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Guest speaker outlines rocky road for PERS

Transparency researcher Robert Fellner stopped in Pahrump on Thursday to talk about the Nevada Public Employees’ Retirement System (PERS) and its soaring debt.

Fellner, who represents nonpartisan, nonprofit think tank Nevada Policy Research Institute, said the debt means higher taxes, reduced services and lower pay for government workers.

“The biggest problem I see with the system is that the highest cost pushes onto the future generations,” he said.

In PERS, workers’ retirement contributions are pooled together in one large fund, and members are promised a fixed future benefit based on salary and work experience, similar to Social Security.

PERS debt grows by 8 percent annually as it has been failing to hit its investment targets over the past five, 10, 15, 20 and 25 years, Fellner said.

As of fiscal year 2015, its fund balance was $34.6 billion, and it had total liabilities of $46 billion for unfunded liabilities of $11.4 billion.

PERS debt is projected to explode over the next decade, rising from roughly $11.4 billion to over $38 billion, according to the forecast by Wilshire Associates, an independent investment management firm.

Government workers’ retirement costs have already soared to record-high 28 percent of pay which now consumes more than 12 percent of all Nevada and local government tax revenue combined.

And while more money is sent to PERS, less is available for salaries. Fellner said the financial shortage is the driving factor behind Clark County School District’s lack of teachers. He didn’t specify how the increasing debt would impact Nye County.

“I can’t necessarily say that Nye County is worse off than any Nevada governments, but to the extent Nye County is not able to pass these costs on to taxpayers as easily as other governments with larger tax bases can, then an argument could be made that it could disproportionately hurt them,” Fellner said.

Fellner also argued that over 40 percent of what all government workers, with the exclusion of police and fire officers, pay towards PERS is spent on the system’s previously accrued debt, rather than on financing the employees’ future benefits.

All new hires are expected to be net losers under PERS as they would receive a benefit worth less than its total cost, according to NPRI.

“To put that in perspective, in 2013 Nevada spent less than $3 billion on police, highways and fire protection combined,” Fellner said.

Fellner argued that in case of a significant stock market downturn, the debt is likely to reach a point where no amount of tax hikes can bail the system out, which would result in cuts to pensions for retirees.

Servicing the debt would require similarly massive increases in contribution rates, inevitably requiring lower wages for government workers, cuts to vital services and higher taxes, according to NPRI report.

“At that point, it’s likely that there would simply not be enough taxes to hike and services to cut to make PERS solvent — leaving no other choice but to cut the benefits promised to retirees,” Fellner said.

Contact reporter Daria Sokolova at dsokolova@pvtimes.com

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