Archive for category Colorado Politics
My introductory at-bat in the Independence Institute’s lineup at the Greeley Tribune:
The assumption of a 7.5 percent return masks considerable risk and volatility. Although catastrophic market years such as 2008 have historically been rare, smaller routine losses are to be expected. Those losses can force an already-underfunded system to eat its seed corn by paying benefits out of assets that should be earning returns.
As a result, considerable risk exists that in the future, the state will still need to cut benefits to those who are already retired, to raise taxes, to cut services, or all three.
There is a way out.
I suggest three reforms that would help solve the problem. We’re no longer in a budget crisis. The Democrats’ passion for spending every last dime that comes in on new programs that will cry poor in the next recession may fix that. In the meantime, though, now would be a good time to fix this.
Democrat State Senate President Morgan Carroll is preparing to kill, for the second time in her legislative career, a bill that would provide Coloradans greater choice and lower cost in health insurance. She has assigned to the so-called “Kill Committee” Senator Greg Brophy’s (R-Wray) bill that would permit out-of-state health insurance purchases for Colorado residents. The “Kill Committee” is the State, Veterans, and Military Affairs Committee, which is stocked with reliable partisans of the majority party, who can be counted on to vote down unpopular legislation without its having to be assigned to a relevant committee of record.
Brophy’s stated hope is that somewhere, some insurance company will figure out how to offer an affordable plan, and that Coloradoans should be able to buy such a plan.
The idea has been offered before, both in Colorado and in other states, and it faces an uphill battle.
The National Conference of State Legislatures has compiled a list of similar state legislative efforts over the last few years, including some since Obamacare was passed. This bill most closely resembles a law passed in Georgia, which permits out-of-state insurers to issue policies in that state.
A similar bill, HB08-1327, was introduced in Colorado in the 2008 legislative session. It was killed in Business and Labor Affairs, with then-Representative, now-Senate President Morgan Carroll casting the deciding vote against. It would have permitted out-of-state insurers to sell here, regardless of whether they met the in-state licensing requirements. By contrast, SB14-040 would require out-of-state insurers to meet licensing requirements for doing business in Colorado. However, neither bill requires insurance policies to carry all of the individually mandated items that may raise the cost of health insurance here in Colorado by as much as 50%.
At the time, objections were raised that no interstate compact had been attempted; one wonders whether the Democrats will object to SB14-040 on the basis that interstate compacts are now explicitly permitted under Obamacare.
If so, Republicans can point to HB09-1256, and HB10-1163, both of which proposed Interstate Insurance Compacts, and both of which were killed in the Democrat-controlled legislature. The former was passed out of committee as a study, and killed in the House Appropriations Committee. The latter was permission to form an interstate compact, and was killed on a 7-4 party-line vote in the House State, Veterans, and Military Affairs Committee, the House “Kill Committee.”
Today at PERA’s testimony in front of the Colorado legislature’s Joint Budget Committee, the subject of the revisions of GASB’s public pension accounting rules came up. While PERA produced the usual song and dance about discount rates, one portion of the discussion was illuminating.
It turns out that each district that participates in PERA will have to show a pro-rated portion of that fund’s liability on its own balance sheet. PERA makes a couple of comments about this; first, that this is an unusual liability that can’t be brought forward, and second, that there’s nothing that the district can do to reduce it. The first comment is the usual stuff that public pensions always use to justify their higher discount rate. The second requires a little explanation.
You need to remember that the unfunded liability is PERA’s, and it’s only being distributed for accounting reasons to the various districts. The PERA funds are managed by PERA on behalf of the individual members, not on behalf of the districts. The districts have an annual required contribution based on the salaries of the individual PERA members working there, but that’s it. Their contributions go into the appropriate PERA fund, and become the property of PERA. There’s no “JeffCo School Account” at PERA, or “Mesa County Employees” account.
Which means that there’s also no way for the individual district to discharge it own portion of PERA’s unfunded liability, even if PERA were permitted to take additional contributions from employers, which it’s not.
