Those who complain that their property taxes are already too high should pay closer attention to what is happening with Mississippi’s Public Employees’ Retirement System.
The pension plan that covers about 1 out of every 7 adults in this state is financially out of control and only going to get worse.
For years, the PERS board has been trying to close the system’s long-term projected shortfall by jacking up the percentage that employers — i.e., the taxpayers — contribute into the pension plan for state, city and county employees as well as those who work at public schools, colleges and universities.
Since 2005, the employer rate has been increased eight times, and it’s expected to increase 2 percentage points for each of the next five years, starting on July 1, 2024, ultimately hitting 27.4%.
Assuming the employee rate stays at 9%, that means by 2028, for every dollar that a public employee earns, 36.4 cents will be needed to fund PERS. That’s almost three times what Social Security taxes presently cost employers and employees combined.
Although Social Security is hardly a model of financial sustainability, clearly the steady stream of rate increases for PERS has not been the answer. Since 2010, the unfunded liabilities have almost doubled, from $11 billion to $20 billion.
Cities and counties around the state are warning the PERS board that there’s no way they can swallow the next five years of projected increases without cutting services or raising taxes.
“I don’t know how they think we will be able to maintain this,” said Greenwood Mayor Carolyn McAdams.
Greenwood currently spends about $1.2 million a year, or 9% of its total general fund budget, on its PERS contributions. According to McAdams’ projections, the annual cost will be just under $2 million when the increases are fully phased in.
There have been no shortage of ideas for what needs to be done to reform PERS. What there has been is a shortage of execution.
The last time that Mississippi looked seriously at non-taxing ways to strengthen PERS was during the final years of the Haley Barbour administration more than a decade ago. The recommendations of his study commission were ignored.
The PERS board and its administration, under heat from the Legislature, recently outlined what they expect to propose to shore up the system in addition to the rate increases.
Foremost is a request for an unspecified amount of initial bailout money from the state treasury, which is currently enjoying record surpluses, possibly following by annual appropriations from the Legislature.
There is also talk about steering current and future retirees toward taking their cost-of-living adjustments in monthly installments rather than waiting for the lump-sum “13th check” at the end of the year. That wouldn’t save any money but would help with cash flow.
Other than breaking the taxpayers’ bank, though, the only realistic way to return PERS to a solid financial footing is to reduce its cushy level of benefits. The PERS board, though, is only recommending benefit reductions for new hires. It doesn’t want to attempt to touch the benefits for current retirees.
There is in part a legal reason for that timidity. Case law says that, absent the retirement system going into default, the benefits of those already contributing into or drawing from the pension system can’t be changed. One potential savings that has not been tested in the courts, though, is whether the Legislature could reduce future cost-of-living increases, which are presently fixed at 3% a year regardless of what the real rate of inflation is. Another possibility would be to tax PERS income, just like the federal government taxes retirement income.
The main obstacle to getting PERS to a manageable financial level, though, is that those with the power to implement reforms have a vested interest in leaving things the way they are.
The Legislature benefits from not one but two pension plans provided by PERS. And the PERS 10-member board is totally stacked with current public employees or retirees.
One of the suggested reforms of the Barbour commission was to balance the board with individuals from the private sector who have significant financial experience and no direct or indirect interest in the state retirement plan.
That might be as helpful as anything. You can be sure they would be advocating for solutions other than just steadily adding to the taxpayers’ burden.
- Contact Tim Kalich at 662-581-7243 or tkalich@gwcommonwealth.com.
