Monday, July 18, 2011

Weekly Opinion Editorial

PROMISES AND REALITY!
by Steve Fair


On Monday, House Speaker Kris Steele, (R-Shawnee) announced a State House oversight committee on pensions. The twelve member committee has eight (8) Republicans and four (4) Democrats. Representative Corey Holland, (R-Marlow) and Representative Todd Russ, (R-Cordell) are representing SW Oklahoma on the committee which is Chaired by Representative Randy McDaniel, (R-OKC). Holland is a former educator, Russ a banker.

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Representative McDaniel made a presentation at the Southern Legislative Conference’s annual meeting in Memphis that evidently grabbed the attention of other state legislators whose states face similar challenges with their pension plans. In his presentation, McDaniel highlighted what the Oklahoma legislature is doing to fix unfunded pensions.

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At the start of the 2011 legislative session, Oklahoma’s seven public employee retirement systems had over a $16 billion unfunded liability compared to a $6 billion unfunded liability just a decade ago. As of last March, Oklahoma’s 57 percent pension funding ratio was the third worst in the nation.

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However, the reforms enacted by the Oklahoma Legislature this session will produce savings of nearly $7 billion over the next 30 years. The major reforms enacted will require that cost-of-living adjustments be fully funded when authorized and will increase retirement ages to reflect rising longevity.

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“Oklahoma made noteworthy strides this year. Our efforts to shore up the state’s pension plans are being recognized,” McDaniel said. “I was honored to have the opportunity to discuss our approach with policymakers from across the country and look forward to continuing to work on this important issue.”

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“Improving the fiscal stability of our pension system is important because failing to do so would risk sending all of state government into fiscal disarray. I am pleased the House is continuing to rise to this challenge,”
Steele said.

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How did the Oklahoma pensions plans get in this mess in the first place? In an article for OCPA in October 2010, Edmond CPA Steve Anderson answers that question. Anderson said, “The simple answer is that the state embraces a type of retirement plan that has shown a tendency to become fiscally insolvent. Defined-benefit plans, such as the state uses in each of its systems, have flaws that are almost unavoidable. In a defined-benefit plan the employer guarantees a certain benefit payment to an employee for his or her lifetime, come hell or high water. The collapse of Bethlehem Steel, the crisis at General Motors, and dozens of other examples have spotlighted the inherent problems with defined-benefit plans.” The entire article can be found at http://www.ocpathink.org/articles/274

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Anderson went on to point out that defined-benefit plans are even more pronounced in the public sector. He contended for year that Oklahoma politicians used the plans to buy votes but hide their actions from all but the most knowledgeable financial types.

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“Fortunately, recent rule changes enacted by the Governmental Accounting Standards Board (GASB) have required government entities to reveal these debts to the public in their annual financial statements. However, those numbers are buried in places in the financial statements that still require a sleuth to find them,” Anderson said.

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Bottom line- past Oklahoma legislatures overpromised and underfunded. As they say, it's not often that promises and reality cross paths and this is a classic example.

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According to former Oklahoma AG Drew Edmondson, taxpayers are on the hook for those overpromises. In an opinion released in late November 2010, as he was leaving office, Edmondson said the Oklahoma Teachers Retirement System (OTRS) must receive its annual allocation from the State Department of Education regardless of whether or not the Oklahoma Legislature passed line item direction to fund the credit.

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That simply means that if the money to fund teacher’s retirement is not there, then the legislature will have to raise taxes to get it. It’s like a mortgage- you are committed to it for years- payments are not optional.

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Past Oklahoma legislatures have passed the buck to the next legislature for years because they didn’t want to deal with this looming issue. They knew dealing with it would likely cost them votes, so they just ignored it.

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That is why it is critically important who we send to represent us in both Washington and Oklahoma City. If a person can be influenced by a powerful lobbying group to commit Oklahoma taxpayers to fund programs without a plan or mechanism to pay for it, then we need to replace them with someone with more common sense.

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Oklahoma still has a long way to go before we have our public pension plans fixed, but at least we now understand we have an issue and can work to resolve it. The key is to avoid similar ‘commitments’ in the future.

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