The new year brings a renewed sense of opportunity. Resolutions are abundant. As legislative resolutions are made for the coming session, the impetus for more pension reform is building.
The need is clear. The new actuary reports are completed. The unfunded liability of Oklahoma's public pension system increased by a billion dollars last year. Moreover, several structural deficiencies still exist, especially regarding the firefighter retirement plan.
Pension obligations are one of the most challenging fiscal issues confronting every state government. For decades, decision-makers authorized more benefits without providing the necessary funding. As a result, most state governments were struggling to meet their pension funding requirements prior to the economic downturn.
The investment losses endured during the recession exacerbated the problem. Debts soared. So did the required pension contributions. Meanwhile, state governments faced other important fiscal issues, such as critical infrastructure needs that were postponed. In response, most states are making changes to their pension plans to reduce costs and risks. The wide spectrum of legal opinions and challenging demographic trends complicate reform efforts. However, worthy goals of financial sustainability and intergenerational fairness necessitate legislative action.
Illinois provides an example of the economic consequences of inaction. The state is on track to spend more on its government pensions than on education by 2016. “Under current actuarial assumptions,” Illinois Gov. Pat Quinn said, “required state pension contributions will rise to over $6 billion in the next few years if no comprehensive pension reform is enacted, which will continue to result in significant cuts to education.”
Illinois' massive unfunded pension liability has led to credit downgrades and tax increases. Poor credit leads to higher borrowing costs. The recent Illinois tax increase means the state joins California, Maryland and New York with the distinction of having the highest state tax rates in the country.
These byproducts of a poorly funded pension system are avoidable. Until recently, however, the condition of Oklahoma's pension system was more closely associated with Illinois than states with strong systems. Fortunately, state leaders have been willing to work together. Significant reforms have been accomplished. The unfunded liability has been slashed by billions. Nevertheless, more work is necessary.
This session, I will author legislation intended to strengthen the state retirement system. The coalition for more pension reform is becoming larger, enhancing the probability of success. Many positive developments are transpiring throughout Oklahoma. Support for greater financial responsibility is strong, while the opportunities for economic prosperity continue to grow.
McDaniel, R-Oklahoma City, represents District 83 in the Oklahoma House, where he is chairman of the Pension Oversight Committee.