Pub. 15 2018 Issue 3

Issue 3 • 2018 9 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S state spend more on public education, child welfare and early childhood educa - tion, Medicaid, transportation infra - structure, and tax reform. State Pension Funds Despite recent efforts to reform public employee pensions, the funds remain significantly under-funded. In June 2018, Moody’s Investor Service downgraded New Mexico’s credit rating citing, in addition to other factors, the large amount of pension related liability currently carried by the state. It has be - come clear the current benefit structure is unsustainable and further refinement of the pension systems is needed. In 2017, the Public Employee’s Retire - ment Association (PERA) reported an average annual benefit of $28.6 thou - sand paid to its 38.2 thousand retirees while the Educational Retirement Board (ERB) reported paying an average $22.5 thousand annual benefit to its 47.3 thou - sand retired members. That same year, PERA reported an unfunded actuarially accrued liability (UAAL) of $5.1 billion while ERB reported a $7.4 billion UAAL. New Mexico’s pension plans are significantly more generous than plans across the nation; New Mexico offers employees a pension multiplier of between 2.35 percent and 3 percent in addition to social security eligibility for non-public safety occupations. A report by the Urban Institute found that the av - erage non-public safety pensions in the U.S. offered service credit of between 1.75 percent and 1.85 percent. There are only three other pension plans that offer a base pension multiplier of 2.5 per - cent: Colorado, Louisiana, and Nevada. None of these states participate in social security, which pays between 30 percent and 70 percent of the average lifetime earnings based on a 35-year work histo - ry and a retirement age of 65 or higher. New Mexico’s richer benefit is paid for by higher pension contributions. The State of Wisconsin produced a comparative study of state pension plans in 2016 which showed employee contributions to the pension funds av - eraging just over 6.7 percent of payroll. Currently, PERA and ERB employ - ees both pay significantly more, 8.92 percent and 10.7 percent respectively, than the average. However, the em - ployer contribution of 13.9 percent for ERB and 16.99 percent for PERA are relatively high when compared to other states in the region. For example, the employer contribution rate in Texas is 7.0 % and 8.4% for Wyoming. With regard to increasing revenue to the fund, the Legislature has two op - tions: increasing state appropriations for employer contributions or mandating increases in employee contributions. In - creasing the ERB employer contribution rate by 1 percent would cost $26 million and would reduce the amortization peri - od from 61 years to 48 years. Increasing the PERA employer contribution rate by 1 percent would cost $22 million and would reduce the amortization period from infinite to 56 years. Medicaid By the end of fiscal year 19, an esti - mated 886,405 New Mexicans will be enrolled in Medicaid, 265,186 of whom became eligible pursuant to the federal Patient Protection and Affordable Care Act, which expanded Medicaid eligibility for adults with incomes up to 138 per - cent of the federal poverty level begin - ning January 1, 2014. The Human Ser - vices Department estimated a fiscal year 19 projected shortfall of approximately $7 million from the general fund. The outlook for fiscal year 20 may include funding requests for rate increases, as reduced federal support from 93 percent to 90 percent is estimated to cost $36 million for the expansion population, and expansion of physical and behavior - al health services. Education A district court judge ruled this summer that the state has failed to pro - vide a constitutionally sufficient public education. Consequently, the cost of education reform quickly jumped to the top of the list for 2019 legislative concerns. Funding for public schools represents approximately 44 percent of total general fund appropriations the larg - est category of state spending in New Mexico. In fiscal year 19, the Legislature appropriated $2.8 billion, a 4 percent increase from fiscal year 18, for public education and allocated the new funding to increase teacher compensation, boost funding for at-risk students, and expand early childhood programs including kin - dergarten and K-3 Plus. Recent reports show schools making modest improve - ments in student achievement. The leg - islative priorities for education for fiscal year 20 include adjusting the funding formula to equitable close the achieve - ment gap, enhancing instructional time, maintaining public education account - ability systems, increasing school employee compensation to recruit and retain the highest quality employees, expanding access to early childhood programs with significant evidence of improving student outcomes. Transportation Infrastructure New Mexicans are very concerned about the condition of state roads and highways, specifically in the Southeast - ern part of the state. Over one third of the 30,000 state land miles are rated in poor condition and rehabilitation costs average $180,000 per lane per mile. An additional $30 million annually is need - ed for bridge capacity and geometric upgrades on major interchanges. Legislation is likely to be introduced in 2019 that would increase the gasoline tax by 10 cents per gallon (17 cents to A district court judge ruled this summer that the state has failed to provide a constitutionally sufficient public education. Consequently, the cost of education reform quickly jumped to the top of the list for 2019 legislative concerns. n Spending Frenzy continued on page 10