NEVADA VIEWS: PERS issues coming home to roost

Nevada’s government unions have for years successfully thwarted all efforts to reform the state’s public pension system, despite warnings from experts that it would be their own members who would suffer the most in the event of an economic recession or stock market downturn.

Sadly, that time has now arrived. Plummeting tax revenues from the coronavirus fallout will leave many agencies unable to pay their ever-growing PERS bill, leaving them no choice but to cut salaries and lay off government workers.

Even in good times, the cost to keep the Nevada Public Employees Retirement System afloat imposed a tremendous burden on taxpayers and government workers, who were constantly being forced to pay more while getting nothing back in return.

Despite a record-long stock market bull run over the past decade, the cost to keep the system afloat continued to grow at a remarkable pace. Today, the PERS contribution rate for most public employees is at an all-time high of 29.25 percent — up 36 percent from 2009.

This means that every $100 in salary paid to a teacher or other public employee now requires an additional $29.25 contribution to PERS, with taxpayers and employees splitting this cost. Police and fire officers are the one exception, as their much richer benefits cost 42.5 percent of pay, with taxpayers seemingly bearing the entirety of that cost.

In total, taxpayers and public workers will send $2.2 billion to PERS this year — or more than triple the nearly $700 million in budget cuts that the state is preparing to implement as a result of the economic fallout from the coronavirus.

This dramatic increase is spent entirely on debt accumulated from failing to adequately fund the benefits promised to past workers. In fact, almost half of what teachers and other public employees now pay into PERS is spent on this debt, rather than their own future benefit.

A benefit cut for public employees hired after 2015 furthered this inequity. While government unions such as the Nevada State Education Association opposed all reforms designed to put the system on a sustainable path — including one that would have likely increased benefits for most of their members — they had no problem supporting a benefit cut for future hires. As a result, nearly all teachers hired after 2015 will pay more into the system than they can expect to receive in the form of these recently reduced benefits.

Despite this, PERS’ unfunded liability increased by nearly 60 percent over the past decade and stands at an all-time high of $14.3 billion.

As the economic fallout from the coronavirus forces state and local agencies to make significant, double-digit budget cuts in the coming years, the cost to keep PERS afloat will grow, further straining public finances at the worst possible time.

Notably, this would be true even if the stock market were still producing the yearly gains PERS expects. Declining investment returns will simply amplify this trend. Should the stock market revisit the lows seen in late March, for example, PERS’ unfunded liability would rise to nearly $20 billion.

While taxpayers will bear a large chunk of this cost, those who have the most to lose are government employees themselves. The unlucky ones will simply lose their jobs, like the more than 100 Metropolitan Police Department employees who were fired last month. Those who avoid that fate will still feel the PERS crunch through higher contribution rates and further reduced salaries.

While the economic damage caused by the coronavirus was always going to hurt, taxpayers and government workers would be in a better position to deal with it had the Legislature enacted responsible PERS reform. Unfortunately, shortsighted government unions have consistently opposed all reform efforts. It is a cruel irony that those who will now be most harmed by the PERS crisis are the very same workers those unions claim to represent.

Robert Fellner is vice president and director of policy at the Nevada Policy Research Institute. Learn more at NPRI.org.