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Colorado's Public Employees' Retirement Association could consider reforms in 2018 to help reduce the unfunded liability.
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Colorado’s Public Employees’ Retirement Association could drive a financial downgrade for the state if lawmakers don’t act to improve the pension’s financial outlook.

The possibility of a credit rating downgrade should give Colorado lawmakers extra motivation to strike a deal next year on a plan to stabilize the state’s financially burdened public employees’ pension fund.

But before we start throwing money at the problem, let’s make sure we get this generational fix to a crucial retirement tool for hundreds of thousands of Coloradans right, not fast.

The Denver Post’s Brian Eason reported last week that analysts at Standard & Poors Global Ratings said there was a one in three chance of Colorado suffering a slight down-tick in financial rating due to the instability of the Public Employees’ Retirement Association, also known as PERA. While that’s certainly concerning, it’s no more dubious than recent years’ financial reports from the pension showing the unfunded liability would continue to grow even under favorable stock-market performances.

The proposed S&P downgrade would shift the state’s outlook to negative, indicating there are financial woes ahead for the state, but maintain the state’s strong AA score, meaning Colorado bonds or other debts are still a safe investment.

A downgrade could mean higher interest rates in the future as the state looks to use debt to fund major infrastructure projects. Lawmakers are coming off of a victory last year that secured more than $2 billion for transportation projects across the state using debt; it would be a shame if that money didn’t go as far as intended because interest rates went up.

Lawmakers would be wise to operate in a bipartisan manner to ensure that doesn’t happen. The possibility for gridlock on this issue is high, especially given the polarizing nature of pensions and also that lawmakers will be voting on cutting benefits to the very retirement system they are enrolled in.

Failure to act is not an option.

PERA has a $32 billion unfunded liability that is projected to grow in coming decades unless retirement benefits are cut or contributions increase, or some combination of both. That means in some divisions, PERA is spending more on benefits to retirees than it is making through employee and employer contributions and returns on investments. It doesn’t take an actuary to figure out that’s a bad formula for the future. Complicating matters, retirees are living longer.

PERA’s board has put forward its favored plan to remedy the situation and we think it’s a good starting point. We prefer, however, Gov. John Hickenlooper’s proposal that favors cutting benefits to retirees over increasing the amount of taxpayer dollars contributing to the retirements of current employees.

We urge Colorado’s leaders to slow down next session and consider every option for making PERA more stable in a public vetting of ideas that spans much of the session.

There is much to consider and we are glad Hickenlooper is willing to tackle this issue in his final year in office. We urge lawmakers to work now on their bills for the 2018 legislative session that begins in January so that legislation can be considered through the appropriate public process and not rushed through as an emergency bill in the final days.

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