COMMENTARY: No matter how closely you follow the New Mexico Legislature, there’s one phrase that you’ve likely never heard: “pension pay swap.” Get ready, though, because that little phrase — which has almost nothing to do with pensions — is about to become Ground Zero in the special session.
What is a pension pay swap? It’s a pay cut, pure and simple. Here’s how it works:
The Legislature and governor change pension statutes so a worker contributes a larger percentage of her salary to a retirement plan — PERA or ERB [FOOTNOTE 1]. Sounds great for pension solvency, right? It has nothing to do with it.
Because in a pension pay swap, the state general fund, which directly or indirectly is the source for the employer’s share of contributions, pays the exact same amount less into the pension funds. So pension pay swaps don’t affect PERA or ERB (they’re actually slightly harmful to the funds for technical reasons).
Employees take home less pay, and the state general fund keeps that exact same amount more. It’s a pay cut, but by using the pension funds as the vehicle, Gov. Martinez can generate money from more workers and spin that it’s about paying for retirement, which allows her to try to justify making the pay cuts permanent.
That’s not speculation: Gov. Martinez tried to make the last pension pay swaps permanent, but legislators called her bluff and the pay cuts from the Great Recession were mercifully repealed once we started running surpluses again.
How deficits happen — in the real world
Want to know the real root cause of our current deficit? When the economy started improving, “conservative” politicians like Gov. Martinez decided to give our surplus away. Some did it for ideological reasons, others did it because rich donors love it, others because they were trying to build a national reputation for future political office.
Not to apologize for anyone, but still others voted to give big tax breaks because any governor has veto power over both the entire budget and line-item veto power, and a legislator may believe he’s negotiated the best deal he can for his constituents and his beliefs — even if he’d never support the tax deals standing alone.
A final group of legislators went along with tax breaks because they were given false information about the fiscal impact by Gov. Martinez’s Department of Finance and Administration secretary. Knowingly or not, he gave legislators projections that were overly optimistic by hundreds of millions of dollars over several years (and it wasn’t like there was some unanticipated event that changed the forecast — the projections were changed to more accurately reflect reality before the ink was dry).
The budget ends up looking balanced in good years, but we end up with a classic structural deficit when economic cycles — including energy-price cycles — take a downward turn. No one blames oil and gas revenue drops on Gov. Martinez, but smart fiscal policy means saving surpluses in good years so we survive bad years without raising taxes or slashing services.
Gov. Martinez has squandered massive reserves and hasn’t come close to balancing the books. She simply gambled that an economic downturn wouldn’t happen on her watch, and now is looking to make New Mexico’s middle class and poor pay for her reckless behavior.
By slashing corporate rates and making it easier for out-of-state corporations to game the system to pay little or no taxes, just between Fiscal Year 2015 and Fiscal Year 2016, we lost 52.8 percent of our corporate income tax revenue. We were promised tens of thousands of new jobs, yet lower corporate rates and loopholes brought us the second-worst unemployment rate in America.
Similarly, last decade, legislators looked at our surpluses in good times and decided to lower tax rates on the uber-rich and on Wall Street speculators (capital gains tax cuts).
Right now, a person making $16,000 a year pays the exact same state tax rate on every additional dollar earned as someone making a million dollars a year, and the person who plays Wall Street roulette pays a lower rate on profits than many people who wake up every day and work 8, 10 or 12 hard hours.
The first rule of holes is to stop digging. Before taking money away from your kid’s second-grade teacher or the guy who gets up at 5 a.m. to pick up your trash, we should repeal the sweetheart deals given to millionaires, corporate executives, and Wall Street speculators that haven’t yielded a single job in our state.
The big misdirect
To distract voters from her budget disasters, Gov. Martinez is trying to capitalize politically on recent tragedies to make the special session (and the election 39 days away) about crime. Let’s have that discussion. Think we don’t need more revenue? Victoria Martens or Omaree Varela might well be alive today if CYFD were fully staffed to check on kids who are in danger. And filling CYFD vacancies takes money, period.
Even if you think we should bring back the death penalty because abusive parents deserve it, a fully-staffed CYFD would actually prevent at least some of those deaths instead of just fulfilling our natural, understandable thirst for revenge after the child is already dead.
Want to really crack down on crime? Funding CYFD to do good work at the front end costs a heck of a lot fewer tax dollars than pursuing the death penalty. You can do both, of course, but only one saves lives and prevents horrific crimes, and the more you spend on one, the less there is for the other.
Who pays for bad gambles?
A pension pay swap is a pay cut for working families, and it’s an unnecessary, cruel, and counterproductive one. Gov. Martinez gambled that huge tax giveaways to the rich and to out-of-state corporations would bring in tens of thousands of jobs and pay for themselves, but the only credits proven to do that are film and TV credits — and those, ironically, are the ones she has put in jeopardy.
Any governor holds a lot of cards, but they don’t hold all of the cards. Gov. Martinez’s gambles have driven New Mexico into bankruptcy while most of the rest of the country flourishes.
Hopefully courageous legislators will insist that she come to the table with reasonable solutions to fix the problems she caused — solutions that don’t disproportionately punish New Mexico’s workers, families, and kids.
Bundy is the political and legislative director for AFSCME in New Mexico. The opinions in his column are personal and do not necessarily reflect any official AFSCME position. Contact him at [email protected].
FOOTNOTE 1: New Mexico has two main retirement systems: One is called the Public Employee Retirement Association (PERA), covering most non-educational state, county, and municipal employees. Think police, fire, corrections, CYFD investigators, janitors, groundskeepers, secretaries (both the clerical and cabinet type), workers who provide you with clean water, who clean wastewater in water utility plants, who repair public roads, buildings, and other infrastructure, and more. The Educational Retirement Board (ERB) is the retirement system for most K-12 and higher-education employees, including teachers, librarians, school clerical staff, professors, teaching assistants, school groundskeepers and janitors, and most others who take on the awesome responsibility of educating and caring for our kids.