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Double doozy
By Carter Bundy
The 2009 Legislature passed, and Governor Richardson signed, several important bills for public employees. In a tough economic year, those non-economic bills meant a lot to public servants.
One of the more unusual events of the last few weeks, though, ironically stems from public employees maybe being too appreciated: the veto of the double-dipping reform bill — House Bill 616, sponsored by Rep. Luicano “Lucky” Varela, D-Santa Fe.
If you read the governor’s explanation of the veto, there’s little question it was well-intentioned. It’s encouraging that the governor acknowledged that there are problems, is assembling a task force, and is considering putting double-dipping reform on his special session call.
Unfortunately, it seems the governor received some bad information about the effects of double dipping.
None of this should be considered a criticism of double dippers. Most of them are valuable to their agency or employer, and most work very hard. That doesn’t mean permitting double dipping is good policy. Here’s why it’s not:
General fund impact
Double dipping adds a significant burden to the general fund. Depending on the type of PERA plan that a double dipper is in, the employee’s contribution will vary, but most state employees contribute about 8 percent and most state law-enforcement employees contribute slightly more than that. For the sake of easy math, let’s call the combined average about 10 percent.
When one double dips, PERA still gets the same amount of revenue, but under the rules for double dipping now it all comes from the employer, with the employer picking up the employees’ 10 percent.
That means that if the state has 1,000 double dippers, the state general fund is paying an additional 10 percent of salary for 1,000 people, or the equivalent of 100 full time employees’ salaries. Since double dippers tend to make more money than most employees, it’s really the equivalent of well over 100 front line, service-providing state employees.
If we ever get to a point where the state lays off employees, can you imagine the outrage that more New Mexicans are losing jobs and more services are being cut/slowed down while the state is paying for the equivalent of over 100 employees just to subsidize double dipping?
Half the story is not enough
There was one employee group in particular — naming specific organizations and people doesn’t really help the argument, so I’ll resist — that really did a disservice to the well-being of the general and PERA funds by opposing reform.
That group wasn’t even aware that PERA had a big chunk of its investments in the stock market. Wow. That’s basic information that anyone remotely concerned with the long-term health of the PERA fund would know.
The same group bombarded the administration with information saying that PERA isn’t hurt by double dipping. This is another area where, to be kind, they’re simply misinformed.
As discussed above, PERA doesn’t lose any revenue from double dipping (because the taxpayer picks up the whole tab). So from a revenue perspective, the claim that double dippers don’t hurt PERA is correct. Revenue is only half the equation, though. Double dipping causes PERA’s disbursements to go up enormously.
Do the math
Let’s take Albuquerque, where double dipping is rampant, as an example. A typical Albuquerque police salary, for PERA calculation purposes, is about $60,000. That officer’s retirement at 20 years, 10 months is $45,000 per year for the rest of his or her life.
As an important aside, that salary is well-earned, and none of this is meant as disrespect for the brave men and women in APD. Dad was FBI when my brother and I were born (we even have congratulatory letters from J. Edgar Hoover welcoming us to the world!), and we grew up with nothing but respect for law enforcement.
In the past, plenty of good APD officers worked to 30 years before retiring and collecting PERA payments, even though they could have retired at 20 years, 10 months. Now that the law allows unlimited double dipping, though, officers would be foolish not to retire at the first available opportunity and come back as double dippers.
That means they collect retirement for about 10 more years than they otherwise would have. The economists out there will recognize this as classic moral hazard (which has nothing to do with morality, by the way).
At $45,000 per year, plus a 3 percent cost-of-living adjustment each year, that means double dipping in this very realistic example costs the PERA fund an additional half-million dollars in payout that would not have happened otherwise.
If every double dipper would have worked, in the absence of the double dipping law, an additional 10 years before retiring, the total cost of extra disbursements from double dipping would be $1.1 billion. And that’s just from the current 2,200 double dippers.
Of course, some of the 2,200 would have retired immediately and gone on to other work (or truly retired), but some also would have stayed longer than an additional 10 years.