Suppose the School Fund has an unfunded liability of $10 billion. Suppose 5%, or $500 million of that, is attributable to JeffCo School. And suppose JeffCo, in a Herculean effort, raises $500 million in taxes to pay it off, and ensure that they never have to worry about their portion of PERA’s unfunded liability again. JeffCo School cuts a check to PERA for $500 million. And that money goes into the Big Barrel called, “PERA School Fund,” reducing its unfunded liability by 5%, to $9.5 billion. And the next year, JeffCo’s Schools gets a Thank You Note, along with a notice from PERA that they are responsible for 5% of PERA’s School Fund unfunded liability, or $475 million. That’s what PERA means when it says that this is a unique liability for districts – they can’t really do anything about it on their own, but there it sits, on their balance sheets, screwing up their ratios.
Yes, ratios. It turns out that the Colorado Department of Education does a Fiscal Health Analysis on the various school districts, and a key part of that analysis is certain ratios, three of which (Asset Sufficiency, Operating Reserve, and Change in Fund Balance) depend on the districts’ General Fund Balance. CDE hasn’t disclosed yet how they’ll deal with this change, but if it were up to me, I’d more or less ignore it in that analysis. The liability really belongs to PERA, not to the district, and since the legislature will ultimately fix (or not) the problem, it’s almost impossible to know how it relates to any district’s current demographics, employment, or finances.
Last Thursday, Colorado PERA Executive Director Greg Smith gave his annual SMART Act testimony to the Joint Finance Committee of the Colorado General Assembly. Since 2012, all departments of the Colorado state government have been required to testify during the interim concerning their operations, their efficiency, and the degree to which they are fulfilling their mission.
PERA recently changed its assumed long-term rate of return from 8% to 7.5%. In light of that change, its amortization period – the time when PERA will have no unfunded liability, assuming a constant rate of return – has grown from 30 years, probably to something near 40 years.
During the Q&A session, State Rep. Lori Saine (R-Dacono) asked Smith about using a Monte Carlo simulation to test PERA’s long-term soundness. As described in more detail here, averaging a given return over a period of time isn’t the same thing as getting that rate of return every year. PERA’s portfolio might well average 7.5% over 40 years, and still go bust because its returns in the next few years are below average, leaving to try to make up the difference from a lower balance. Rep. Saine was asking if PERA did or could run a simulated 40-year set of returns, and see how often the fund went bust and how often it stayed solvent at the end of that 40-year window.
Mr. Smith replied that yes, they do Monte Carlo simulations, and then proceeded to describe not those, but instead a sensitivity analysis available in the Comprehensive Annual Financial Report (CAFR). The sensitivity analysis is something else altogether. It looks as what happens to PERA if the returns over 40 years are 6.5%, 7.5%, 8%, up to 9.5%, but it still assumes a constant rate of return. This is a completely different analysis, one that admits the possibility of lower-than-expected long-term returns, but ignores the danger in a few years of very low short-term returns, or even a couple of years of severe losses.
Monte Carlo simulations model the year-to-year variability in return that is an inherent function of risk. As a result, even funds that appear to be well-funded, or that appear to have a long-term path to being fully-funded, can show low likelihoods of staying solvent through their amortization periods. Doing such an analysis helps to prevent unpleasant surprises, and is to be preferred to a simple sensitivity analysis such as the type PERA performs and publishes.
Regardless of one’s preference, the two shouldn’t be confused for each other.
You can hear the entire exchange here:
Over at Complete Colorado, the Independence Institute’s Dennis Polhill writes in support of a proposal to devolve the lion’s share of the federal gas taxing authority back to the states, and remove federal restrictions on the states:
The Transportation Empowerment Act, introduced by U.S. Sen. Mike Lee, R-Utah, and Rep. Tom Graves, R-Ga., gradually would lower the federal gas tax from the current 18.4 cents to 3.7 cents per gallon over five years. The legislation also would lift federal restrictions on state departments of transportation.
Not only would devolving the federal gas tax to the states result in a major boon to Colorado roads and bridges, it also would honor a promise made to the American people more than 50 years ago. In 1956, Congress passed the National Defense Highway Act to construct the Interstate Highway system. The temporary federal gas tax was promised to expire when construction was completed.
