Improving the solvency of public employee pension funds isn’t the sort of legislative accomplishment that typically packs the Minnesota Capitol rotunda with cheering citizens. But a signing ceremony for a bill to do just that drew a spirited crowd last Thursday — and for good reason. In a legislative session that ended in futility on many fronts, the 2018 pension bill provided a welcome example of lawmaking done right.
The bill Gov. Mark Dayton signed — his last, he says — is a win-win-win. It’s good for the state’s 173,000 public employment retirees, easing fears that underfunded pension funds will someday deny them their earned and bargained-for benefits. It’s good for the state’s incumbent and prospective workforce, allowing dependable, defined-benefit pension plans to serve as a magnet for attracting and retaining talent.
It’s good for taxpayers. The unchecked growth in unfunded pension fund liabilities, which had reached $16.2 billion earlier this year, was damaging Minnesota’s creditworthiness. For several years, Wall Street rating agencies have told state officials that the rating — which governs both state and local government borrowing costs — was at risk unless something was done to shore up the state’s four big public employee pension funds. That risk has now eased, keeping borrowing costs down.
What’s more: This bill’s enactment was good for the Legislature itself. It showed that despite deep partisan divisions, it’s still possible to come to bipartisan agreement on the responsible governance of this state.
The unanimous votes for the final bill in both the House and the Senate belie its contentious history. The 2016 and 2017 versions of the bill were both vetoed by Dayton, for varying reasons. The DFL governor faulted the 2016 bill for unfairly employing just one tactic — reduced benefits for current retirees — to shore up fund solvency. To win his signature, Dayton said, a bill must rely on “shared participation.”
Dayton then did what should be done more often: He appointed a bipartisan task force of citizen experts on large pension funds to recommend a remedy. That distinguished group included one former Republican legislator, Morrie Lanning of Moorhead, and several past and present corporate executives, among them James Campbell of Wells Fargo. Their report made the case and described terms that would constitute shared sacrifice. Retirees, current public employees, and state and local governments all needed to take a financial haircut now in order to avert the need for deeper future cuts, it said.
That argument, pressed by key legislators and Dayton administration officials, sold most of the pension fund governing boards by 2017. But some GOP legislators saw shoring up pensions as an issue Dayton and union-allied DFLers wanted more than they did. That inspired them to add to the bill a “pre-emption” measure Republicans and their business allies favored. It required that cities drop their attempts to set labor standards for the private sector and instead allow state law to prevail. In legislative parlance, that was a poison pill. It brought Dayton’s second pension bill veto.
By the start of the 2018 session, all of the state’s pension funds supported the bill’s mix of slower retiree benefit increases and higher employer contributions. A surplus in the state’s general fund through mid-2019 was sufficient to handle the bill’s initial $27 million cost. The bill had skillful Republican leadership in Senate Finance Chairwoman Julie Rosen, R-Vernon Center, and Rep. Tim O’Driscoll, R-Sartell, who fended off poison pills. Management and Budget Commissioner Myron Frans took on the pension issue as a personal cause, emphasizing Dayton’s desire to leave office at the end of this year with the state’s fiscal house in good order. Growing pension liabilities would mar that.
Despite that array of support, the bill was the last one off the House floor on May 20 as the midnight deadline for passing bills approached. A Republican spokesman admitted that it was delayed in hopes of “keeping DFLers behaving well” on other bills. When the vote was finally called, no red (negative) lights appeared on the electronic vote board.
For a bill that discourages early retirement, scales back cost-of-living adjustments for retirees, increases state spending and shores up a defined-benefit pension system that some critics consider outmoded, we’d call that remarkable. More than that: We’d call it good governance.