Archive for November 17th, 2013
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.