COMMENTARY: House Republicans have introduced a set of proposals to fund yet another round of corporate tax breaks next year, and they think they’ve found the perfect place to get the money: by taking it out of the retirement accounts of CYFD investigators, police, firefighters, corrections officers, secretaries, janitors, and tens of thousands of other New Mexico workers and retirees.
It’s a raid on pensions — nothing more, nothing less.
Of course, that sounds terrible, so House Republicans are grandstanding that they’re taking it from their own retirements, which sounds quite noble. But the reality is very different.
One really important fact
House Republicans are entitled to their own policy ideas and values, but not their own facts. The most important fact in this entire debate is this: There is no such thing as a separate legislative retirement fund. Legislators are eligible for a retirement only through a unified trust called Public Employee Retirement Association (“PERA”), not a stand-alone fund.
Courtesy photo
Carter Bundy with his son Gus.
Not only is there no stand-alone legislative fund, there is not even a separate pool for legislators within PERA. All money contributed into PERA for legislators, and all money paid from PERA to retired legislators, comes from the exact same pool of money that pays for everyone else’s retirement.
The legislators’ share of PERA is tiny, too. Their part of the PERA pool amounts to about 0.25 percent of the entire plan, or one-four hundredth. So when Republicans “nobly” offer to take $12.5 million out of PERA, they’re really just taking other people’s money. The best case they can make is that they’re “only” grabbing $12.47 million from New Mexico’s other workers and retirees.
Pension raids are fiscally reckless
Workers and retirees made significant sacrifices in 2013 when they agreed to pension reform. Those sacrifices weren’t made so PERA could be raided to bail out the general fund; they were made to improve the long-term solvency of PERA, which has improved to a 76 percent solvency ratio.
But it is still fragile and underfunded, and the GOP plan makes it $12.5 million weaker. This pension raid is the last thing any fiscal conservative would vote for, especially after so many on both sides of the aisle fought so hard to find a bipartisan plan to stabilize PERA, and after workers and retirees sacrificed so much.
The GOP pension raid is a huge tax hike
Even worse, as a result of the Republicans’ quick $12.5 million raid on retirement, taxpayers, workers and retirees will be stuck with hundreds of millions of dollars in new taxes for years to come.
That’s because PERA is a trust, and as soon as you take any amount of money that is not for its sole purpose (retirement), IRS laws mandate that both current workers and public employers (read: taxpayers) pay taxes on contributions, and that retirees lose a big chunk of their retirement to new taxes.
House Republicans have conveniently failed to mention the specific new tax increases on tens of thousands of New Mexicans and the broader tax increases to all New Mexico taxpayers caused by their pension raid, but the tax hikes are real, and they’re spectacular.
Pension raids are unconstitutional
Finally, it’s unconstitutional to raid the corpus of PERA and transfer that money to the general fund, and you don’t have to be a lawyer to figure it out. Article XX, Section 22A of the New Mexico Constitution couldn’t be clearer:
All funds, assets, proceeds, income, contributions, gifts and payments from any source whatsoever paid into or held by a public employees retirement system [PERA] or an educational retirement system [ERB] created by the laws of this state shall be held by each respective system in a trust fund to be administered and invested by each respective system for the sole and exclusive benefit of the members, retirees and other beneficiaries of that system.
Expenditures from a system trust fund shall only be made for the benefit of the trust beneficiaries and for expenses of administering the system. A system trust fund shall never be used, diverted, loaned, assigned, pledged, invested, encumbered or appropriated for any other purpose. [emphasis added].
The prohibition on raiding worker retirements was so important that our Constitution says it three different ways. Even if House Republicans don’t know their own Constitution, there has been no shortage of nonpartisan experts and advocates warning them about this very problem for the last year.
Why bother?
If Republican representatives know that the pension raid is unconstitutional, that it comes almost entirely from workers, that it’s fiscally reckless, that it raises taxes on tens of thousands of New Mexicans, and that it creates new liabilities for all taxpayers, why bother grandstanding over this?
Sometimes the obvious answer is the right one: The GOP House plan was never about balancing the budget. It was about political posturing and making it look like they alone were willing to make sacrifices to save the day, and that anyone opposing them was a selfish lout.
There’s always an element of grandstanding in politics, but given what a policy train wreck the pension raid is on so many levels, it isn’t even good grandstanding.
Carter 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. Contact him at carterbundy@yahoo.com.