Retirement debt a hidden cost in Louisiana budget debate

BATON ROUGE — As Louisiana’s governor and lawmakers continue to struggle to balance the state’s budget, there’s a little-discussed hidden cost siphoning dollars from agencies and colleges, payment of a multibilliondollar retirement debt left behind by state officials and lawmakers over decades.

The good news is the debt is shrinking, which will put Louisiana’s statewide retirement systems for state workers, state police, public school teachers and college employees in a stronger financial position and the state on better terms with credit rating agencies.

“The state is being responsible in paying down the debt,” said Cindy Rougeou, executive director of the Louisiana State Employees’ Retirement System, known as LASERS, the pension system that covers the lion’s share of state workers.

The debt reached a high for LASERS in 2014, at more than $7 billion. That has fallen to about $6.8 billion and is estimated to be cut in half within a decade.

The bad news is the debt payments are redirecting hundreds of millions of dollars annually that could have otherwise been used for services, because of poor decisions made years ago that left the retirement systems awash in red ink.

The debt payment paid by agencies for the LASERS pension system alone is roughly $650 million this budget year.

Louisiana’s retirement systems started off in debt as soon as they were created by state lawmakers in the 1930s and 1940s. They began paying benefits to retirees almost immediately, pensions that weren’t fully funded by the state or the recipients.

And lawmakers and governors kept digging that hole deeper, worsening the debt, which is called the “unfunded accrued liability” — an accounting of what the state will owe employees after they retire but does not have the money to pay right now.

They made insufficient payments toward the retirement systems, as bills to tweak benefits, add more retirees and give more favorable treatment to certain classes of employees sailed through the Legislature with little attention.

With the retirement debt ballooning to around $1.8 billion, lawmakers backed by voters amended the Louisiana Constitution in 1987 to require payoff by 2029. The first payment began in 1989. State agencies, school systems and college systems pay a share of the debt annually, on top of regular payments they make into the pension systems for current employees.

But lawmakers didn’t want the heaviest cost of the retirement debt reduction to hit too soon, so they back-loaded the payments, making them larger toward the end of the 40-year debt eradication schedule and growing the debt by $1.2 billion because of interest accruing on it.

Those larger payments hit as Louisiana was struggling through its worst financial problems in decades — taking larger bites out of state agency and college budgets as they were also getting hit with cuts.

Colleges are paying $260 million in pension debt payments this budget year, according to the Board of Regents. University of Louisiana System President Jim Henderson said of the $214 million in state funding his college system receives, $90 million is paying toward retirement debt.

Later decisions by state lawmakers, investment slumps and cost-of-living raises paid to retirees continued to increase the debt as well. Estimates are the four statewide retirement systems are about $19 billion short of the money they need to cover all promised pension benefits over time.

Because of those add-ons, there will be pension debts that must continue to be paid after the 2029 payoff of the initial debt that was addressed by the constitutional amendment. But those payments by agencies, school districts and colleges will fall substantially after that initial debt is eliminated.

Rougeou said lawmakers also have made other strides to lower the pension systems’ debts with a series of bills passed since 2009. They’ve limited the frequency and amount of future cost-of-living adjustments, steered more investment gains toward debt payments and made the pensions less generous for future employees, among the changes.

That has cut the debt in the LASERS system alone by more than $570 million.

“We’ve turned that corner,” Rougeou said. “The Legislature, they have been very conscientious, very responsible and they’ve made some very important changes that really have made a difference. It’s the best kept secret in the state.”

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Melinda Deslatte has covered Louisiana politics for The Associated Press since 2000. Follow her at http://twitter.com/melindadeslatte