In his State of the State speech this past week Gov. Brian Sandoval tossed out tax money like trinkets and candy from a Mardi Gras parade float — a couple million here for this or that education program, a few million there for a veterans’ home, millions for a medical school, more millions for an engineering school and pay raises for state employees.
“This session, my budget includes a 4 percent cost of living adjustment and increased funding for health benefits to recognize the shared sacrifice and dedication of our state employees,” the smiling governor said about his spending proposal for the coming two years.
Overall, Sandoval proposed a 10 percent increase in the general fund portion of the state budget, even though the cost of living increase for 2016 was only 2 percent.
What the governor did not address was how the taxpayers are going to pay for the commensurately higher retirement pensions that are tied to the salaries of those state employees.
Nor did he take note of the fact his proposed budget — total budget, not just the general fund — is 49 percent higher than the total budget he proposed when he first took office, while over the past decade the Nevada median household income has fallen 17 percent.
A part of the growth in state government spending has been due to burgeoning pensions for state employees, who upon retirement are guaranteed a percentage of their highest salary level — which officially is 70 percent after 25 years, but can often top 100 percent after various pay add-ons and gimmicks are employed. Public employees in Nevada can retire in their 40s and get paid more in retirement than they were paid for actually working.
In 2008 the Las Vegas Chamber of Commerce called on the Legislature to change public employee retirement benefits from the current direct benefit plan to a direct contribution plan, similar to a 401(k), because the expenditures were growing at an unsustainable pace.
In 2011 a report drafted for the Nevada Policy Research Institute by Andrew Biggs, an economist with the American Enterprise Institute, concluded the Nevada Public Employees’ Retirement System is vastly underfunded by more than $40 billion.
“What people don’t realize,” Biggs said to a luncheon audience back then, “is your typical public sector pension plan is a lot more generous than what a typical person is going to get in the private sector. Let’s just take a person and run their wages through what they would get from PERS versus what they could get from a typical 401(k) plan combined with Social Security, because public employees here don’t participate in Social Security. They both pay the same amount on average. The total contribution is about the same, but the benefits for someone under PERS — for a full career employee — is somewhere around 50 percent higher.”
In 2015 Reno Republican Assemblyman Randy Kirner introduced Assembly Bill 190, which called for reforming PERS, which at the time was costing nearly $15,000 per Nevadan per year and growing.
The changes Kirner proposed would have applied to future state and local government workers and not current ones.
AB190 would have introduced a hybrid — part defined benefit, part defined contribution.
The bill also tied the minimum retirement age for receiving full benefits to that allowed under Social Security, though police officers and firefighters would be able to retire with full benefits 10 years earlier.
Kirner argued his bill would have a minimal impact on taxpayers, but the PERS administration claimed it would cost millions to implement. Kirner withdrew the bill so the funding could be studied and he could re-introduce it again this year, but Kirner decided to not seek re-election.
Instead, state Controller Ron Knecht has offered a bill nearly identical to Kirner’s, but it is questionable whether it will get much of a hearing before a Legislature that is now comprised of majority Democrats in both chambers.
This past summer NPRI’s Director of Transparency Research Robert Fellner released a 36-page report warning that if the economy stumbles the PERS “fantasy economic forecasts will be replaced by immediate bankruptcy — leaving every Silver State household with a sudden, implicit, $50,000-plus tax liability.”
Nevada lawmakers have been kicking this can down the road so long it is now a 55-gallon drum ready to explode.