Grassroots Radio Colorado, Walker Stapleton, June 11, 2013

Station:     KLZ, 560 AM

Show:        Grassroots Radio Colorado

Guests:     Stapleton


Date:         June 11, 2013       

Topics:      PERA, Public Employees Retirement Association, Defined Contribution, Defined Benefit, Taxpayers, Bait and Switch, School Districts, Backfill,  Alaska Treasurer Conference, Oregon State Treasurer, San Jose, California, Calamity, Trustees,
Board of Directors, Financial Information, Transparency, Projected Rate of Returns,

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HOST KEN CLARK:  […] We are going to get right after it.  One of my biggest favorite pet peeves in the entire state:  PERA,  the Public Employee Retirement Association, and it has the potential to basically bankrupt the state of Colorado.  So, here to talk more about it and to tell us what is happening most recently, Walker Stapleton, who is the Treasurer for the state of Colorado.  Walker, welcome back to Grassroots Radio.

COLORADO STATE TREASURER WALKER STAPLETON:  Hey, Ken and Jason.  Always great to be on with you guys. 

HOST JASON WORLEY:  Great to have you back!  So, what – there was actually a little bit of movement on the lawsuit today, for you to actually – I don’t know, just an idea, here– the Treasurer of the state of Colorado be able to actually see into the books of one its largest problems.

CLARK:  [facetiously] Why would we want to do that?

STAPLETON:  Exactly.  And I wish I could report that it went swimmingly, but the questions from the judges at the Supreme Court – or, at the Supreme Court, the Court of Appeals, excuse me, seem to indicate a couple of disturbing trends.  Number one, they basically said that I had not specifically asked for one piece of information.   This is the argument that PERA made to them.  And because of that, you know, I could have simply asked how many members of the system were left handed.  And because I hadn’t done an effective job of clarifying one specific reason, I was just fishing for any information, for the heck of it, which is, uh – which I view to be fairly ridiculous argument to make, given the fact that we’re dealing here with a pension fund that is $20 billion, if not more, in debt and is already bankrupt.  And my purpose in requesting this information in the past has always been the fact that we must have transparency of financial information in this state with regard to the pension system in order for people to recognize what a big problem we have on our hands, and to do something about it.  And in the absence of transparent financial information, this problem is going to get swept under the rug time and time again,  because people are going to deny that there is a problem.  And so, this has always been about the transparency of information and the ultimate solvency of our pension fund.  And as long as the pension fund can continue, through the courts or through repression of  board members to release this information in a transparent manner, Colorado and the future generations of Coloradoans are the ones that are going to end up losing out. 
WORLEY:  Well, and correct me if I’m wrong, Walker, but don’t you sit on that board?  Aren’t you, as the Colorado State Treasurer and a state-wide elected official, don’t you sit on that board?

STAPLETON:  Right, and the argument that they – in fact, I’m the only elected official on that board, by law — the only one.  Of all the other fourteen board members, I’m the only person that sits on that board by law, by virtue of the fact of being the Treasurer of Colorado. Another argument that they made against me today and that they’ve made against me in the past is the fact that I am operating as a quote/unquote ‘rogue board member’ who would not be operating in the best interests of the PERA members.  And my point of view is, “Look!  This is a system that is bankrupt!  This is a system that is not going to be able to keep its promises to younger members, to new members of the system. Just because they are promised ‘x’ on their retirement sheet, doesn’t mean that if the plan because insolvent they are going to get ‘x’.  They might get ‘y’ and ‘y’ might be a lot less than what they thought they were going to get.  So my concern is forf the future members of the plan and whether the plan is going to able to sustain itself.  That’s a different concern, clearly, of the majority of PERA board.  But I think it’s no less valid.  In fact, I think it’s even more valid.  

CLARK:  So, I am curious, though, do the other board members, do they have access to this information? 

