Mike Rosen Show, Walker Stapleton, July 11, 2013

Station:     KOA, 850 AM

Show:        Mike Rosen Show

Guests:     Stapleton

Link:          http://www.850koa.com/cc-common/podcast/single_page.html?podcast=shows_rosen

Date:         July 11, 2013

Topics:      Re-election, Campaign, Public Employees Retirement Association (PERA), Public Pension Plan, Assumed Rate of Return, Unfunded Liabilities, Certificates of Participation, Bankrupt, School District, Denver Public Schools,

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HOST MIKE ROSEN:  […] But the one question on the minds of just about everybody, not only in the state of Colorado, but around the globe, for that matter, is whether or not Walker Stapleton is going to run for re-election as State Treasurer.  And we may find out momentarily what the answer to that question is.


ROSEN:  Wait a second. [Searching for sound effect]  I don’t really have a drum roll.

[drum roll sound effect]

STAPLETON:  You do!  Yes!

ROSEN:  Seven minute drum roll effect.

A very long drum roll.

ROSEN:  Okay.

STAPLETON:  Yes, is the short answer.

ROSEN:  [Gasps facetiously]

STAPLETON:  We announced just a few minutes ago, actually, set a press release out, that I’m very excited to continue my work as treasurer for the state of Colorado, and protect and defend the taxpayers of Colorado, and work on common sense fiscal legislation that I think will enable Colorado hopefully to see a better future for generations to come.  It’s really one of the reasons I ran in the first place, and why I’m excited to continue the work as Treasurer.

ROSEN:  How much of this is a factor of your not being able to find a job in the private sector in this economy?

STAPLETON:  Actually, zero.  As my wife will tell you, I had a very happy life, running a publicly traded real estate company which we took private and it afforded me the opportunity to run for office, and I promised my wife that as soon as  I woke up one morning and felt like I could no longer make a difference, I would happily return to my life in the private sector.  But I feel like we’ve made a lot of difference in the Treasurer’s office on a whole number of different issues.  And so today we announced – about 150 community and business leaders from around the state of Colorado.  My campaign – the honorary co-chairs are former Senator Hank Brown, [former Governor] Bill Owens, and [CO Attorney General] John Suthers, three individuals that I have immense amount of respect for, given their public service here in Colorado.

ROSEN:  Well, given the fact that The Denver Post is devoting so much of their space toward attacking [Secretary of State] Scott Gessler, they haven’t really spent much time attacking you.

STAPLETON:  No.  Well, [laughs] sometimes, getting press is not a good thing.  And I say that because sometimes the press is not positive press, and I think there is something to be said, you know, everybody goes about their job differently, whether it be in the public sector or private sector.  But my point of view has been it’s best to keep your head down, do the job, get positive legislation passed, as our office has done over the past couple of years, and people will recognize that you’re there to do a job and that’s kind of the guiding principle that we’ve worked under in the treasurer’s office.

ROSEN:  You have been outspoken in your call for fundamental reform of the Public Employees’ Retirement system – PERA, in Colorado.

STAPLETON:  Correct.

ROSEN:  You’ve explained this on the air once before.  I’ve repeated it on several occasions, but let me ask you to corroborate that what I’ve said is true.  The PERA board is made up of how many people?

STAPLETON:  Fifteen.

ROSEN:  Fifteen people.  And those people are, for the most part, elected by PERA members and PERA beneficiaries.  Is that correct?

STAPLETON:  Yes.  Twelve of the fifteen members of that board have a direct economic interest or benefit from  PERA, –who sit in a corporate governance position on the board.

ROSEN:  And you are the only elected official who’s on the PERA board, is that correct?

STAPLETON:  That is correct.

ROSEN:  So, that accounts for thirteen positions.  The other two, are those appointed by the governor?

STAPLETON:  No, no, no.  I’m position number twelve, but because I’m a state worker – and I think this gets lost in some of my criticism, I, myself am a PERA member as well –

ROSEN:  But you’re nonetheless –


ROSEN:  In spite of the fact that you’re a PERA beneficiary, you are an advocate for serious PERA reform.

STAPLETON:  That is correct.  And only 20% of the members of the board are non-PERA beneficiaries, and those are the three gubernatorial appointees.

ROSEN:  All right.  And how has Governor Hickenlooper done in appointing people to the PERA board who have an interest in the taxpayers’ welfare?

