CLARIFYING OUR COLA BASE LEGISLATION: WHY $16,000

JAN 2007 - Members will note that we have again filed legislation for a higher base, currently $12,000, to which an annual 3% can be applied.

In seeking a higher base, we do not have the luxury of picking a number such as $20,000 or greater that would sound attractive and reasonable to our members, but  would be totally unrealistic to achieve within the Commonwealth’s current funding schedule, which requires that the state and teachers’ $13 billion unfunded liability be paid off by Year 2023.
In order to increase the current base of $12,000 to $16,000 under the current funding schedule would require an additional appropriation of $108 million the first year alone, with increasing amounts thereafter.
This amount would be added to the $1.49 billion already required by law to be appropriated in order to pay not only for retirement benefits accrued by current employees but also toward the $13 billion unfunded pension debt.
To increase the base to $16,000, the total pension funding appropriation would be $1.598 billion the first year. However, if we extend the current funding schedule (or “refinance” as an analogy) to Year 2026 the first year total appropriation would be $1.459 billion. True, the long range costs would be greater, but because our pension funds’ investments are earning more than the 8.25% assumption on an annualized basis, the cost would prove to be less than assumed on our actuarial schedule.
Although, under law, the maximum date for eliminating the unfunded liability is 2028 for any of our retirement systems, there would be a roadblock at the state level to actually extend the current schedule to the maximum allowed.
However, for the first time ever, last year the Public Service Committee actually released a bill to the Legislature which called for a $16,000 base, while at the same time extending the funding schedule to 2026.
“Senator Jehlen and Representative Kaufman (co-chairs of the Public Service Committee) understand that it would be impossible to reach a higher COLA base without changing the current funding schedule. For them to take the lead in changing the funding schedule in order to increase the base was a bold, but necessary move, which is deserving of special recognition,” says Association President Ralph White.
“The unfunded pension liability has always been a bullseye for the press and Mass. Taxpayers Foundation and any move to extend its target date is bound to attract serious opposition, both at the state and local retirement system level.
“It’s up to us to convince the Legislature that we can do both - increase the base to $16,000 and adjust the funding schedule by extending the date to 2026. It won’t be easy. But asking our current Legislature to raise the COLA base to $16,000 while at the same time making up for the years when earlier Legislatures allowed the pension debt to reach junk bond levels, is a reasonable solution,” said White.
“I realize that there are those who will say that we should start with a higher figure than $16,000 and negotiate from there.
“However, this is not a negotiable item in the same sense as a wage contract...We’re talking about a change in the Commonwealth’s sacrosanct funding schedule - the debt payment schedule.
“The Public Service Committee stuck it’s neck out last year in adding three years to the debt payment to accomodate a $16,000 base. We need the support of the Public Service Committee and the House and Senate Ways and Means Committees if we are to accomplish this in the coming Legislative Session.” White reminded.
“Remember when you hear of bills for a $20 or $25 thousand base being filed, don’t be fooled. We have an obligation to be honest and upfront with our members. There will come a day when a base greater than $16,000 will be reachable, but in 2007 we are not about to chase windmills.
“In 2007, when the time comes that we ask you as a member to ask your legislator for help we want to make certain that it’s a bill the Public Service Committee and the Legislative leadership is willing to listen to. Ultimately, you will find that it will be our bill.”

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