For all practical purposes, interstate highway construction was finished in 1982. Unfortunately, taxes almost never go away, or get smaller. Nor do government agencies or programs. Coincidentally, 1982 marks the same year roads outside the interstate system became eligible for federal funding. By tripling eligible mileage, the U.S. Department of Transportation used road revenues to fund other things more aggressively. Increasing amounts of gas tax revenue were siphoned to fund non-road programs, and congressional earmarks mushroomed.
For Colorado voters, the salient point is that we’ve been shorted on the deal, sending five cents per gallon to Washington that we never see back. There was a time when federal development of large-scale road projects made sense, in order to avoid things like the Kansas Turnpike dead-ending in an Oklahoma field, because Oklahoma couldn’t get its act together:
But given that much of this money isn’t going to roads any more, anyway, putting an end to the Colorado-DC-Colorado round trip makes sense.
It’s certainly better than this monstrosity from Rep. Earl Blumenauer (D-OR) that would add 15 cents to the federal gas tax in order to make up for the money that they’re siphoning off to pet projects, a prospect he doesn’t want to admit to:
In 82 BCE, Sulla returned to Italy, and touched off three years of Civil War. By the end, he had killed tens of thousands of people, entered Rome by force, butchered thousands in civic buildings, and ordered the deaths of perhaps 5000 of the most prominent Romans. He not only broke the taboo against using legions against Rome itself, he killed pretty much any Roman who had even thought to oppose him, and many who hadn’t. As a result, he was able to leave office voluntarily, and wander the streets of Rome unprotected by any bodyguard. His reforms took Roman governing law back to the rules it had operated under prior to the rise of Tiberius Gracchus about 60 years earlier, while still trying to deal with the land and military issues that led to Gracchus’s rise in the first place.
Sulla used radical means to achieve arch-conservative ends. And yet, in the end, it was the radicalism that endured and the restoration that was forgotten.
To listen to the Denver Post, you’d think that the Colorado recalls were a similarly seminal moment in the destruction of our Republic. And some Democrats agree.
Whatever the merits of using unconventional, if perfectly Constitutional, means to achieve politics ends, the Democrats have no room to complain.
The Democrats are the party that invented changing the rules in the middle of the game, and it didn’t start with Harry Reid and the Magical Disappearing Rulebook, or the Florida Supreme Court’s creative ballot accounting.
This is the party that has, here in Colorado, weaponized vote fraud this past year. They’re the party who, in 2004, sued to allow anyone to vote a full ballot, non-provisional, in any precinct, without ID.
They’re the party that is suing its own citizens to overturn a 20-year-old Constitutional Amendment in order to raise their taxes without end. It is the party that filibustered its own redistricting bill because it preferred its odds in court to having to negotiate Congressional districts with the other party.
The Democrats are the party that passed out of the State House a bill to overturn the Electoral College, by joining an interstate compact without Congressional sanction. They cheerfully accepted out-of-state money for a popular referendum to apportion our Electoral votes proportionally, which would have reduced the value of winning the state from nine votes to one.
They sued to get an ineligible school board candidate declared “duly elected,” in order to have her disqualified, so that a favorable committee could appoint her successor.
It’s not as though Colorado Dems invented this game, they just learned it from their brethren elsewhere. They’re the party that popularized the recall election in Wisconsin, after occupying the state capitol failed to achieve the desired results. (I have half a mind to just blame this tantrum on recall-envy, given the different parties’ relative success in making the tactic stick.) There, too, they politicized a state Supreme Court election, in an effort to overturn the laws that caused the uproar in the first place. Most Wisconsinites weren’t aware that Supreme Court elections were partisan affairs, complete with allegations of physical assault.
In New Jersey, the late Senator Frank Lautenberg was only Senator at all because the party got a judge to agree that even though the law said they couldn’t replace Bob Toricelli on the ballot within 30 days of the election, it didn’t really mean it.
The Democrats will claim that this is just politics as usual, that the game is played by trying to change the rules on the fly. If so, it reduces the Republicans’ sin to one of not being sufficiently shameless.
In other words, of not being enough like Democrats.
One of the leading candidates for the Republican nomination to unseat sitting Governor John Hickenlooper is Secretary of State Scott Gessler. Gessler has been a solid conservative, and has taken his share of arrows from Colorado’s progressive left for his insistence on ballot integrity and his resistance to the HB1013, the Democrat Weaponization of Voter Fraud Act of 2013.