STAPLETON:  I think he has actually done quite well.  He’s only made one appointment.  He made an appointment last year of an individual who I think has done a very fine job of taking a look at PERA liabilities, and assessing them, and being a prudent advocate for I think very needed structural changes to the plan.  So, I think that he’s been a helpful voice on the board, for sure.

ROSEN:  All right.  But the PERA board is clearly dominated by people who have an interest in their own welfare, not the taxpayer welfare.

STAPLETON:  Right.  That’s true.  That’s very true.  And that’s why it’s tough to get any change, because there’s nothing that aligns interests like what’s in or what’s not in one’s wallet.

ROSEN:  Here’s the story I wanted you to corroborate.  As I recall, you told me when you first were elected, and introduced to the other members of the PERA Board at a meeting, that the PERA counsel, the PERA lawyer told you that you have no standing to defend the interest of taxpayers on the PERA Board.  Is that correct?

STAPLETON:  That’s correct, that my service on the Board is to benefit members of PERA, and not to any larger community, in terms of – it’s been defined.

ROSEN:  What do you say to that?

STAPLETON:  Well, I think—

ROSEN:  On what authority did he base that assertion?

STAPLETON:  I think I basically think that my point of view is on behalf of the benificiaries, because I ‘m trying to make sure the plan is solvent.  But it’s also a matter of fact that the reason I’m on the PERA Board is because more Coloradoans voted for me for Treasurer of Colorado than didn’t vote for me.  And so as a result, I’m a state-wide elected official on the Board.  So that’s an argument which is actually playing out actually in the court as a result of my lawsuit for financial information against the pension system [PERA].

ROSEN:  Was his pronouncement valid, that you have no standing to defend the interests of taxpayers on the PERA Board?

STAPLETON:  Uh, it’s actually — I’m not a lawyer, to pick up on the Governor [who, as a guest on the show earlier that day, said he wasn’t a lawyer in response to a question from Rosen], but it’s something– they are arguing these fiduciary responsibilities, the role of dual hat, but I think that to put those type of blinders on is not necessarily operating in the best interests of corporate governance.

ROSEN:  So, did he – was he successful in persuading you not to defend the interests of taxpayers?

STAPLETON:  No.  He was not.

ROSEN:  You will continue to do that?

STAPLETON:  Yeah.  I’m going to continue to speak my mind about a sustainable retirement system that Colorado can afford and promises that Colorado as a state can afford to make for public workers.  And the bottom line, Mike, is that the state of Colorado is making promises to a half a million public workers that they cannot afford to make right now.  And the people that are going to be left holding the bag in the system are new workers coming in and current workers who are younger –not the retirees and not the people who are close to retirement.   It is very inequitable across  generations, unfortunately.

ROSEN:  The mentality of the PERA administrators and the majority on that board is, “What the hell!  If our investment portfolio isn’t able to earn the returns that we are assuming,–“


ROSEN:  “–sufficient to pay the benefits that have been promised, what the hell, the taxpayers have to stand behind those promises and have to kick in as much money as necessary to make sure that those promises are kept.”

STAPLETON:  Right.  And the fancy accounting term is called “deferred liabilities”.  And the way that other states, unfortunately, have dealt with this problem is they’ve allowed these deferred liabilities to build up and build up and build up until they end up bankrupting a school district, or a city, before they address reform.  And last week, PERA – or I think it was two weeks ago, PERA announced it’s return – Twelve-and-a-half – more than twelve-and-a-half percent for a year, which I think is great!  I mean, all of us want the system to do well because we don’t want to be left with having to pay a bill that we shouldn’t have to pay, right?  The point is, they failed to mention that the year before, they got 1.9% and then they selectively used data, like, well, over 10 years we achieved better than 8% —

ROSEN:  –Or thrity years.

STAPLETON:  –or twenty-five years.  And it’s like, “Well, what happened to five years, or fifteen years, or twenty years, or beyond twenty-five years? “  And the data is manipulated and presented in a way that offers the best case scenario for them.  And look, this is not a marketing presentation.  This is a real fund with real consequences for Colorado families and Colorado kids and future generations in our state.  And we’ve got to get this right.  It’s not right right now.

ROSEN:  And our concern is about the next 30 years, not the last 30 years.  The kind of market run-up we’ve had in market indexes like the Dow over the past 30 years – certainly, the first 20 years of those last 30 years– were phenomenal.  There’s no likely way in the world we’re going to match those kinds of investment returns in the future.

