At midnight Wednesday, the Colorado legislature adjourned sine die, as law requires. As in past years, the legislative session began with fervent promises of bipartisanship from both parties yet featured partisan squabbling over base-pleasing legislation introduced by Democrats and Republicans alike. The legislature nevertheless managed to pass the state budget well before the end of the session, so the last couple weeks should have sailed by with little to do but wrap up a few minor items.
That’s not what happened, thanks to the introduction of complex and virtually incomprehensible bills near the end of the session.
Consider one of them, HB1388.
Touted as a way to cure the fiscal ills of the Public Employees’ Retirement Association (PERA), the bill would have authorized the Colorado Housing and Finance Authority (CHFA) to issue pension obligation bonds (POBs) in the approximate amount of $12 billion. The bonds would be secured by the employees’ current employers and employee contributions into PERA, while the bond proceeds would be invested by PERA. The idea was simple: to take advantage of the spread between the low interest rates required to pay for the bonds and the potential for higher long-term returns received from investing the proceeds.
Proponents estimated the bonds would carry an interest rate of around 4 percent, and that PERA’s long-term investments would return 7.5 percent. If everything worked out, the pension plan would be fully funded several years earlier than current projections, retirees and contributors alike would benefit, and, best of all, the scheme wouldn’t cost “anyone any new money,” proponents said.
Current employers and employees would contribute to the fund at current rates, the state wouldn’t be on the hook for the bonds, bondholders would enjoy a safe 4 percent return and everyone would come out ahead.
And the political risk seemed slight. If PERA’s returns fell short of projections, then future legislators would be responsible for fixing the mess — and given the 25-to-30-year time horizon of the deal, those legislators are now in middle school.
The deal had been under discussion by PERA, State Treasurer Walker Stapleton, Gov. Hickenlooper and a PERA-affiliated lobbying group for more than a year. A bipartisan deal was cut, and the bill was introduced in the House on April 28, eight days before the end of the session.
The skids were greased in the House, where it passed May 1 on a 45-19 vote. Every House Democrat except Beth McCann, D-Denver, voted yes, as did El Paso County Republicans Kit Roupe and Gordon Klingenschmitt. Other local Republicans, including Terri Carver, Dan Nordberg and Janak Joshi voted no.
POBs are a common way of shoring up and/or concealing the actual liabilities of state pension funds. Because of the political sleight-of-hand that has been associated with issuance of such securities in certain states and municipalities, they don’t have a good reputation.
Yet they have an undeniable appeal in this case, attracting the support of notable conservatives such as Bob Rankin, R-Carbondale. Rankin, a member of the Joint Budget Committee who lived in Colorado Springs during the 1980s and ’90s, sponsored the bill in the House, along with Dan Pabon, D-Denver. Senate sponsors included Andy Kerr, D-Denver, and Chris Holbert, R-Highlands Ranch.
Opposition to the bill surfaced quickly in the form of deal-killing amendments proposed in the Senate Finance Committee, whose members include both Kerr and Holbert.
Apparently realizing that the bill was doomed, Holbert withdrew his sponsorship on May 1. Tuesday morning, the bill was formally killed in committee (or, in the polite parlance of legislative speak, postponed indefinitely).
Like horses spooked by a rattlesnake on the trail, Republicans may have feared the wrath of the Party’s base when Americans for Prosperity entered the fray. The powerful political advocacy group, generously supported by conservative stalwarts such as the Koch brothers, was predictably opposed to issuing $12 billion in quasi-public debt.
“The fact that this bill died is good news for taxpayers,” said AFP Colorado Deputy State Director Michael Fields. “With a couple days left in session, and little time for legislators to truly tackle the ramifications, it makes for poor public policy.
“Taxpayers should have a say in this process because they are the ones on the hook if investments like these go sideways.”
PERA, Gov. Hickenlooper and House Dems took their shot. They could have introduced the bill earlier in the session, but it likely would have been shot down by the same vigilant conservatives who managed to kill it Tuesday.