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.

Wait, 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.