STAPLETON:  No.  This information – one of the crazy things about this whole legal case, guys, is that this information has never been requested before.  And my common sense conclusion is, “Well, how — why not?”  Why, with a system that is bleeding red ink, that is fully bankrupt, that has a debt that is the size of Colorado’s entire budget, in one year alone — why haven’t the tough questions been asked?  And why hasn’t the data been requested in the past?  Because in the absence of data, trustees and board members of the plan are completely flying blind!  How are you supposed to make any judgements about what to do to fix the system in the absence of any data?  They’re not able to.

WORLEY:  Treasurer Stapleton, let me just jump in, here.  Are there three members of the board that are monkeys – one with its eyes covered, one with its ears covered, and one with its mouth covered?  Because –

STAPLETON:  Right.  Right.

WORLEY:  I’m kind of having a problem with that.  If the board — you’re right, if the board doesn’t actually know the numbers, why the hell are they on the board? 

STAPLETON:  Right.  Right.  Exactly.  And furthermore, how could they function as a responsible member of the board, and contributing member of the board in the absence of any financial data and information?  And the fact that they have, in this state, for many many years prior to my coming into office, should be incredibly alarming to people. 

CLARK:  I find that just phenomenal.  I mean, that’s like the board of directors of a corporation that’s not allowed to read a K1, or an annual report. 

STAPLETON:  Or access any financial information about that company’s retirement plan. 

WORLEY:  They’d be out of business pretty quick. 

CLARK:  Yet, they are the ones that are making the decisions.  They are voting on major issues that have to do with the retirement association, —


CLARK:  –yet they have no data to make any decisions upon.   

STAPLETON:  Yep.  That’s right.

CLARK: It’s unbelieveable! 

STAPLETON:  […] substantive conclusions. 

CLARK:  You know what’s interesting, Walker? I had no idea.   I did not know that.  That is a piece of information I didn’t know. I was assuming, I guess, that they were just trying to deny you all of this information.  But nobody on the board has it, and they don’t seem to be concerned.  Nobody else cares.

STAPLETON:  And – exactly.  And they haven’t in the past, which should tell you that effectively there’s plenty of people that are happy to fly blind and to rubber stamp what the executives of the plan want them to rubber stamp.  And the other argument, which I love,– I love this one.  Another argument that they made against me today is that I’m simply interested in getting the information for partisan political purposes.    And that couldn’t be further from the truth, either.  I mean, giving my background, I’m blessed to have an MBA, also a degree in economics.  I have a financial background.  I’m not asking for this information – I’m asking for this information because I’m concerned about the solvency of the plan, and I want to rectify it before it causes the state a massive bankruptcy bill at the city and school district level.  I’m not asking for this – you know, if I was operating politically, I’d keep my head down and wouldn’t do anything, which a lot of politicians in this state seem to have a lot of success doing.

WORLEY:  Well, I kind of wonder –

STAPLETON:  I’ve gotten nothing but grief for this request.  And another quick thing to share with you guys, as I’m thinking about how crazy this experience has been and this adventure, is that I was at a treasurer’s conference last year, in Alaska.  And the treasurer of Oregon came up to me.  This guy is a dyed-in-the-wool liberal, and he said, “I’ve been following your case as the Treasurer of Colorado, and it doesn’t make sense to me how the treasurer of Colorado has to go through the court system in order to get financial information.  Because in Oregon, we have such strong sunshine laws on the books, that anybody can pick up the newspaper and find out what a member of the public pension system makes.  And by the way, those laws were put into place by Democrats in our legislature.”  And yet, in Colorado, we’re operating in the Dark Ages, where I have to actually go to court as the sitting Treasurer of the state and the only board member by law to simply get financial information for me, as a board member, to make an educated decision about how to fix the plan. 

WORLEY:  Walker, it almost seems as if you could go into the court and make the argument that the other board members are acting as ‘rogue board members’ because they don’t have the information!

STAPLETON:  Right.  Right. 

CLARK:  You know, it’s – if you operated an investment bank this way, or a mutual fund this way, the FCC would be so far up your backside, you would be in jail.  I mean, this is Bernie Madoff caliber of incompetence.  Walker, I’d like to ask you to stay on the line.  We’re going to be right back, after this. 