Take a conservative estimate that in the absence of double dipping, the average PERA double dipper would have delayed retirement by just three more years. Even with that conservative estimate, there’s still a loss to the PERA fund directly caused by double dipping of $330 million. And that’s just from the 2,200 folks currently double dipping. Each new group of double dippers will exacerbate PERA’s losses further.
Take action soon
The governor made good points in his veto message about the value of experienced public servants. The sentiments are very much appreciated, especially in these tough times.
But it’s also precisely because we’re in tough times that the costs to PERA and the general fund of double dipping are too high to ignore. Double dipping needs to be limited, quickly. With good information, hopefully we’ll all take a fiscally responsible approach to protecting both taxpayers and public employees’ retirement.
Bundy is the political and legislative director for AFSCME in New Mexico. The opinions in his column are personal and do not necessarily reflect any official AFSCME position. You can learn more about him by clicking here. Contact him at carterbundy@yahoo.com.
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Hi Carter,
Had double dipping been allowed 25 years ago, a number of the people taking advantage of it now would never have had the chance to be hired. I fully expect to see PERA change their retirement years to keep workers (police included) working into their 50′s. It just doesn’t make sense to allow people to retire young and come right back to their same agency, I think PERA and the politicans are seeing this and will just change the number of years worked to 30 with a minimum age of 50 and the situation will be solved.
There are many good comments here. I’ll try to address a few.
First, even if some people go all the way to 22-3 (public safety hits the max of 80% at 22 years 3 months, not 22-10), in the absence of the ability to double dip, many would wait longer to start drawing down on the fund. Certainly that’s what happened before double dipping was allowed.
Further, as double dipping is becoming more commonplace, many aren’t even waiting until they reach 22-3. The incentive is to retire at the earliest possible moment to maximize the amount of time in one’s career where you can draw both salary and retirement.
Second, yes, it’s true that we could hire someone from another state who already has a retirement, but it’s far less likely that people will move across state lines to do so. I agree that home-grown federal retirees are getting that same opportunity, so it does seem unfair to exclude PERA retirees from that opportunity.
Then again, PERA retirees could go work for the feds, and to my knowledge feds don’t allow double-dipping, so feds wouldn’t be allowed to come back. It’s also by definition impossible to come back to the exact same job if you’re coming from somewhere else, so they’d at least be starting, in all probability, at a lower level, which as Doyle noted makes more sense.
Sheriff, the big problem here is the argument that Doyle makes–you and I both want good retirements for public employees, but the public, voters, taxpayers, and ultimately legislators aren’t going to support a 20 year retirement if there are so many people who easily come back to work for another 10 years, as long as the taxpayer is paying almost double the salary.
And frankly, they have a good argument. Logically, intellectually, and politically, it’s impossible to keep arguing for a short retirement and then insist on the right to double dip.
I’d rather keep our great retirements than lose them because of the (understandable) desire to earn double pay. Double dipping has us on the verge of killing (both financially and politically) the goose that laid the best retirement plans in America.
We survived before there was double dipping, and, by the way, it was always upheld as legal then. In almost every legal context it’s permissible to limit something that you could otherwise outlaw altogether, so it’s almost certain that double dipping could be restricted. But if it can’t be restricted, then fine, the legislature can ban it altogether.
Unless there’s some reason why double dipping can’t be prohibited entirely (which would be groundbreaking law all over America), the legal arguments against restricting it are specious at best.
Also, I didn’t really follow Sheriff Solano’s suggestion that we reduce PERA’s income. PERA is down about 25% in the last year, and the last thing we ought to be doing is making it less solvent. As the solvency of PERA becomes weaker, the odds of all of us losing PERA become higher.
Remember, a constitutional property right can be taken away by a vote of the general public. If you think the public is going to choose a billion dollar bailout of PERA when it comes from taxpayer pockets, I have an awesome bridge connecting Manhattan to Long Island that I’d love to unload.
Supporting public employee retirement means, first and foremost, ensuring that PERA stays solvent.
Even if Sheriff Solano’s contention that law enforcement retires at 22-3 is true, there’s still no doubt that double dippers are retiring, on average, earlier than they otherwise would have, and my numbers made fairly conservative estimates. That’s hurting the solvency of PERA, thereby hurting our ability to preserve the best retirement in America.