STAPLETON:  That’s absolutely right.  And as I joked with you in prior appearances on your show, I think, you’ve been talking about this issues since I was in Little League. But the point being, is that, look, Mike, if you look — you have an investment background, as do I, if you look structurally at PERA’s portfolio , it’s 40 billion dollars.  A quarter of that portfolio is in fixed income.  I was at a conference with one of the former chief economists at the World Bank and he said fixed income over the next decade is going to perform less than the rate of inflation.  And be a very low performing investment class to be invested in.  And the point is, if you have a quarter of your portfolio – he actually predicted it would return 1%, fixed income investments, which I thought was low, but say he was off by a lot and it returns 2% or 2-and-a-half.  The point is , if you have a quarter of your portfolio in fixed income, the only way you can average out 8% is by taking outsized risk in the stock market, in equities, or in venture capital, or private equity, or real estate.  And that’s totally fine if you’re investing for yourself and your own family.  It’s not so fine if you’re making investments for an investment fund that is structurally backfilled by taxpayer money.

ROSEN:  All right.  […]

[Commercial Break]

ROSEN:  Walker Stapleton […] is going to run for re-election.  I’ve been commending Walker during his tenure for being one of the few voices among elected officials that’s really serious about fundamental reform of PERA.   This is a ticking time-bomb, not just in Colorado but all over the country.  For example, Illinois vastly underestimated it’s pension funding shortfall.  Moody’s Investor Services reported that Illinois true unfunded pension liability in 2011 was nearly 65% higher than the state’s official estimate.  Moody’s calculated the unfunded liabilities for Illinois, the third largest state-run pension plan in the country, at 133 billion dollars compared to the state’s official calculation of 81.3 billion dollars.  What’s more, there’s something called the GASB, the Governmental Accounting Standards Board, not to be confused with the FASB—that’s the Financial Accounting Standards Board that the private sector uses, and the GASB, now, is going to drop its standard for what states should assume as a return on their investment portfolio.  Moody’s is also going to change its approach to this.  And Moody’s is now going to be targeting five-and-a-half percent as the assumed rate of return for these pension plans, not the 8% that Colorado is using, or the 7.5% that California is using.

STAPLETON:  And that’s very problematic for Colorado,  Mike, because if you look at data that was released last summer by the National Association of State Retirement Administrators who actually looks at all these public pension plans, they show now that approximately 69 public pension plans across the country are below 8%, and about 43 of them are at 8%, and some even greater than 8%.  But the problem is, is that when you lower the rate of return by approximately a half a percent, the funding goes down.  We’re only 63% or so funded at 8%.  That funding goes into the 50’s in the 7s and if we were to adopt something like what Moody’s wants us to adopt, we would have a pension that is less than 50% funded, which is a disaster.  And so, it’s a big problem.  Another problem with the Government Accounting Standards Board and their regulations which are in my opinion woefully inadequate and inferior to the Financial Accounting Standards Board, which governs private sector pension plans, is that the Government Accounting Standards Board refuses to adopt any sort of uniform system to measure a state’s liability.  So that Colorado assumes 8%.  California – CALPERS and CALSTERS, their two pension plans out there, are at seven-and-a-half, Indiana is at six-a nd-three-quarters.  It’s impossible to compare liabilities from a state to state basis when you’re using different financial assumptions.  And yet, the Government Accounting Standards Board refuses to create any uniform system so that we can actually get a handle on these liabilities.

ROSEN:  Now, PERA put out a message just recently bragging about how well it did in its investment portfolio.  You mentioned that earlier.  And then an outfit called Secure PERA, the Colorado Coalition for Retirement Security put out this email.  I happen to have a copy of it here, and Walker, you are featured in here!  Congratulations!  Let me just read the lead.

STAPLETON:  I’m so surprised.

ROSEN:  [reading] “Today the PERA Board of Trustees released their comprehensive annual financial report, which showed a 12.9% rate of return on their investments for 2012. The number far-exceeded the Board’s assumed 8% rate.”  Here’s your part:  “Since being elected in 2010, Colorado State Treasurer Walker Stapleton has consistently called PERA‘s 8% expected rate of return ‘overly optimistic and unattainable’.  Today he was proved wrong.  Over the last 30 years, PERA has averaged a 9.4% rate of return.  Over the last ten, 8.4%.  Treasurer Stapleton was not present at the meeting today, and hasn’t attended a PERA Board meeting in twelve months.”  I’ll give you a chance to comment about that.  “Our state treasurer is drastically out of touch with the realities of public employees and PERA.  His misinformation over the past year has needlessly concerned folks about the state of PERA’s finances.”  They didn’t mention my name in here, but I’ve been needlessly explaining to the folks that the emperor has no clothes for about 20 years on this topic.  So, why haven’t you been to a PERA board meeting in 12 months?