[After the commercial break]

WORLEY:  We’re back in stunned silence.  You are listening to Grassroots Radio of Colorado, Jason and Ken, and we have State Treasurer Walker Stapleton on the line.  And while we’re pretty informed folks and we know a lot about PERA […], but the stunned silence from the two of us, is because we just found out that the board doesn’t even have access to the actual details –financials of PERA

CLARK:  Now, keep in mind, ladies and gentlemen, this is the Board of Directors of PERA, the Public Employees Retirement Association.  They do not get the numbers.  Yet, it is this same board that didn’t like the rate of return that they had projected themselves on the assets that are actually in the plan.  So, they arbitrarily decided – well, not arbitrarily.  They hired some guy to go out there and do a study.  They had it at around – oh, I don’t know, what was it? — 7%, something like that.  They weren’t getting enough return on the investment, so they pulled a number out of the air, which was closer to 8[%] and they based the entire projections of the entire plan based on that number.  Yet, they had no, no numbers to go on.  They had absolutely no idea what was happening.  Walker, this was  —

STAPLETON:  They did have some numbers to go on.  They had numbers to go on by the financial experts that PERA hired to assess the data, but they didn’t have any independent assessment of the data, themselves. 

CLARK:  Well, these are the same yahoos, Walker, that came out and said, “Okay.  We don’t have enough projected rate of return coming, so we’re going to up the projected rate of return.”  Now, I would challenge anyone out there to find an investment grade marketable security, right now, paying 8%.   Show it to me!

STAPLETON:  Exactly.  And this is, you know, this is –.  Guys, we’ve talked about this a lot over the – over it seems like, it seems like years, now, for me.  I feel like I’m getting – got more gray hairs by the day, dealing with this issue, because of how the special interests are so immovable on this, and so refusing to change.  And it’s the ultimate ‘haves versus have-nots’.  The people that have on this thing are happy to keep on having, and maintain the status quo.  And damn the consequences for everybody else.  Damn the consequences for younger public workers!  Damn the consequences for new public workers! Damn the consequences for our kids, for their kids, until there’s a financial calamity.  And it’s just – it’s frustrating to have to fight against that entrentched special interest of, “I’m going to protect what’s mind.  I don’t care if I was given it for the right or wrong reasons.  I don’t care what the financial ramifications of my being given it are.  But I’m going to protect it, and everybody else can go fish!”  I mean, it’s just incredibly short-sighted, disingenuous, financially destructive way to think about something. 

CLARK:  Well, not only that, […] but Walker, not only is that disingenuous, but it puts the burden on the entire body of taxpayers in the state of Colorado, which could, in fact,  bankrupt this state.  I mean, take a look at California, take a look at Michigan, take a look at the list of states who have bankrupted themselves with this kind of defined benefit pension plan is huge.

STAPLETON:  Yeah.  And this education reform bill, which I would encourage your listeners – I had two very favorable op-eds.  I ran one in the Colorado Springs Gazette ten days ago.  The just had, last week, the editorial board called me a financial genius, which most of my friends will tell you is definitely not true. They laugh, but I’ll take it.  And they said that the argument I’ve been making is exactly the right one.  And that is, there’s people that are dead set about going to the ballot this November to ask Colorado taxpayers to pay 1.3 billion dollars more in education.  That’s a 33% increase in our education spending and yet, not a single line of this education reform bill has to do with the pension system.  And yet, if the pension system spirals out of control, it will be the biggest cost driver at the school district level that causes this money not to go into the classrooms, not to go to better computers or better lunches for your school children, but to be diverted to backfill obligations and liabilities in unsustainable retirement system in our state. 

CLARK:  Well, make no mistake about it.  There are twenty-two different proposals, twenty-two different ballot initiatives, that they have to chose from.  We don’t know which one they are going to pick yet.  They range in cost to the taxpayers, anywhere from $980 million to 2.4 billion dollars, and that’s what we’re going to be voting on.  Now, Walker, would you mind taking a call? 


