Cutting back retirement funding to save money would cost millions

The Repblicans' suggestion that the state reduce the budget shortfall by eliminating the increase in what the state contributes to the Public Employees Retirement System would cost $190 million over the next 20 years.

Assembly Minority Leader Lynn Hettrick, R-Gardnerville, said last week that one way to save $28 million over the next two years would be to reject the PERS board increase in the state's contribution toward employee retirement.

Hettrick has proposed eliminating the PERS contribution increase and the $30 million set aside for the Rainy Day Fund to cut the revenue shortfall.

But according to PERS Director George Pyne, that would be a serious setback to the 40-year program designed to provide for the long-term debt of PERS. The 1983 Legislature began a program designed to eliminate the system's unfunded liability over a period of 40 years. The state has been doing that for 20 years. In fact, when then-Gov. Richard Bryan tried to delay the contribution in the late 1980s, lawmakers put the money back into the budget, saying it was too important.

While delaying the contribution increase for two years doesn't seem like much, a letter from PERS to the Legislative Counsel Bureau says it would force a long-term increase in contribution costs.

According to PERS actuaries, "delaying the scheduled contribution rate increases for regular members over the biennium would add an additional ongoing cost of 0.25 percent of payroll to the contribution rate."

"As I indicated before, this would be an ongoing additional cost," Pyne said in a letter to lawmakers.

That translates to about $9.5 million a year in ongoing costs -- a total of $190 million over the next 20 years.

"We aren't doing that," said Ways and Means Chairman Morse Arberry, D-Las Vegas. "It makes no sense because it would cost us far more than it would save."

Senate Majority Leader and Finance committee Chairman Bill Raggio, R-Reno, said the state has is half way through the 40 -year program to eliminate the unfunded liability of the retirement system. He said delaying the contribution increase "would have more effect than just delaying it a couple of years."

Hettrick said Sunday he agrees it makes no sense to cut the PERS funding and wind up paying many times more than that to catch up. But he thinks there are other ways around the problem, such as a trigger if any additional money becomes available through savings or increased revenues from existing taxes.

"If I were going to trigger money to something, I would probably trigger something like that, rather than the Rainy Day Fund," he said.