How the Democrats tax proposal affects Minnesota
On Monday, Sept. 13, House Democrats released their tax proposal, which is supposed to pay for their $3.5 trillion spending plan. Among other things, the proposal raises the corporate tax…
Governor Dayton’s team has projected a $1.87 billion-dollar surplus. Before anyone pats themselves on the back, recall that Dayton raised taxes by $2 billion and that conservatives in the legislature have been holding him back on spending ever since he got into office in 2010.
There is also the not-so-small matter of the pension deficit.
The unfunded liability for the big three funds (MSRS-General, TRA and PERA-General) and little St. Paul Teachers fund, when combined, went up about $2 billion just over the last year. (If you want to noodle the numbers, here is a two-year summary of actuarial valuations and assets for those four funds.)
When you add in all funds, Minnesota is short by about $18 billion. And that is using the “happy talk” assumptions (8/8.5 percent earnings, 8/8.5 percent discount rate, and other assumptions about inflation, longevity and so on). Talk about fake news!
I cannot resist asking you to read some of the details.
MSRS-General is $2.6 billion short, 81% funded.
PERA-General is $6 billion short, 75% funded. It is receiving $31,000 million in additional employer contributions—on top of regular contribution, and $6 million in cash aid. Yet it closed out 2016 with a deficiency of $110 million for just one year.
TRA is $6.5 billion short, 76% funded. It is receiving $$35.5 million a year in cash aid. A chunk covers the defunct Duluth teaches newly merged fund. Oh, and they hired the Duluth pension executive to run TRA when the current director retires. It closed 2016 with a deficiency of $135 million. For just one year.
I was showing these numbers to a lovely, older woman at the pension hearing a few weeks ago. She was wearing an AFSCME-5 union jacket and looked frightened as she listened to testimony. She told me she has been a single Mom, working hard at various jobs over the years. I showed her the numbers for her pension fund. She has been dutifully paying for years. She had no idea. (And by the way, she thanked me for telling her the truth.)
As you can see from my handy chart, Minnesota stopped paying for the full cost of pensions about 15 years ago. We have been borrowing from the future ever since.
We have committed a triple-whammy sin. We have not put enough money aside; we have paid overly-generous benefits (given the money set aside); and we have used wildly optimistic and even risky assumptions to achieve an 8.5 percent return on pension assets.
To make things even worse, we have taken advantage of young employees by taking money out of their paychecks to fund older employees’ retirement. It is called front-loading. This is money young public employees never benefit from unless they stay in their jobs for 30 plus years.
So, that is why Minnesota does not have a surplus and will not have one until we pay off the unfunded pension liability.