The biggest threat to Nevada’s public education, law enforcement and welfare systems is not the anemic economy, a purportedly unstable tax base or any ballot question that seeks to limit the government’s ability to increase tax collections. It is the state’s dangerously unstable and fundamentally unfair public employee pension plan that will one day collapse the foundations of Nevada governments if lawmakers don’t institute wholesale reforms.
On Tuesday, the Las Vegas Chamber of Commerce released a fiscal analysis of the Nevada Public Employees Retirement System that lays out the frightening threats to taxpayers and public services thanks to the outrageous largess awarded the state’s government workers. The pension fund has a $6.3 billion unfunded liability that will consume an ever-increasing share of available tax revenue in the years ahead, eventually chewing into programs lawmakers claim are inadequately funded in the first place.
But in this space yesterday, we laid out why fiscal sustainability alone isn’t a sufficient goal for PERS reform — not when Nevada’s government employees are already paid significantly more than their private-sector counterparts, not when taxpayers who struggle to save for their own retirement see so much of their tax burden going to fund benefits they can’t dream of.
So how should lawmakers address PERS reform? There are a number of incremental approaches, including some that have been adopted by other states facing similar pension deficits.
The root of PERS’ problems lies in Nevada’s collective bargaining system. Public employee unions have used it to obtain some of the highest government salaries in the nation. Because pension distributions are based on the highest wages paid during active employment, the result is overly generous retirement checks — the highest in the nation, according to the chamber’s analysis.
Taxpayers have no advocate in the collective bargaining process, which unfolds in secret negotiations between government administrators on the public payroll and unionized public employees. Exposing these procedings to a little sunshine, and giving the public a dog in the fight, would help reduce the state’s costs and liabilities.
The pension fund’s deficit is so high, in part, because public employees can retire so young. Whereas Social Security eligibility is based on age, PERS collections are based on years of service. Public employees can retire with full benefits after 28 to 30 years of service, allowing some to quit before turning 50 — and collect pension checks for more years than they actually worked. Police and firefighters can retire with full benefits after 25 years of service.
In 2007, the Legislature briefly discussed (and rejected) the idea of forcing public employees to work more years to gain full benefits. Tying PERS eligibility to Social Security’s standards makes even more sense. Why should a private-sector secretary have to wait until age 66 or 67 to retire to live on savings and a meager Social Security check, while a better-paid government receptionist might be able to quit working 10 years sooner, without having to save, with far superior benefits?
Another possible reform involves changing the way PERS distributions are calculated. Currently, full benefits pay 75 percent of a government retiree’s average earnings during the three years they received their highest pay. This might be the biggest giveaway of the entire PERS scheme. The chamber report says it allows public employees near retirement to beef up their pay — and their lifetime pension — when supervisors conspire to help them collect extra “callback, standby, holiday, shift differential, extra duty, hazard and longevity pay” in their final years of work.
The state of Kansas addressed this problem by upping the three-year average to five years, with a maximum annual wage growth of 7 percent. How sad that this little tweak was considered a major political victory.
Unfortunately, all of these approaches would merely delay the implosion of PERS. A piecemeal solution is no solution at all — the entire program needs to be sealed off from all future hires, who must be placed in a parallel, defined-contribution retirement program. Michigan, Nebraska and Alaska have taken such a step to minimize future fiscal disaster. Nevada Assemblyman Ty Cobb, R-Reno, has requested such a bill draft for the 2009 session.
It should receive full attention and consideration from lawmakers. No doubt they’ll be reluctant to do so, given the blind loyalty many swear to the public employee unions. But how can taxpayers be expected to take lawmakers’ moaning and groaning about current state funding seriously if they’re content to ignore Nevada’s biggest budget-buster of all?