This isn’t a post with an extended analysis of the governor’s race, but I did want to mention a couple of interesting items that haven’t gotten the play that I think they should have, mostly because they’re good stories.
First, Gessler essentially suspended much of his field operation (calls for contributions presumably went on as usual) in order to redeploy his staff on behalf of the Douglas County School Board reform candidates. Those were important races not just for Douglas County, but also with state and national implications. The unions essentially tossed everything they had into those races, reducing support to their Denver and Jefferson County candidates. They were gambling that even if they lost there, a win in DougCo would send a warning message to other school boards. They lost that gamble, in part because of the field support that Gessler gave them.
This is called, “leadership.” To be sure, it wasn’t entirely selfless. The information and visibility gained in a Republican-dense county will be helpful in both primary and general election campaigns. But showing up for a fight that nobody would blame you for sitting out builds loyalty, and shows a willingness to sacrifice for the team. In 1966, Richard Nixon campaigned all over the US for Republican Congressional candidates, all of whom won, and all of whom remembered it in 1968. That Gessler was willing to do the same speaks well of him. To the extent that there’s a concern here, it’s that he hasn’t done a better job of publicizing this story.
That actually could be a serious concern, since one of Gessler’s potential picks for Lieutenant Governor, State Rep. Calrice Navarro-Ratzlaff of Pueblo, is seen by many as more moderate than Gessler. Now, that would be, in my mind, a silly reason not to support Scott. Lt. Governors operate at the behest of the Governor. And as this chart shows, in Colorado, that post is a launching pad to obscurity. You have to go back to the 2nd Eisenhower Administration to find a Lt. Governor who was later elected to a significant statewide position in his own right. This isn’t Reagan positioning Bush as his successor.
As a district captain, I have to retain strict neutrality when it comes to primary races, but that doesn’t preclude me from writing about interesting and informative aspects of the race.
Friday, the PERA Board decided to make two significant changes to their actuarial assumptions. First, they lowered their expected return on their portfolio from 8% to a more realistic 7.5%. Second, they lowered their inflation expectation from 3.5% to 2.8%.
This is being advertised as a more realistic set of assumptions, in effect, an admission against interest that outside players such as Treasurer Walker Stapleton have been agitating for for some time. The lower rate of return will, according to the Denver Post report, raise the unfunded liability from $23 billion to $29 billion.
It’s true that the 7,5% rate is more conservative than 8%, and closer to the average rate of return being assumed by most public pension funds around the country. On that basis, the change is to be welcomed. But for a long time, I’ve felt that the rate of return was very much out of line.
In fact, the lower rate of return should have no effect on the unfunded liability. The only reason that the unfunded liability will grow is that PERA will use the lower rate of return as the new discount rate. Of course, as we’ve discussed before, the discount rate should be independent of the rate of return; it should be the state’s long-term cost of borrowing, or even the risk-free rate of return, the 30-year US Treasury rate.
In addition, many of the benefits of the lower rate of return are more than offset by the lower inflation rate. Before, the real rate of return was 8 – 3.5, or 4.5%; now it’s 7.5 – 2.8, or 4.7%. PERA is decreasing the increase in future liabilities here, by lowering the expected future increase in salaries. This means that the net effect of both changes is to increase the real rate of return.
Unfortunately, we won’t know exactly how this plays out until PERA releases its next CAFR – next July, 8 months from now.
We’re not quite sure, that’s who.
Complete Colorado reported Friday on another attempt to scare Jefferson County residents away from signing recall petitions for State Senator Evie Hudak (D). “Democracy Defense Fund,” which had previously been responsible for door-hangers claiming that signature-gatherers were criminals, is now using robocalls for the same purpose.
A poster on the Grassroots Radio Facebook page found the TRACER record for the Democracy Defense Fund, registered on October 10, 2013, for the purpose of opposing the SD19 recall. While the principals for DDF are local to Colorado, the Fund’s entire $25,000 bankroll came on an October 18 donation from a group named Environmental Majority, out of Washington, DC.
The PAC is expressly partisan, and solely focused on elections.
The $25,000 expenditure represents more than it had spent in the 2014 cycle up to this point. Not more than it had spent on specific races. More than it had spent, period.