Finally, to Doyle’s claim that the gov’t doesn’t pay more for double dippers if they come back at an entry level, that’s incorrect both with respect to PERA and the general fund. PERA is paying more, even if someone comes back at a lower level, because without double dipping, many folks would have (and used to) stay on for longer, thereby reducing the total amount they drew down from PERA in their lifetime. PERA is what is known as a defined benefit plan–it’s not like there’s some big chunk of money you get that doesn’t change regardless of when you retire. There’s a monthly payout that starts when you retire and goes until you die. If you retire later, the total amount paid by PERA is lower (same if you die earlier).
And I think the fact that the general fund pays more for double dippers is relatively clear–by law the employer picks up both the employer and employee contributions.
It may be of interest to many that double dipping has been around for a long, long time. The way to curtail some of it is to make the retirement age come close to the retirement of S S (Social Security) and private industry.
For instance if one has to put in 30 years in harness and then can only come back to the bottom of the hiring list (at a rank of patrolman for instance in the APD)and go through the motions of working his way back up in rank, it would be the same as a new hire under those conditions.
The amount paid into PERA is no more than it would be for any other person then.
A retirement of 20 years with 3/4 of pay is very high (which is earned by the hazardous duty of the officers)but the retirement age is too low.
Under S. S. one must retire at age 72 or 75 to receive the maximum benefits. Under the Teamsters, it is predicated on the amount of time in harness with acceleration of benefits for the extra years one works. 1.e.: If you work for five years you vest with a minimal retirement, if you work for twenty years you can retire with (approximately) $2000. per month and if you go for thirty years you can retire with (approximately) $3,000 per month. and for forty years with (approximately) $4,000 per month.
Therefore there is no reason for double dipping under their retirement. Same goes for the railroad retirements, with a forced retirement of between 73 and 75 years.
The government is not paying extra, except if an employee comes back into service at his old rank or level of pay. Therefore the returnign employee should have to go back to the starting point and work his or her way up the ladder in rank and/or pay.
As near as I can tell if they left the state we would only be paying their well-deserved retirement. I’m not so sure these folks are irreplacable and absolutely must be re-hired, so I say if they come back they should work for the DIFFERENCE between their retirement pay and the normal job salary.
Among other problems with your analysis is the assumption that people leave as soon as they reach minimum retirement age. Most that I have observed or hired, retired at the maximum benefits.
For example police can retire at 20 years for 70% of their highest three years average pay. Most however stay 22 years and ten months to max out at 80%. This means that if they are making $20 an hour and reach maximum of 80% benefits and do not retire, they stay at work for $4.00 an hour if they do not retire. How does this make sense? They could retire and go to work for Mc Donalds for two and a half times that.
The truth is we lose that experience and training and they will not stay retired, they will go work somewhere else, why not keep them working and using that experience?
Retirement and health benefits are the attraction to hire and retain employees in the public sector. Without those benefits competition from the private sector would leave the state with slim pickens.
Why is it OK to retire from the military, private sector, another state,or the federal government and go to work for the state of New Mexico, yet we want to stop New Mexican State, city and county workers from doing the same thing? If this is not discrimination against a certain class of citizens what is?
As far as the additional PERA costs, those are decided by the legislature. If we want to ease the burden on the general fund we only need to lower the retirement tax which is self imposed by the legislature. PERA makes a huge profit through this tax as they pay out nothing in return. Even cutting it in half still leaves PERA with half the profit.
This whole uproar was over abuses and those who did not follow the rules. As usual we want to punish the class for something one or two students have done.
Put real penalties in place for those who do not follow the rules. I could go on about the many reasons the vetoed bill is illegal and unconstitutional but there is a line of attorneys waiting to earn their fees from the State General fund in the law suits they will file and probably win. That is the real reason the bill was vetoed.
Wow, Carter, I never saw any of these numbers in the discussion of the bill. Wish I had. Very nicely done to explain this.
The only positive for DD is that many would leave the state otherwise and take their experience and expertise with them. Be it a policeman or teacher, someone who has several decades of understanding is valuable to us.
So is it the details of the NM DD rules or just DD in general that is wrong?