Governor Covers for Unions in Pension Debacle
Protecting His Own —the Budget Busters
BY DUSTIN HURST
Montana Gov. Brian Schweitzer is a gifted politician where message discipline is concerned, and that can make life tough for a journalist.
On April 10, Schweitzer told a room of reporters that he blames Republicans for blowing a $2.4 billion hole in Montana’s two largest pension programs, the Teachers’ Retirement System, or TRS, and the Public Employees Retirement System, or PERS.
Schweitzer’s evidence is 2001’s House Bill 294 that doubled the cost-of-living adjustment (COLA) on public-employee pension benefits, from 1.5 percent to 3 percent.
He noted that then-state Rep. Dave Lewis, R-Helena, carried the bill that passed the GOP-controlled Legislature and was signed by Republican Gov. Judy Martz.
Now, because of that legislation, Montana is in trouble. TRS’ fiscal 2011 annual report shows the system is $633 million underfunded, while the 2011 yearly PERS progress report shows its account is $1.8 billion underwater.
The governor is working full time to make this an issue of Republicans versus Democrats.
During a Monday phone call, I asked Schweitzer if other parties were involved in passage of House Bill 294—other parties like, say, public-employee unions.
The governor deflected.
“I wasn’t in government then,” he told me. “I was on the ranch.”
Even out there on the ranch, Schweitzer probably could have heard Eric Feaver bragging that he—not the Republicans—had delivered the massive COLA.
Feaver, president of the 18,000-member MEA-MFT (Montana Education Association-Montana Federation of Teachers), told his members, “We are confident, despite some capitol hallway grumbling, that the Legislature will authorize the governing boards of the various public employees retirement systems to provide a 3 percent annual increase in retirement benefits to serve as a hedge against inflation.”
In that same message, you can even see how Feaver managed to persuade lawmakers in both parties to back the COLA increase.
Thanks to the magic of the state’s Wall Street pension investments, he suggested, the increase could be paid for “at no additional cost to the state or active employees.” Wall Street would pay for everything through infinite growth.
He also referred to the legislation as “our bill.”
So, I asked Schweitzer, were the unions involved?
“Maybe they were,” the governor said.
Lewis, now a state senator (I talked to him April 16, as well), told me House Bill 294 was the “biggest mistake” of his legislative career, and he wishes he could repeal it. He explained that before the 2001 legislative session, he’d conferred with public retirees who were having a tough time making ends meet.
When Feaver and the union offered the chance to help, Lewis said he took the ball and ran with it. “It was their baby, but no one was twisting my arm,” he told me.
These days, Lewis, the bill’s sponsor, acknowledges the union’s involvement in creating the bill and the pension hole it created.
But not Schweitzer. I asked him four times about the union’s role, and four times Schweitzer deftly pivoted and blamed Republicans.
“There are only 150 votes in the Legislature,” the governor said, adding some lawmakers might be offended by my indirect assertion that lobbyists and unions can influence the statehouse.
If my question was about mathematics, the governor would have been right: The Montana House has 100 members and the Senate has 50. And he’s also correct that Republicans held a majority in both chambers in 2001—a 58 to 42 advantage in the House and a 31 to 19 edge in the state Senate.
But both parties supported House Bill 294. The House passed it 97-3, and the Senate gave it a 50-0 approval.
Why were 147 Republican and Democrat lawmakers so eager to pass the measure?
Call it a stunning lack of foresight by all parties. Call it blind faith in Wall Street, where the pension’s funds are invested. Call it a display of the power of unions to get otherwise intelligent lawmakers to suspend their reasonable belief in conservative financial planning and vote instead on the basis of their belief that, buoyed by the dot-com bubble and ever-rising housing prices, Wall Street would never see a down-market again.
Lewis told me he saw the bill as a way to spend down the $500 million surplus enjoyed by PERS in 2001, instead of saving for the future or lowering contribution rates for the plan.
They had some evidence for their childlike faith. Pensions invested in Wall Street were then so productive that they’d produced a surplus. The union successfully argued that paying out more generous benefits would take care of that problem.
Then House Minority Whip George Golie (D-Great Falls) found that argument persuasive. He said the union-backed measure seemed a great way to address the funding overage in the state’s pension system—so great an idea, Golie explained, that the union didn’t even have to lobby him to get his support. “They didn’t have to lean on me,” Golie said, adding he saw moving up COLA to 3 percent as prudent.
Feaver pushed that utopian view with the assumption that markets stay healthy indefinitely.
“It looked like the markets would be robust and grow forever,” Feaver said on the phone last week.
Then reality set in. The market crashed in 2008. The Great Recession hit. Home prices collapsed. That one-two-three punch cost pension plans nationwide billions of dollars in assets, leading to huge unfunded liabilities. Montana’s system suffered too, and the state’s pension managers are still recovering. In the meantime, Montana taxpayers have been forced to fill the holes.
In the 12 years since its passage, House Bill 294 has cost taxpayers dearly. Montana has plugged an extra $150 million into the state’s two largest retirement systems on top of the contributions made by public employers. More cash will likely be necessary.
If the Legislature hadn’t pared back Schweitzer’s supposed fixes since 2005, that number would have been $298 million.
Still, using Schweitzer-like culpability deflection tactics, Feaver blames the markets solely for the problems. “If the market hadn’t crashed, we wouldn’t be talking on the phone right now,” he said.
That Schweitzer can’t acknow-ledge the unions’ role in House Bill 294 suggests structural problems in Montana’s finances are unchanged, that the problem isn’t Republicans or Democrats, but the influence of public-employee union leaders.
Schweitzer’s silence might be political pragmatism. His campaign depended on public-employee support. In 2004, facing a tight race with Republican Bob Brown for the governor’s mansion, Feaver and MEA-MFT endorsed Schweitzer, though Brown was a lifelong MEA-MFT member and had received high honors from the group.
Also of note is that Brown’s running mate was none other than Lewis, the sponsor of House Bill 294.
Still, the union chose Schweitzer.
Lewis told me he believes the union endorsement decided the 2004 gubernatorial race.
“Their endorsement is important,” he said. “They’re worth a lot of votes.”
Schweitzer beat Brown by about 20,000 votes, while the union boasted a membership of about 16,000.
Schweitzer trumpeted the union’s backing on his campaign website in June 2004, and said in an article that he looked forward to working with teachers.
Though he was so proud of his union affiliation running for office in 2004, I couldn’t get the governor to so much as utter Feaver’s name on the phone Monday. When I asked the governor for the fourth time to describe the union’s role in passage of House Bill 294, he turned the question back on me.
“You’re saying that,” Schweitzer told me.