STAPLETON:  Well, that is, as it turns out, categorically false.  I, myself, voted against maintaining the 8% rate of return at our board meeting in November.  So, unless someone was dressed up looking a lot like me, or unless they’ve decided to clone me in some way, I don’t know how that could be possible.  Probably a clerical error on the [part of the] person who put out the press release, I’m sure.  But, obviously say that with a massive dose of sarcasm.  Um, but the point is, is that look, no economist would read a release like that, whether he be a Republican or Democrat or a Keynesian or a capitalist or a, you know, or a fan of Friedman, or anything else, and believe that that press release has any sort of validity whatsoever.  Everybody knows that the solvency of PERA is based on a 30 year average return assumption and not a single year’s worth of return.  And just because they achieved that in one year, the answer is, “What are they going to achieve in a 30 year period?”

ROSEN:  Let me give you a benchmark.  Since they’re using  thirty years, “In 1982 the Dow-Jones Industrial Average was 875.  Thirty years later, in 2012, it closed the year at 13,104.  That means it multiplied by about 15 times over that period of time, an increase of just under 1,500 percent.  Today, if we start from a DJIA of 15,000 […], to match that same performance over the prior 30 years, thirty years from now the Dow would have to go from 15,000–you ready? – to 225,000!  225,000!

STAPLETON:  [laughs]

ROSEN:  Now, the Dow is of course only one index, but it’s a good indicator of what market returns in general have been over that period of time, and this is not going to be repeated especially with economic growth as meager as it is.

STAPLETON:  And this idea that a 30 year time window is accurate for a barometer of the economy, most economists will tell you economic cycles have been more compressed, with the dot.com bust, with the housing market bust that we’ve experienced, and it’s not correct to look back to a 25 year, a thirty year time horizon.  Another reason why this press release is not only false, misleading, and disingenuous – I can think of a couple more adjectives if put to the test, is that the fact – this rate of return has been all over the news.  And my favorite quote is Michael Bloomberg saying, “If somebody promises you 7% rate of return, then you should take it immediately, and hope that their name isn’t Madoff.”  The last time I checked, Michael Bloomberg wasn’t a staunch conservative, but he actually might know a little bit more about finance and investing than the folks here in Colorado.

ROSEN:  All right.  Lets take a break.  When we come back, tell us just who is the Colorado Coalition for Retirement Security.  Is this some kind of an objective group —

STAPLETON:  [laughs]

ROSEN:  –making an arm’s-length analysis and considering the interests of taxpayers, or not?  Right back on 850 KOA.

[Commerical Break]

[@19:45  Caller Carolyn from Littleton asks about Victorville, CA lawsuit regarding the Municipal bond deal of 2008, in which they are alleging fraud in under-reporting the pension plan’s solvency, and whether the underwriters should have been allowed to issue those bonds at all.  Stapleton responds using Stockton, CA as an example of a city going bankrupt due to pension liabilities.  He cites groundbreaking Colorado legislation, with support from Governor and independent state agencies, to put PCOPS at state level under the purview of the Treasurer’s office to allow for more oversight, getting better interest rates, transparency, accountability, and responsible oversight in selecting underwriters, and controlling the amount of debt the state takes on.  This new organization for handling state debt has resulted in efficiencies and savings.]

ROSEN:  Carolyn, thanks for your call.  I was asking you, who is this Secure PERA, Colorado Coalition for Retirement Security?  Those are the folks who put out this email attacking you.  Who – what is the Colorado Coalition for Retirement Security?

STAPLETON:  Well, I don’t think they have a line-item transparency in terms of who actually funds the lunch bills over there, but I can tell you, it is an organization that is largely funded by Colorado WINS, and the Colorado Education Association, the public unions.  And the spokespeople are paid to go off and treat me like a piñata, and say nasty things about me.  There may even be a bonus for the nastier,– the nastier stuff that they can conjure up, the more they get paid in incentive fees.  So, I’ve offered to them  that I’ll go sit in a dunk tank over in front of their offices and they can just take out whatever bad feelings they have towards me.  But the point is, they’re – Mike, they’re not honest brokers of information in any way, shape, or form.

