By Patrick B. McGuigan

Published 16-Feb-2011
 
The state House Economic Development, Tourism and Financial Services Committee grappled with a series of challenging pensions reform measures today (Wednesday, February 16), advancing the package to the House floor by late afternoon.          
 
In a prepared statement provided to CapitolBeatOK before a hearing that lasted nearly three hours, state Rep. Randy McDaniel, an Oklahoma City Republican who is pressing the pension reforms, said, “For decades, this problem has been passed on to future generations to address. No more.”
          
McDaniel, with two decades of private sector experience in the financial services industry, reflected, “This year we will finally begin addressing one of the state’s most significant financial challenges.”
 
On the most challenging of the proposals, six or fewer votes in opposition were consistently cast, with Rep. Mike Reynolds of Oklahoma City frequently joining a cadre of Democrats in the losing minority.
 
Steele said before the hearing the bills were “a fair and comprehensive approach. We must take action on this issue. Reforms must be implemented if we are going to improve the state pension plans and fulfill our obligation to current retirees.”
 
Even before the November election, when he was Speaker-designate, Steele identified pension reform as a priority. 
 
A bill dubbed the “Leadership by Example Act” would put all new legislators and statewide elected officials into a new defined contribution plan. In his advance comments, McDaniel contended, “As we reform the system, I believe legislators should lead by example. Some groups oppose reform, especially if it requires moving their future employees into a defined contribution plan. The Legislature should not ask other groups to do something that we are not willing to do ourselves. Defined contribution plans provide workers greater control and personal choice. I believe affording that freedom to workers is a key component of reform.”
 
The envisioned new plan, “Save Oklahoma,” is built on the model of the SoonerSave program. According to legislative staff, “as of June 30, 2010, it had 35,134 participants with net assets of $458 million and no unfunded liability.”
 
House Bill 2132, by Speaker of the House Steele, requires that all cost-of-living adjustments (COLAs) be fully funded when authorized. Although the measure passed 15-5 and is headed to the full House, it was the subject of some strong debate, with a trio of Oklahoma City Democrats — Reps Richard Morrissette, Al McAffrey and Mike Shelton – joining a fourth member of their party, Mike Brown of Tahlequah, in casting negative votes. Rep. Reynolds joined them on several votes, as did Rep. Danny Morgan of Prague, the former Democratic House leader.
 
Morrissette argued passionately that the measure amounted to “taking money away from our retirees.” He contended advocates of the measure were “asking us to cut those retirees off.” He predicted, “go ahead and do it, there will be ramifications on the back side.”
 
McDaniel countered criticisms, saying the overall intention of his reform measures – requiring that funds be at 80% adequacy before any COLAs can be approved — were, in laymen’s terms, “trying to save the pensions by paying for what you plan to do.” In discussion of that bill and others, McDaniel said the 80% benchmark would save $5 billion of the $16 billion gap the pensions now face.”
 
McDaniel’s House Bill 1006 would, advocates say, stabilize state government pensions with an explicit 80% funding floor.
 
Before debate, McDaniel said, “One of the major causes of the current unfunded liability is that past COLAs were enacted without actually paying for them. As a result, money was drained from pension systems, leaving them in an increasingly precarious position for future generations. Under the reforms we are now advancing, we will focus on paying current obligations first and then making sure we actually pay as we go when enacting future COLAs.”
 
In deliberations on H.B. 1006, Reynolds and a quartet of Democrats voted against accepting McDaniels’ revised language as a committee substitute. In debate over the issue, McDaniel defended the 80% floor as the measure used in the private sector and said it was a sound benchmark for the government sector.
 
McDaniel pointed out that private plans now actually face penalties if they do not maintain adequate resources to pay for benefits. He also stressed that the average, “system-wide across all plans” in Oklahoma’s government is only 61% funding.
 
Making a point he raised more than once, Rep. Shelton pressed McDaniel on the question of “who put this bill together.” McDaniel said he had written it with the help of one ally, but that it was crafted “after we looked at best practices across the country.”
 
An opponent of some, but not all, of today’s pension-related proposals was Rep. Morgan. He asserted legislators were setting a bad precedent in ruling out COLAs – unless or until the 80 percent measure is reached — for teacher retirees who entered the system with an assumption of protection against rising costs.
 
Some members were upset at short periods for debate, ranging from 40 seconds to two minutes per member, but McDaniel stuck to his time frame. He stressed, in back-and-forth with Morgan and others, that a $16 billion gap in funding, based on actuarial numbers, had to be addressed before legislators could justify additional COLAs
 
McDaniel’s H.B. 1011 is intended to provide a COLA funding source if the 80% benchmark is reached, something that may not happen for many years.
 
If the measure passes into law, a segment of revenues from the Land Office (technically, the Commissioners of the Land Office) would be held to fund COLAs for retired teachers. McDaniel noted the bill “would be the first dedicated funding source for COLAs in state history.”
 
The trust, which weathered some management and fiscal scandals over the past two years, is manager of state-owned lands. Revenues are intended to produce income for public education. Reynolds contended the land office is a “public trust,” not a public entity, per se, and predicted that the envisioned reform will eventually be held unconstitutional.
 
Oklahoma’s teacher retirement system if often cited as “among the two or three worst” programs in the United States. In recent analyses from the Institute for Truth in Accounting, Oklahoma as a whole (with all pension/retirement programs examined) falls in the bottom half of 30+ states examined in detail.
 
However, the per-taxpayer burden (the Institute’s estimate of what would be needed if all debt, including government pensions, came due) in the Sooner State is far from the worst in the country.
 
McDaniel said, in comments provided to CapitolBeatOK, “While these four reform measures will not eliminate the system’s problems overnight, they will significantly improve the financial soundness of the retirement systems.”
 
Ten years ago, he stressed, Oklahoma government’s unfunded pension liability was a bit higher than $6 billion. Now, the $16 billion gap is “more than twice the size of the entire state budget.”

McDaniel argued, “Failure to address Oklahoma’s pension problems will result in growing budget challenges in the future. We cannot continue doing business as usual. The reforms we are advancing this year are a serious response to a serious financial problem.”
 
At day’s end, in a brief exchange, Rep. McDaniel told CapitolBeatOK, “We got it done.”