By Carter Bundy
The 2009 Legislature passed, and Governor Richardson signed, several important bills for public employees. In a tough economic year, those non-economic bills meant a lot to public servants.
One of the more unusual events of the last few weeks, though, ironically stems from public employees maybe being too appreciated: the veto of the double-dipping reform bill — House Bill 616, sponsored by Rep. Luicano “Lucky” Varela, D-Santa Fe.
If you read the governor’s explanation of the veto, there’s little question it was well-intentioned. It’s encouraging that the governor acknowledged that there are problems, is assembling a task force, and is considering putting double-dipping reform on his special session call.
Unfortunately, it seems the governor received some bad information about the effects of double dipping.
None of this should be considered a criticism of double dippers. Most of them are valuable to their agency or employer, and most work very hard. That doesn’t mean permitting double dipping is good policy. Here’s why it’s not:
General fund impact
Double dipping adds a significant burden to the general fund. Depending on the type of PERA plan that a double dipper is in, the employee’s contribution will vary, but most state employees contribute about 8 percent and most state law-enforcement employees contribute slightly more than that. For the sake of easy math, let’s call the combined average about 10 percent.
When one double dips, PERA still gets the same amount of revenue, but under the rules for double dipping now it all comes from the employer, with the employer picking up the employees’ 10 percent.
That means that if the state has 1,000 double dippers, the state general fund is paying an additional 10 percent of salary for 1,000 people, or the equivalent of 100 full time employees’ salaries. Since double dippers tend to make more money than most employees, it’s really the equivalent of well over 100 front line, service-providing state employees.
If we ever get to a point where the state lays off employees, can you imagine the outrage that more New Mexicans are losing jobs and more services are being cut/slowed down while the state is paying for the equivalent of over 100 employees just to subsidize double dipping?
Half the story is not enough
There was one employee group in particular — naming specific organizations and people doesn’t really help the argument, so I’ll resist — that really did a disservice to the well-being of the general and PERA funds by opposing reform.
That group wasn’t even aware that PERA had a big chunk of its investments in the stock market. Wow. That’s basic information that anyone remotely concerned with the long-term health of the PERA fund would know.
The same group bombarded the administration with information saying that PERA isn’t hurt by double dipping. This is another area where, to be kind, they’re simply misinformed.
As discussed above, PERA doesn’t lose any revenue from double dipping (because the taxpayer picks up the whole tab). So from a revenue perspective, the claim that double dippers don’t hurt PERA is correct. Revenue is only half the equation, though. Double dipping causes PERA’s disbursements to go up enormously.
Do the math
Let’s take Albuquerque, where double dipping is rampant, as an example. A typical Albuquerque police salary, for PERA calculation purposes, is about $60,000. That officer’s retirement at 20 years, 10 months is $45,000 per year for the rest of his or her life.
As an important aside, that salary is well-earned, and none of this is meant as disrespect for the brave men and women in APD. Dad was FBI when my brother and I were born (we even have congratulatory letters from J. Edgar Hoover welcoming us to the world!), and we grew up with nothing but respect for law enforcement.
In the past, plenty of good APD officers worked to 30 years before retiring and collecting PERA payments, even though they could have retired at 20 years, 10 months. Now that the law allows unlimited double dipping, though, officers would be foolish not to retire at the first available opportunity and come back as double dippers.
That means they collect retirement for about 10 more years than they otherwise would have. The economists out there will recognize this as classic moral hazard (which has nothing to do with morality, by the way).
At $45,000 per year, plus a 3 percent cost-of-living adjustment each year, that means double dipping in this very realistic example costs the PERA fund an additional half-million dollars in payout that would not have happened otherwise.
If every double dipper would have worked, in the absence of the double dipping law, an additional 10 years before retiring, the total cost of extra disbursements from double dipping would be $1.1 billion. And that’s just from the current 2,200 double dippers.
Of course, some of the 2,200 would have retired immediately and gone on to other work (or truly retired), but some also would have stayed longer than an additional 10 years.
Take a conservative estimate that in the absence of double dipping, the average PERA double dipper would have delayed retirement by just three more years. Even with that conservative estimate, there’s still a loss to the PERA fund directly caused by double dipping of $330 million. And that’s just from the 2,200 folks currently double dipping. Each new group of double dippers will exacerbate PERA’s losses further.
Take action soon
The governor made good points in his veto message about the value of experienced public servants. The sentiments are very much appreciated, especially in these tough times.
But it’s also precisely because we’re in tough times that the costs to PERA and the general fund of double dipping are too high to ignore. Double dipping needs to be limited, quickly. With good information, hopefully we’ll all take a fiscally responsible approach to protecting both taxpayers and public employees’ retirement.
Bundy is the political and legislative director for AFSCME in New Mexico. The opinions in his column are personal and do not necessarily reflect any official AFSCME position. You can learn more about him by clicking here. Contact him at carterbundy@yahoo.com.