CLARK:  All right.  Let’s go to Paul, from Aurora.  He has a question for you.  Paul, welcome to Grassroots Radio.

CALLER PAUL:  [Wife is a PERA beneficiary who works as a paraprofessional in a school.  We’re preaching to the choir on this situation.  As an individual that’s invested, what is it that we as taxpayers can do to help get this thing turned around?]

STAPLETON:  Let me just tell you.  Thank you for your question. The first [inaudible] is, when there’s a ballot initiative in November that asks you to pay more money in taxes, which is an investment that you are ultimately making in the future of Colorado schools, to demand that if you’re going to be asked to make that investment, that people show you the full balance sheet.  And not a partial balance sheet.  And by that I mean, they’re trying to tell you that this  money is going to go to improve the schools and is not going to be diverted into the pension system.  But ultimately, it’s a bait and switch.  It would be like my offering you an investment and only showing you part of my liabilities on my balance sheet.  I’m not giving you the full picture.  And we have to – it is in your wife’s interest as a member of the plan, it’s in your interest as someone who I’m sure cares about the future of education in Colorado, to demand that we structurally reform this system before it goes bankrupt.  Because if it goes bankrupt, the cost to taxpayers, the cost to our cities all across this state, the cost to our school districts  are going to be monumental.  And they’re going to reverberate for years to come.  And we need to be better than that in Colorado.;  We need to roll up our sleeves and get to work and honestly fix this problem

WORLEY:  [says that the Legislature is not willing to address this problem.]

STAPLETON:  That’s very true.  We do not have a legislature willing to address it, and we don’t have a governor, so far, that seems willing to address it. 

CLARK:  No, we don’t […]  Walker and Jason, you bring up a very good point.  We have had PERA reform bills that have been floated over and over and over again.  We have tried very desperately.  And we have even had Republicans blocking these bills.  And all you really have to […] do is go into a defined contribution plan, which is what the rest of the world has, maybe use some matching funds, et cetera, et cetera, keep the promises you’ve made to those that are in the defined benefit plan, and you can solve this problem pretty quick, right?

STAPLETON:  Yeah.  And there’s even hybrid solutions, guys.  [Anecdote about Democrat mayor in San Jose, California, that created a ballot provision regarding the pension system whose liabilities had bankrupted the city.  With transparency of information, people could see the scope of the problem, and forced policy makers to get real solutions and results, because you can’t deny numbers.  So the ballot initiative offered a choice:  enter into a defined contribution plan and invest for your own retirement, or, keep defined benefit but pay in at a much higher rate – from 8% to 13%, an extra 5% of your salary.   This ballot initiative passed by 70% in liberal San Jose.  In Colorado, we’re making more outsized promises than San Jose.]


STAPLETON:  And they don’t have the first clue on how to fulfill the promise.  Not the first clue.  So, anybody that’s a member of the system that thinks just because they’re hogtied to this plan at 8% that it’s going to be good on retirement day, you could find out with the stroke of a legislative pen that you have another thing coming altogether. 

CLARK:  Yeah, that is just amazing.  And what kills me that these people that are going, “Gimme, gimme, gimme!” They don’t realize that you cannot take what isn’t there.  If this thing dries up and does crater the way I expect it to, where are they going to go?  Where is their trough going to be? 

STAPLETON:  And you guys are exactly right.  This problem is not going away.  This problem is only getting worse and worse.  The only thing that we’re experiencing now is the passage of time.  If you look at how reform has taken place in other states, it has only taken place after a school district has gone bankrupt, or a city has gone bankrupt, or the state’s credit has been impacted.  I had hoped that we would be in a position – as I’ve been shouting about this thing, now, for years, to address this proactively.  I’m not so sure that’s going to be the case.  And I don’t mean to be […] a doomsayer.  I’m just being honest with people, that at some point, we are going to have a financial calamity as a result of the system that we set up in this state. 


STAPLETON:  Thank you so much for all you do, and thanks for having me on.