ROSEN:  Well, the retirement security they’re concerned about, of course, is their own.  How about our retirement security, if we’re going to have less money for our own retirement because we’re subsidizing theirs to ridiculous extremes.

STAPLETON:  Right.  Exactly.

ROSEN:  All right.  WINS, of course, is the state employee union, representing 31,000 state employees.


ROSEN:  WINS stands for “Colorado Workers for Innovative and New Solutions”. They always come up with these wonderful names.  But they’re of course interested in the benefits to their rank and file government employees in the union.


ROSEN:  Presumably they’re looking – since a lot of those people are PERA members, they want more of my money.

STAPLETON:  Absolutely.  Exactly.  But, and this may be too hopeful or idealistic of me, Mike, but I think Colorado WINS, the Colorado Education Association – those groups should be interested, at some point, they’re going to have to be interested in the financial security of younger members and new members into their plan.  And they’re going to have to recognize that the promises made are not promises that are going to be able to be met.  And when that day of reckoning comes, I think it’s going to behoove them that they actually proactively roll up their sleeves and work on a solution to this, as well.

ROSEN:  Here’s a letter to the editor in The Denver Post.  [PERA beneficiary talks about the reduction of the COLA which was legislated with Senate Bill 10-001 of 2010, and then states his support of the PERA system.  Mike Rosen states his preference that PERA not be killed entirely – we’re stuck with it.  Instead, he suggests that any new hire go on a defined contribution plan, like the 401K plans of the private sector.]

STAPLETON:  Exactly.  And this affects all sorts of the state’s budget.  This affects — it is inextricably linked to the Education reform Act of Senator Michael Johnson and the ballot proposal which  is going to hit in November, which is going to be an approximately a 33% or so increase in the money that we have spent on education in the past.  And the reason that it’s inextricably linked, Mike, is that whether you like it or not – I disagree with the Governor on this and have told this many, many times– , is that whether you like it or I like it or not, under Colorado law, by January 1, 2017, every school district in the state of Colorado is going to have to spend more than 20% of its budget for teacher salaries into this defined benefit pension plan for PERA.  The Denver Public School district is going to have to spend 23.75% of its budget for teacher salaries, an even higher number than the other school districts.  But, as I’ve said to people over and over again until I’m blue in the face, these numbers are based on the 8% average return assumption.  If you lower the rate of return by  a half a percentage over the thirty year period, the liabilities of the plan go up 15%.  So what was once 20% of a school district’s budget for teacher salaries, at 7.5% assumed rate of return like many states, could be 35% of a budget for teacher’s salaries.  At 7%, remember the Bloomberg comment, it’s 50% of the school budget for teachers’ salaries, until it becomes an unsustainable number, and all the money that was supposed to go to better technology, longer school days, charter schools, whatever lofty goals the governor was speaking about, ends up getting sidetracked and siphoned off to backfill liabilities in an unsustainable retirement system.  And I think all Coloradoans should be concerned about this, because we want to make sure that if we’re asked to make an investment in the future of Colorado education, that the money actually ends up with the kids in the classroom.

ROSEN:  One more break.  Right back on 850 KOA.

[After commercial break, Caller John suggests that private sector workers could bail out PERA and become beneficiaries of the public employees’ pension plan.  Rosen says that taxpayers are ultimately responsible for “bailing out” PERA, but assures the caller that he won’t get a PERA pension.]

STAPLETON:  And John, the common argument used is that we’re on PERA because we’re not on Social Security.  And geez, what a blessing that would be, right?  Most of us have no anticipation of actually getting Social Security.

ROSEN:  And even if you get what’s promised, it was a bad deal from the beginning and still is.  And being relieved of the burden of paying Social Security taxes, which teachers for example are, is much to be preferred about having to pay the taxes in exchange for those weak benefits that you get.

[Caller John says he heard that Adams County employees get an $85,000 retirement bonus.  Rosen then cites that if you work 40 years as a PERA beneficiary, you retire with 100% of your highest average salary, and says employees “spike” their earnings in the last few years to maximize their benefit. ]

[Walker Stapleton responds to caller John’s question about Betsy Markey’s eligibility for a federal pension and a PERA pension if she wins the election for Colorado State Treasurer, which she is considering entering.]

[Stapleton gives a plug for donations to his re-election campaign]

[Caller Dean from Arvada agrees that a defined contribution plan would be a help to taxpayer’s burden for public employees’ pension plan.]