One of the hardest things about discussing PERA’s liability is the sheer magnitude of the numbers involved.  Twenty-five billion used to sound like a lot, until we started throwing around trillions.  Forty billion, likely closer to the real number, sounds like it might be more, but it’s almost impossible to gauge how much more.

The chart below tries to show how PERA’s unfunded liability has grown in terms of our ability to pay it off.  In 2000, PERA was nominally overfunded, meaning that all of its long-term liabilities were accounted for, and then some.  In reality, this almost certainly wasn’t the case, but for the purposes of this post, we’ll just use PERA’s own current-dollar estimates of its unfunded liability.

Using BEA numbers for Colorado’s GDP, its total Personal Incomes, and its population, it’s  a little easier to see the threatening direction this debt is taking.  On a per-person basis, the unfunded liability now sits at just over $4000.  That means that, to pay off the unfunded liability, it’s $4000 out of the earnings of the average Coloradoan. This includes those who are too old and too young to work, so for the average worker, the number is much higher.  Four thousand dollars may not sound like a lot, but of course, it’s going to get worse – likely, much worse – before it starts to get better.

As a percentage of the state GDP and Personal Income, things are even more discouraging.  PERA’s liability amounts to 8.15% of Colorado’s GDP, and nearly 10% of the total Personal Income.  But this isn’t the only debt that the state, local, and district governments owe on your behalf, and it’s likely not the only debt you owe, either.

From 2004 to 2007, the ratios appeared to improve, but if you look closely, you’ll see that during a period of strong growth, the per-person dollar liability was flat, and the per-GDP and per-PI percentages barely moved.  This strongly suggests that this is a liability that it’s going to be very hard to grow out of.

PERA will be quick to point out that you’re not going to be expected to cough up all of this money at once, and that they have a long-term, 30-year glide path to solvency.  Any time any government program says it has a 30-year plan for solvency, you should stop listening and start moving your money someplace else.  As we’ve noted before, PERA is significantly understating the size of the unfunded liability, both by overstating the rate of return and by misusing the discount rate.  Moreover, mentally amortizing the liability over 30 years makes it that much easier to ignore until someone misses a payment, and the whole structure comes crashing down.  I’m sure that San Bernadino and Stockton were using similarly comforting thoughts before they filed for Chapter 13.

Just in case anyone thought that the incoming Democrat majority in the Colorado legislature was planning to take a responsible approach to Colorado’s continuing PERA debacle – it has not yet reached the crisis stage – Speaker-to-be Mark Ferrandino has laid those fears to rest.  Morningstar has published a report reiterating what anyone with any sense already knew, that PERA is not “fiscally sound,” with a funded ratio of 58%.  PERA complains that that only accounts for the state division, and that including other divisions raises the fundedness to 60%.  This is the equivalent of a terrible student trying to argue his grade up from an F- to an F.

Ferrandino, instead of understanding that promises are being made that simply cannot be kept, demagogues the issue, claiming that, “There are some who would like to use the economic downturn to take away people’s pensions.”  I suppose it’s progress of a sort that he acknowledges that we’re still in an economic downturn, but where on God’s green earth does he think the money comes from to pay those pensions, if not from the retirement savings of the rest of the people in the state?  Where is the fairness in using the force of law to place the pension of a 30-year-old government worker ahead of the average Coloradoan’s ability to provide for himself and his family?

Don’t expect much help from the Senate, either, where incoming Senate President John Morse has hired SEIU flack Kjersten Forseth to be his chief of staff.

As California collapses, Colorado has a golden opportunity to pick up businesses looking for more healthy homes.  In 2010-11, the Denver metro area had the 7th-highest rate of in-migration from other parts of the country.  Unfortunately, the state’s Democrats seem bound and determined to import not California’s prosperity, but its pauperizing policies instead.

Being State Treasurer and trying to hold the Colorado Public Employees’ Retirement Association (PERA) to account can be a frustrating experience, as Walker Stapleton shared with Sean Hannity on Fox News Channel in June:

“I asked for some basic financial information about the defined benefit plan, where people were promised a rate of return, a massively inflated rate of return of 8%, Sean, that everybody from Warren Buffett to Michael Bloomberg have said is ridiculous and insane and preposterous. And they keep this rate of return promise, on purpose, to pervasively underfund the plan, and create a liability on the backs of our kids and their kids, and future generations of Americans.”

Now, it’s not just Mayor Bloomberg, it’s Moody’s.

Moody’s Investors Service has asked for comment on a proposed adjustment to its valuation of the public pension liability in the United States. One of those changes would lower both the discount rate and the expected rate of return to a standard of 5.5%.

This would have the effect of tripling the estimated unfunded liability, from $766 billion to $2.2 trillion.

Trillion.

With a T.

PERA has more than 97,000 current benefit recipients receiving an average monthly benefit of nearly $3,000. It runs a sensitivity analysis on its liability, varying the rate of return and the discount rate from 9.5% (no adjectives need apply) to a merely overstated 6.5%. At 6.5%, it is barely 50% funded, and Colorado’s unfunded liability is just a shade under $37 billion.

A reasonable estimation back to 5.5% puts the unfunded liability at $45 billion, and the funded rate near death-spiral territory at 43.8%. I’m sure that when PERA releases its 2012 annual financial report in about a year, they’ll have done those calculations themselves. Here’s the recently released 2011 version.

Stapleton, a PERA board member, sued last year to get access to PERA records. That effort was rebuffed in Denver District Court in April.

“This is a battle for transparency that is going on all across our country,” Stapleton said on Hannity’s show. “It’s critical that we win this battle, because it’s critical for state budgets going forward.”