Trying to Redefine “Savings” in HB 2497

While many legislators we’ve spoke to agree that we need to move public employees into a Defined Contribution retirement plan—which HB 2497 doesn’t do—and away from the current Defined Benefit plan, they seem to have bought into the argument that HB 2497 will “save” taxpayers from higher taxes.

The greatest fear is that if nothing is done, the contribution rate for PSERS—the Public School Employees’ Retirement System—will jump from 5.64% today to 10.22% next year. (In terms of dollars, it’s the difference between $762M and $1.4B.) Since nearly half of this increase will have to be paid by local school districts, legislators are very interested in reducing this increase because school districts will likely raise property taxes and then (rightfully, for the most part) blame the state legislature.

So most legislators are worried about the near-term problem of the need to raise state and local taxes to pay for the coming increase. But HB 2497 will not thwart the need to either raise taxes or redirect spending. Instead of a 10.22% rate next year, the rate under HB 2497 would go to 8.72%—an increase of $452M from $762M to $1.2B. The following year, the rate would increase to 12.22%—an increase to $1.7B—followed by a rate increase to 16.71% or $2.4B.

As the chart below shows, HB 2497 would avoid the 2013 “spike,” but only by creating additional mini-spikes in increased pension contributions in 2014, 2015, 2016, 2017, 2018, 2019, and 2020. (See the more info tab for the raw numbers.)

There are obvious reasons why lawmakers might want to push cost increases down the road an election or two. But if you look at the next 10 years, comparing the current law and HB 2497, you will note that the savings are negligible, but the costs of the generational theft will be unforgivable.

So who is “saving” anything under this pension “reform” scenario? It’s certainly not the taxpayers (current and future) who will be paying more no matter what happens today. Indeed, the only thing being “saved” is the unions’ unaffordable and outdated defined benefit pension system.