Colorado began this year with an enormous long-range deficit in its employee pension fund--more than $11 billion. Unfortunately, that's typical of quite a few states these days. What isn't typical is the success Colorado had in dealing with the problem. Just when it appeared the only choice might be the blunt instrument of a ballot initiative, the major players managed to put aside their differences and find a solution that won't increase the cost to taxpayers. It was an old-fashioned compromise--the kind that nobody loved but everyone could live with.

"It was a matter of give and take until we reached an accord," says state Senator Dave Owen. "I wasn't fully satisfied, but in this business, you take what you can get." The most important aspect of the solution--getting more money into the system--actually proved to be the easiest to negotiate. Public employee unions, 10 of which banded together as a group, agreed to forgo scheduled cost-of-living raises worth 3 percent of present income that instead will go toward their pensions. They also decided they could accept a five-year increase in the minimum retirement age, to 55.

Republican Governor Bill Owens, negotiating for the state, was delighted with those concessions. He wasn't as pleased with some of the concessions his side had to make. Owens didn't get to establish a two-tier employment plan under which new hires could be given less generous pensions, and he didn't win on his proposal to give the governor effective control of the pension board, with the right to appoint a majority of the members. He settled for gubernatorial appointment of one-fifth of the members.

Both sides were glad to escape the prospect of an initiative, sponsored by the anti-tax group Americans for Prosperity, that would have abolished the pension board altogether and pushed new employees into 401(k)-style plans with limited benefits. The threat of the initiative kept the minds of negotiators focused, although Owens' vow to call a special session of the legislature in the absence of a deal was also a useful prod.

It's conceivable that Colorado will have to revisit this issue at some point--even with the new infusion of pension money, the fund isn't expected to come into balance until 2051. State Treasurer Mike Coffman is already saying the fund's assumed rate of return on investment is too optimistic at 8.5 percent.

But for now, all the other parties are confident they have protected retirement for public employees while also protecting taxpayers. Their model may prove useful for other states--and certainly other states would do well to study the process by which Colorado reached its compromise. "We all saw the same end, even if we didn't all agree on the same way to get there," says Senate Finance Chair Paula Sandoval, "and that's really what it takes to get a bill through."