The news these past ten days has been dominated by the proposal in Wisconsin to significantly limit collective bargaining rights for public employees. That has brought questions about the stability and funding of Minnesota public employee pensions.
While some people seem to believe that the budget deficit was caused by the guy who plows my road, picks up my garbage, and by the woman who has taught both my kids to read the facts don’t support that. Nationally, only 2.9 percent of state and local budgets go to public employee pensions and in Minnesota it’s even lower, at just 1.6 percent. For the last 6 years the legislature has made substantial changes to reduce future problems.
The market downturn during the Great Recession had a dramatic negative effect on the funding of our public pensions. We went from very solid funding ratios of resources to projected benefit costs was in the 80 to 90 percent range, to a 50 to 60 percent range in just two years. Our pension funds were so susceptible to these market swings because investments and employees fund most of our public pensions. For every pension dollar paid to retirees, 67 cents come from investment earnings, 15 cents come from employees, and 18 cents from employers. Minnesota public pensions already involve shared responsibility.
With our public pensions struggling and threatening to cause even deeper problems in the future, the 2010 legislature took action and enacted several reforms that involved shared sacrifice. We lowered cost of living adjustments for retirees until pensions were better funded. We increased vesting years and contribution rates along with many other changes. Reforms from earlier legislatures eliminated large pension increases and raised the retirement age.
The legislature also rejected calls from Education Minnesota to increase teacher pensions two years in a row, choosing to focus first on stabilizing the pensions for the long term. Overall, our reforms cut pensions costs by nearly $6 billion. These strong reforms, combined with a rebounding market, have led to substantial improvements in our pension funds, reducing our unfunded liabilities with a more positive forecast for the future.
Finally, while many people tend to focus on the costs of pensions, we sometimes forget the tremendous benefits they provide for jobs and our economy. Minnesota public pensions serve 1 in 10 Minnesotans; that’s a half-million people and their families.
90 percent of retirees collecting a public pension stay in Minnesota, and their spending is projected to create 22,500 additional jobs, generating $80 million more annually in state tax revenue than what is paid by public employers into the pension system. Public pensions also help keep retirees self-sufficient and less likely to need public assistance programs, saving government over $7 billion annually in public assistance costs and keeping over 2 million households out of poverty.
Right now, we’re currently awaiting the release of a new report on the various pension programs. A draft of the report is due in late March, with the final report due in June. This report will hopefully help guide us as we discuss and debate future pension reforms.
The next couple weeks at the Capitol promise to be filled with steady activity. We’re currently awaiting conference committee reports on the nuclear power plant moratorium and alternative teacher licensure. I remain opposed to any lifting of the nuclear moratorium, but I hope that the alternative teacher licensure bill will be strengthened to the point where I can vote in favor of it.
During this important legislative session, I encourage you to offer your insight, feedback, questions and concerns. My office door in St. Paul is always open, or you can reach me by phone at 651-296-0173 or by email at email@example.com. Thank you for the honor of serving you in state government.