The PAC reported receipts of roughly $29,000 in the first half of the year, about $23,600 came through the site ActBlue, which serves as a small-donor platform for progressive and Democrat causes, sort of a partisan Piryx. Of the $21,000 spent, about $9300 went to the Massachusetts special Senate election to replace John Kerry; just under $6000 went to the New Virginia PAC, other money went to various Democrat digital consulting firms. Small Potatoes.
Yet, with just over $8000 cash on hand reported at the end of June 2013, the Fund found $25,000 for scare-robocalls and scare-door-hangers in the Hudak recall race. Admittedly, Hudak has a 100% Lifetime rating from the Colorado Conservation Voters. But still, she’s a state senator, not a Congressman or a US Senator, and Environmental Majority states:
Our objective is straightforward: elect a pro-environment Democratic majority in the United States Congress and raise the political importance of environmental issues, especially climate change.
It appears that the decision to funnel the money through Environmental Majority, rather than immediately through Democracy Defense Fund, may have been deliberately made in order to avoid disclosure until after the signature-gathering period ended. DDF has already been fined $50 for being late on one reporting deadline, but according to TRACER, their next filing would be due November 25. The Hudak recall effort has until December 2 to turn in its petitions.
Since 2013 is an odd-numbered year, it appears that the FEC will only require Environmental Majority to file a new report by January 31 of next year, well after the Hudak signatures have been gathered or haven’t been. This means that we may well not know who’s been funding the scare tactics that Hudak’s defenders have been using until the issue of there being a recall election at all is settled.
UPDATE: Colorado Observer notes that Environmental Majority has also given $5000 to Stand With Evie.
The Washington Post reports this morning that 10 Democratic Senators – including both Colorado Senators – have asked the Obama Administration to extend the open enrollment period for new insurance under Obamacare. Their request stems from the well-publicized problems with the rollout of the insurance exchange websites, the primary mechanism for enrolling in Obamacare and purchasing new insurance, as required by the individual mandate. The letter reads, in part:
Given the existing problems with healthcare.gov and other state-run marketplace websites that depend on the federally-administered website, we urge you to consider extending open enrollment beyond the current end date of March 31, 2014. Extending this period will give consumers critical time in which to become familiar with the website and choose a plan that is best for them. Individuals should not be penalized for lack of coverage if they are unable to purchase health insurance due to technical problems.
While this may sound like a good idea, it likely won’t work without a delay in the individual mandate (See Solution #7), and is almost certainly illegal under Section 1311 of the law:
The three-month open-enrollment period isn’t statutory; instead, the ACA directs the Secretary to establish an “initial open enrollment” period. Normally she’d have the discretion to tinker with that as necessary. But the statute also requires her to establish that initial period by “not later than July 1, 2012.” Well, she’s blown through that already — and the provision appears to preclude her from rethinking the determination now. For years after 2014, the statute’s quite clear that she’s got discretion to set annual enrollment periods. But that broad discretion exists only “for calendar years after the initial enrollment period.” That reinforces the suggestion that she can’t rethink the open-enrollment period now.
Apparently, a 2700-page law that’s generated 11000 pages of regulations, includes almost unlimited waiver capacity for the President’s friends, excludes all manner of people responsible for passing and implementing it, and even permits the executive to ignore whole sections of it, still didn’t provide enough flexibility after the election. Now, Democratic Senators who are staring political mortality in the face are encouraging the HHS Secretary – and by extension, the President – to just ignore the law altogether to help get them out of this mess.
Either Senators Udall and Bennet knew this was illegal when they signed the letter, or they didn’t. Either way, this amounts to an abdication of responsibility of elected representatives.
If they did know, they’re encouraging not merely this Administration’s habit of arbitrary rule and lawlessness within the law, but actual black-letter lawlessness. If they didn’t know, it’s a testament to the dangers of voting on bills you couldn’t have read, much less understood, that hand over wholesale lawmaking authority to another branch of government. The problem with the latter is that it becomes a habit, and little by little, and then all at once, you find yourself running for an office that doesn’t matter at all, while the real power has coalesced into a single executive and an unelected civil service.
How about this. Since Senators Udall and Bennet don’t seem interested in governing, how about elect someone who is?