Directors of state departments and agencies must find a way to pay for a 10.4 percent increase in the employer share of the PERS of Mississippi retirement starting in July.
Legislators have withheld the approximately $62 million needed to pay for the increased share of the retirement fund and left department heads to sift through their budgets to find the money. Specifically, they must find savings to cover the increase in the employer share of covered payroll from a current 14.26 percent to 15.75 percent in the new budget year.
They can look to trim their workforce numbers, but many departments are already operating at strained manpower levels and will continue to do so for the foreseeable future with the refusal by legislators to allow departments to fill any of their 2,082 vacancies.
According to Lt. Gov. Tate Reeves, the solution is for department chiefs “to manage their agencies more efficiently.”
The recommendation on forcing departments to fund the PERS increases is part of the $5.52-billion budget proposal approved by the Joint Legislative Budget Committee last Tuesday. “The decision that the budget committee made was to allow for state agencies to fund any increase in the PERS contribution within existing budget outlines,” Reeves said.
“They’ll have to come up” with the money, he added.
Cuts must come from somewhere, including workforce reduction, if necessary, said Rep. Jeff Smith, chairman of the House Ways and Means committee. “The agencies are going to have to cut their departments to pay for this.”
Smith estimates it will take $62 million to reach the 15.75 percent of covered payroll mark this year alone.
Also, Mississippi cities, counties and school districts that participate in the defined benefits retirement plan have a big challenge ahead in funding their share, Smith noted.
“The $62 million does not include the counties and cities… I would suspect the cost statewide will approach $450 million or more,” he added.
The jump to 15.75 percent is key to a strategy designed to bring the funded share of the $20-billion Public Employees’ Retirement System of Mississippi trust fund to 80 percent by 2042. The funded ratio now stands at 58 percent and is expected to go slightly lower before climbing upward by virtue of the 15.75 percent employee contribution. The 58 percent funded ratio reflects $14.5 billion in unfunded pension obligations.
The PERS trust board is calling the 15.75 percent a “fixed” rate that should remain in place until the 80 percent funded ratio is reached in 2042.
The 80 percent mark is considered safe territory for a retirement fund. Ratings agencies such as Moody’s, Fitch and Standard & Poor’s are voicing increased concern about states that let their ratios fall too low, especially as low as Mississippi’s has fallen.
Further, without the increase, PERS would not meet the requirements set by the Governmental Accounting Standards Board, Pat Robertson, PERS executive director, has warned.
The new rate is actually below the rate that had been scheduled to kick in on July 1. “While the fixed rate is an increase from the current rate, the fixed rate is lower than the 15.83 percent rate that would have been required effective July 1, 2013, under the prior policy,” Robertson said in a notice to the state, county and local officials who must plan for the increased contribution.
The move to the fixed-rate contribution follows a composite loss of $1.87 billion for fiscal 2012. The plan covers 90,000 retirees and has another 120,000 current workers.
Workers have seen their contribution share rise steadily in recent years. It stands at 9 percent of their gross wages today. The PERS website says the 2013 contribution rate is “to be announced.”
If any upside comes with the edict that department chiefs will have to find the 10.4 percent increase per covered employee it’s that they have until the next budget to do so.
Finding the money
Melinda McGrath, executive director of the Mississippi Department of Transportation, said she thinks the big challenge ahead rests with departments and agencies much smaller than hers. Billy Orr, head of the 29-employee state Fairgrounds Commission, would agree. “I don’t know,” Orr said of where he thinks he can get the extra money for the retirement fund contribution.
“I guess I’ll have to see about more concerts or whatever we can,” he said. “That is really getting to be a lot of money in that retirement deal.”
Orr’s challenge is compounded by the absence of a budget allocation from the state for any of his operations. “If we don’t make it, we don’t get paid,” he said of the enterprise fund on which the Fairgrounds Commission operates.
The state fair is the commission’s big money maker, yet Orr says it has not brought in enough to cover raises for his employees “in at least five years.”
One of the state’s giant agencies, the Department of Corrections, indicated certain expenditures will be off limits in its pursuit of savings to cover the increased retirement contribution: staffing, medical and food for inmates.
“Public safety is number one for the Department of Corrections,” Christopher B. Epps, Corrections commissioner, said in an email statement. “Therefore, our budget is centered around that.”
Epps said less important expenditures will be “closely monitored” in an effort to secure the savings. “We will continue trying to be as efficient and innovative as possible in managing the inmate population,” Epps said, though he emphasized the department already has a $29.5-million budget deficit for fiscal 2013 “because of inmate growth, two federal court orders and capital expenditures.”
As both a member of the PERS trust board and executive director of the Mississippi Department of Rehabilitation Services, Butch McMillan found himself voting for a contribution increase he knew would add extra headaches to his budget preparations.
His new PERS burden is lessened somewhat by federal funding that covers about 80 percent of his operating expenses, McMillan said.
But, he added, “At some point if I run out of money and flexibility… if I have got too many employees (whose retirement must be funded) I have to cut somebody.”
He said he will seek to minimize any staff cutbacks through attrition but pledged: “We’re not going to cut services. We’ll find other ways to squeeze something out.”
Considering the huge block of federal money his operation depends on, McMillan has more than the new PERS contribution to worry about. “If they go off the fiscal cliff, I’ll be like the guy at the Fairgrounds. I don’t know what’s going to happen.”