With the end of session quickly approaching, we’ve been working nonstop trying to get through all our work. With the health pandemic, four months of work has been pushed into one. The overall budget is done (SB 1922) but we’re still working through the last of the various funding measures that will complete the budget.
As you probably heard, Gov. Stitt vetoed SB 1922 along with three of the funding measures. While the legislature was able to gain the super-majority votes needed in each chamber to override the vetoes, I agreed with Gov. Stitt and went against my Republican colleagues with my vote on two of the bills.
HB 2741 and HB 2742 would reduce the percentage of revenue appropriated to the Teachers’, Firefighters’, Police and Law Enforcement Retirement Systems. While the plan would increase funding to the 1017 Education Fund, it’s like robbing Peter to pay Paul.
However, I do want to clarify one thing, these bills won’t take any money out of the pension funds. The legislature is not required by law to appropriate a set amount into the systems annually. In recent years, because revenues have been up, the legislature chose to put additional funds into the systems like when you pay additional principal on your house mortgage. It’s not required but it’s the fiscally responsible thing to do when you have extra money.
These bills will reduce the amount of those additional funds put into the systems from $296 million to $216 million.
Again, though, these additional funds have been much-needed because of decades of financial mismanagement. Before 2010, three of the six funds were technically insolvent.
This insolvency was caused by:
- inadequate individual combined with state employer contributions to each Pension Fund
- the subsequent lack of funding from the state when legislators understood that unless individual and employer contributions were increased, the Pension Funds would be insolvent
- the legislature’s continued policy allowing Cost-of-Living Adjustments every two years for retirees even though lawmakers were warned the COLA’s were financially unsustainable without additional revenue
By 2010, the Teachers’ Retirement System was only 47.9% funded. The Oklahoma Public Employee Retirement System was only 66% funded. The Fire Department Retirement Fund was 53.4% funded.
While the Police Retirement System was 74.9% funded, its liabilities were rapidly increasing due to expected retirements of an aging force and COLA’s.
In 2006, the legislature enacted the Oklahoma Pension Legislative Actuary Liability Act (OPLAA). The Act required any COLA provided within the six pension funds to be first evaluated by an independent actuary for its fiscal impact on each fund.
In 2010, due to the continued depletion of principle funds in each system, the legislature amended the 2006 OPLAA so that no pension fund monies could be used for a COLA.
Subsequently, all new COLA’s must be paid for through an appropriation from the General Revenue Fund (GRF), and only during odd years. This was to prevent legislators from using COLA’s to buy votes in even year elections.
As a result of Oklahoma’s pension liability, the state’s bond rating was becoming a major problem. Any bonds the state considered had a high interest rate due to the debt. Subsequently, since 2008, there hasn’t been a COLA provided in any of Oklahoma’s six pension funds.
The employee and employer contributions to each fund have been increased since 2010. The state legislature has provided additional money to the pension funds attempting to make them solvent within a 17-year period.
While it isn’t a statutory requirement that the legislature provide additional dollars to the pension systems, it’s a fact that each system has taken a hit due to investment losses resulting from the energy sector collapse and the COVID-19 pandemic.
As the Vice Chair of the Senate Insurance and Retirement Committee, I’ve been kept updated on the pension funds’ actuary liability caused by the investment losses. I voted against HB 2741 and 2742 because we need to protect these funds at all costs due to the recent loss of principle to these funds.
The federal 2020 CARES stimulus will provide $200 million to our state’s public schools. Also, as the economy rebounds, the legislature can add supplemental funding next February if needed.