TITLE: CONCERNING THE AUTHORITY OF THE STATE TREASURER TO ISSUE STATE PENSION OBLIGATION NOTES FOR PURPOSES OF PAYING IN ONE LUMP SUM THE STATE'S SHARE OF THE UNFUNDED LIABILITY OF CERTAIN STATE-ASSISTED FIREFIGHTERS' AND POLICE OFFICERS' OLD HIRE PENSION PLANS.

Fiscal Impact Summary	FY 1999/2000	FY 2000/2001
State Revenues General Fund
State Expenditures General Fund - Reduction		Up to -$1,666,823
FTE Position Change	0.0 FTE	0.0 FTE
Other State Impact: None
Effective Date: 90 days after adjournment unless a referendum petition is filed.
Appropriation Summary for FY 1999-2000: None
Local Government Impact: None

This bill authorizes the State Treasurer to issue State Pension Obligation Notes to obtain sufficient moneys to pay in one lump sum the total amount necessary to eliminate the state's share of unfunded liability in the Fire and Police Pension Association's (FPPA) old hire pension plan. The bill prescribes a manner to calculate the amount of the payment. The bill requires the FPPA to maintain a separate account for unallocated state funds and to report annually to the State Treasurer on the status of the account.

The bill authorizes the FPPA board of directors to invest moneys in the Unallocated State Funds Account with other moneys in the Fire and Police Members' Benefit Fund, and to prorate the earnings and expenses specific to the investments. The board is authorized to annually distribute up to $25,321,079 from the Unallocated State Funds Account to the FPPA old hire pension fund. Any moneys remaining in the Unallocated State Funds Account after the unfunded liability has been eliminated are to be transmitted to the State Treasurer for payment of any remaining interest and principal, and credit to the state General Fund.

The bill requires the State Treasurer to contract for services to issue the obligation notes, and to ensure that all direct expenses and costs incurred by all government entities are paid from the proceeds of the sale of the obligation notes. The bill requires the amount of moneys that would have been transferred annually to pay the state's share of the unfunded liability to be expended by the State Treasurer to pay the interest and principal of the outstanding obligation notes, subject to annual appropriation by the General Assembly.

The bill specifies that State Pension Obligation Notes issued in conformance with the law do not constitute "a debt by loan in any form" and do not constitute "any multiple-fiscal year direct or indirect debt or other financial obligation whatsoever" under the State Constitution. The proceeds of the sale of the notes are to be exempt from state fiscal year spending considerations for TABOR.

Current law. Under current law, on September 30 of each year through FY 2009-10, the State Treasurer is required to transfer an amount of moneys from the insurance premium taxes (General Fund) collected by the Division of Insurance to the Fire and Police Members' Benefit Fund which consists of the assets of the Fire and Police Benefit Plans. These annual state contributions are to pay down the unfunded liability of the FPPA old hire pension plan. The contributions are to cease when the unfunded liability in all the funds receiving the contributions are eliminated, but no later than December 31, 2009.

The amount appropriated by the 1998 annual appropriations bill (Long Bill) to the FPPA for allocation to the unfunded liability of the old hire pension plan was $25,321,079. Based on that amount, the total amount of the state contributions through FY 2009-10 (11 remaining payments) is estimated to be $278,531,869.

Proposed law. This bill authorizes the State Treasurer to issue State Pension Obligation Notes to pay the outstanding amount of the unfunded liability of the old hire pension plan in one lump sum. The bill specifies the amount of the lump sum payment to be the present value of the state's share of the unfunded liability calculated at a rate of 7.5 percent as of no later than the first day of the month the payment is to be made. That amount, as of October 1, 1999, is estimated to be $173,805,936. Under the provisions of this bill, the State Treasurer would be authorized to issue obligation notes in that amount and forward the full amount to the FPPA to constitute a complete elimination of the state's obligation towards the unfunded liability of the old hire pension plan.

The bill requires the FPPA to credit the amount of the lump sum payment to the Unallocated State Funds Account. It also authorizes the FPPA to invest those moneys with other moneys in the Fire and Police Members' Benefit Fund, and requires the FPPA to prorate the earnings and expenses specific to the investments. The bill authorizes the FPPA to annually distribute up to $25,321,079 from the Unallocated State Funds Account to the unfunded liability of the old hire pension fund. After the unfunded liability has been eliminated, any moneys remaining in the Unallocated State Funds Account are to be transmitted to the State Treasurer for payment of any remaining obligation note interest and principal, and credit to the state General Fund. A review of the annual earnings rate of the FPPA fund since 1980 indicates a mean annual rate of return of 13.26 percent. Based on an average annual earnings rate of 9.0 percent, the amount of moneys remaining in the Unallocated State Funds Account after the unfunded liability has been eliminated in FY 2009-10 is estimated to be $43,885,310.

If the State Treasurer elects to issue State Pension Obligation Notes on October 1, 1999, the General Assembly would be required, starting in FY 2000-01, to annually appropriate (General Fund) a sufficient amount of moneys to pay the annual amount of principal and interest due. Based on an annual interest rate of 6.25 percent, the total amount to annually service the obligation note principal and interest is estimated to be $24,295,367, which represents an annual General Fund expenditure reduction of $1,025,712 starting in FY 2000-01. The amount of the annual General Fund expenditure impact is dependent upon the annual interest rate of the obligation notes, as shown in Table 1. The State Treasurer's decision to issue obligation notes is dependent upon the prevailing market interest rates on or about October 1 of any year.

Based upon: 1) an assumption the state will make a final contribution of $25,321,079 per a Long Bill appropriation in FY 1999-2000; 2) a lump sum payment of $173,805,936 on October 1, 1999; 3) an obligation note interest rate of 6.25 percent; and 3) ten annual obligation note payments of $24,295,367 for FY 2000-01 through FY 2009-10, the total amount of General Fund expenditures would be $268,274,749. As a result, in comparison to current law, the total General Fund expenditure reduction over that period of time would be $10,257,120.

This bill will not affect FPPA administrative expenses or plan benefits. However, the accuracy of the calculation of the present value of the lump sum payment may affect the amortization period of the unfunded liability of the old hire pension plan.

Table 1 - Interest Rate	Current Contribution	Proposed Payments	Annual Expenditure Impact
5.75%	$25,321,079	$23,654,256	($1,666,823)
6.00%	25,321,079	23,989,526	(1,331,553)
6.25 %	25,321,079	24,295,367	(1,025,712)
6.50%	25,321,079	24,599,875	(721,204)
6.75%	25,321,079	24,874,652	(446,427)
7.00%	25,321,079	25,123,650	(197,429)