washington outlook
Supreme Court’s Pension Decision
May Squeeze School Funding
Richard S. Davis
The state Supreme Court will soon rule on two pension cases. The decision
could add hundreds of millions in new costs in the next budget cycle.
Budget writers grow accustomed to risk. There’s a lot of uncertainty out there.
Recite the litany: sluggish Asian demand, Obamacare, brinkmanship in D.C., turmoil in the Middle East, natural disasters.
Reinstating gain-sharing and the UCOLA would add
$766 million to costs in the 2015-2017 state budget.
Then add: The whims of the state Supreme Court. We’ll get to
that right away.
While lacking the drama of foreign policy crises and showdowns in The District, the ruminations of the state Supreme
Court have immediate and long-lasting implications for the
state budget. The court’s McCleary decision directed a multibillion increase in school funding. Lawmakers have yet to
devise a strategy for meeting the goal. Now this fall the Court
takes up two pension cases that could offset any budget gain
from a growing economy.
You might chalk it up to “no good deed goes unpunished.” Or,
better, use it as a reminder not to make long-term promises based
on transient windfalls.
The first case involves the state’s “gain-sharing” benefit. The
second deals with the Plan 1 Uniform Cost of Living Adjustment
(UCOLA), a benefit for members of the teachers and public
employee Plan 1 pension programs. Both enhancements were
set up in good economic times and imposed obligations unsustainable after the bubbles burst.
The Legislature set up gain-sharing in 1998. The program
boosted retiree cost-of-living benefits when returns on pension
investments exceeded 10 percent for four consecutive
years. The late 1990s were heady times. But eventually
lawmakers discovered that tying permanent increases in
retirement benefits to temporary highs in market performance was a lousy idea.
They repealed the program in 2007, replacing it with
several other pension benefits, including early retirement options.
The UCOLA traces a similar path. [