Illinois provides a case study of why Nevada’s elected officials should pursue pension reform sooner rather than later.
The Illinois Policy Institute published shocking research on the state’s education system last month. For every dollar the state government spends on education, 39 cents goes to pensions. In 2000, only 12 percent went to pensions. In 2000, expenditure on teachers’ pensions was $ 640 million. Today it is $ 5.8 billion. It is nine times more.
Spending other than pensions has also increased, but at a much slower pace. He hasn’t even doubled.
Every dollar spent on pensions is a dollar that is not used to hire teachers or reduce taxes. Most teachers, presumably, would prefer to see this money in their regular paychecks as well. The problem is further compounded by the fact that large parts of these payments repay debts previously incurred. Today’s students have less because previous generations did not set aside enough money to pay their promises.
Nevada’s pension situation is not as bad as Illinois, which is perhaps the nation’s biggest budget basket and is the child star of what happens when public service unions hold the key to the fight. public tax authorities. But that doesn’t mean all is rosy in the Silver State.
Nevada’s public employee pension system invests contributions from both employers and employees (read: taxpayer). In theory, these contributions and the returns on investment are supposed to provide enough funds to pay the promised retirement benefits. In reality, they did not follow.
To pay off this debt or unfunded liability, pension contributions have skyrocketed. In 2007, the contribution rate for a regular employee was 19.75%. Today it is 29.75%. The contribution rate for police and firefighters has increased from 32% to 44%.
These higher rates mean less money for Nevada teachers and classrooms today. Since increased spending on education did little to improve performance, adequate funding for pensions in the past could have meant lower taxes today.
In a presentation to the Legislature this year, the PERS estimated its unfunded liability at $ 11.4 billion as of June 2020. That means the system was about 76% funded. The good news is that Nevada PERS’s investments have performed very well over the past year. Its overall yield was a whopping 27.3 percent.
PERS’s board recently lowered its assumed annual rate of return to 7.25% – a wise and prudent move. It had been 7.5 percent and before that 8 percent. Board members say the current level of funding under the new assumptions will not be available until November.
As the situation in Illinois shows, Nevada lawmakers must enact a retirement system that does not punish future taxpayers for past financial mismanagement.