State leaders and legislators have known for some time that they have a big problem on their hands.
The amount going into pension accounts for police officers, teachers, state clerical workers and many others eventually won't be enough to pay benefits out. The various accounts cover more than 500,000 current or future recipients.
Those beneficiaries are living longer. The assumed rate of investment return is higher than many other states predict. And cost of living adjustments have been more generous than the funds can afford.
That — and some other factors — left Minnesota staring down at a future pension gap of almost $17 billion.
"We've gotten by on the cheap, but this can't go on. We are now perilously close to states who have avoided addressing their pension problems," said Sen. Sandy Pappas, DFL-St. Paul, moments before the Senate voted 66-0 to approve a bill that begins fixing the system.
"We can no longer keep our heads in the sand. If we don't act now we can slip into the problems that states like New Jersey and Illinois face."
The bill would chop the unfunded liability about in half. The package relies on both employers and employees kicking in more and retirees expecting slightly less in return. Early retirement or pension cash-outs would be less attractive.
The bill spends $27 million this year and calls for more spending in the future.
"The resulting sustainability package that includes these significant benefit reforms and adjustments are the largest in Minnesota pension history. They focus on the element of choice and not the retirees core benefits," said Sen. Julie Rosen, R- Vernon Center, who sponsored the bill.
Wall Street bond houses are starting to come down on governments where pensions are out of whack. Minnesota was put on notice that its credit rating could suffer, which would make it more expensive to borrow for construction projects.
Gov. Mark Dayton vetoed past bills that would have begun addressing the state's pension problems. He said the difference this time is that there is consensus among the various stakeholders and no poison pill language.
"It requires sacrifice from the recipients, from the people who are working now and the people who have already retired as well as a higher state share. It is something that has pulled everybody together, which is a tremendous feat by itself."
While the proposal cruised through the Senate, it has a way to go in the House.
Rep. Steve Drazkowski, R-Mazeppa, said he'll be studying the package hard to make sure it's the best deal for taxpayers.
"We don't want it to be simply a bailout. I certainly won't be voting for a bill if it's only a bailout. We need to have something where everybody contributes to it."
House Ways and Means Committee Chairman Jim Knoblach, R-St. Cloud, said it's far from ideal to redirect a portion of a budget surplus to this area and commit the state to additional payments later, but he added that it may be necessary
"I tell people it's kind of like the old oil-change commercial, where the guy says ' You can pay me now or you can pay me later,'" he said "And that's what this is like. If we don't put some money into this now — these are state obligations — and we're going to have to pay them later and pay a lot more later."
Your support matters.
You make MPR News possible. Individual donations are behind the clarity in coverage from our reporters across the state, stories that connect us, and conversations that provide perspectives. Help ensure MPR remains a resource that brings Minnesotans together.