for substitute early-childhood teachers that advocates hope will ease staffing shortages.

Of more significance to middle- and upper-class families, Colorado lawmakers expanded the income tax credit for child care expenses. Parents can take a percentage of their federal child care credit as a state tax credit. This bill raises the income limit to take advantage of this tax credit from $60,000 to $150,000 and increases the percentage of the federal credit that can be applied to state taxes.

Rural broadband

Money from a fund previously used to subsidize rural telephone service will be invested in broadband construction through 2023. Bringing high-speed internet to remote parts of Colorado is key to economic development and the provision of modern health care. It also will allow students in rural schools to use the same online resources that other students do. This is a long-standing priority of Hickenlooper, realized in his final year in office.

School construction and repair

Colorado will put more marijuana tax money into the BEST program, which gives out grants to school districts for building repairs and, occasionally, new buildings. A bill lifted a $40 million cap on marijuana excise tax revenue going to the program. However, the money won’t go as far as it could have because lawmakers are hesitant to borrow against pot money in an uncertain regulatory environment.

reality check

Colorado lawmakers’ pension compromise raises teacher retirement age, cuts benefits

Colorado General Assembly in the House of Representatives. (Photo by Joe Amon/The Denver Post)

In the final hour of the 2018 legislative session, Colorado lawmakers adopted a compromise plan they hope will bring solvency to the state’s public employees retirement system.

The deal that emerged from 12 hours of negotiations Wednesday was not the deal that many people expected to see when the day started. It raises the retirement age for new teachers from 58 to 64, requires public employees to put an additional 2 percent of their pay into the retirement system, and reduces cost-of-living raises for retirees. The Colorado Education Association said it shows a serious disregard for the thousands of teachers who rallied at the Capitol just weeks ago.

But the teacher rallies were far from the only political backdrop to the negotiations. This is an election year, and a Republican might be sitting in the governor’s office come January, namely Colorado Treasurer Walker Stapleton. His plan for the Public Employees Retirement Association system includes a freeze on cost-of-living increases for retirees until the fund becomes more financially stable, something that could take decades, and no additional taxpayer contributions.

That gave Democrats an incentive to get a deal done this year. And beyond politics, the problems with PERA only increase every year that more money doesn’t go into the system.

PERA is estimated to have an unfunded liability of between $32 billion and $50 billion, endangering retirement benefits down the road, along with the state’s credit rating.

The bill that passed commits $225 million a year in taxpayer money to shoring up the pension system, something long opposed by Republicans, as well as by Democratic Gov. John Hickenlooper. In an unusual late night appearance to lobby for the bill with skeptical Democrats, Hickenlooper stressed the significance of that compromise.

But last minute changes to the bill mean that the taxpayer contribution won’t increase over time. Instead, public employers – like school districts – will put in an additional 0.25 percent.

Colorado teachers can’t participate in Social Security, which means they rely on PERA benefits in retirement. Those are based on a percentage of what they made in their highest earning years, along with other factors. In 2016, the average pension for a school district retiree was $37,000. The bill freezes pensions for two years, then offers 1.5 percent cost-of-living raises, not the current 2 percent.

“We are very disappointed in our elected officials who did not support educators and retirees, and even chose to take money out of their pockets,” CEA President Kerrie Dallman said in a statement emailed after the vote. She called the bill “an unfortunate lesson in politics, reminding us that those in power who represent the people can still be completely tone deaf to their constituents. … This is bad policy done in haste.”

The version of the pension overhaul that passed the Republican-controlled Senate in March called for employee contributions to gradually go up 3 percentage points, to 11 percent, and for cost-of-living raises to go down to 1.25 percent. The version that came out of the Democratic-controlled House spared employees any increase in contributions. The $225 million taxpayer contribution was secured as a set aside in the budget process.

The final version was always going to be somewhere in the middle, but the reaction from Democrats indicates this deal was not the one they had in mind. Several lawmakers asked to be removed as co-sponsors from the legislation.

Brian Eason of the Associated Press reported that the teachers union was willing to accept a retirement age of 63, but no higher. The union lost that battle. The final bill still does not allow teachers to opt into a 401(k)-like defined contribution plan, something the union adamantly opposed.

House Majority Leader K.C. Becker, a Boulder Democrat and co-sponsor of the bill, pleaded with her colleagues to think of the long-term problems that need to be solved.

“We have to reform the system in a way that spreads the burden and has shared sacrifice,” she said. “Some people are not happy that there’s an additional taxpayer contribution. Some people are not happy that there’s an additional employee contribution. But the system is not going to fix itself.”

She said a no vote was a vote to “leave a $32 billion problem unaddressed.”

On the floor of the House, with the clock ticking down, no Democrats argued against the bill, but 25 of them voted against it, including Speaker of the House Crisanta Duran and every Democratic member of the House Education Committee.

On Thursday morning, Duran said she thought the retirement age and the employee contributions in the bill were too high.

“These are tough conversations,” she said. “PERA could have been solvent without the proposal that was passed last night. There were some things they didn’t have to push as hard.”

Some conservative Republicans also voted no in the House – they don’t think this bill does enough to fix the public pension system. But over in the Senate, where state Sen. Jack Tate of Centennial led negotiations, the GOP presented a unanimous bloc of yes votes. All 11 no votes came from Democrats.

Senate Majority Leader Chris Holbert, a Parker Republican, said that the PERA bill represented a compromise for both sides, and he had no criticism of it after all the effort that went into making a deal.

“I see folks on the right saying it doesn’t go far enough, and I heard that people from the teachers union were quite upset,” he said. “In a split legislature, I don’t know how much better it could have got done, but it got done.”

This story has been updated with comments from House and Senate leadership.