Bacon's Rebellion

Democracy Thrives in Sunlight

Rebuilding the Nest Egg

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by

James A. Bacon
in ,

Gov. Bob McDonnell is tackling the under-funding of the Virginia Retirement System by proposing the largest employer contribution in state history. His proposed biennial budget will recommend a total of $2.2 billion in employer contributions by state and local governments in addition to fully funding the next installments of the 10-year payback of previously deferred contributions.

Said McDonnell in a press release issued this morning: ““The plain truth is our state retirement system is underfunded, and this situation threatens the system’s long term solvency.  We must fund VRS at substantially higher levels so benefits will be there for the hardworking teachers, police officers, firefighters, state employees – our neighbors, friends and family members – who are depending on the system for their retirements. ”

(See “State Pension Liabilities Still Growing” for details from the latest JLARC report.)

Is this package enough to close the $19.9 billion gap between VRS assets and liabilities? I’m no actuary but it looks like  a step in the right direction.

— JAB

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5 responses to “Rebuilding the Nest Egg”

  1. TMT Avatar
    TMT

    While I don’t agree with everything McDonnell has done, I like his overall direction. I also like the fact that he is trying to make incremental progress on a number of issues, rather than shoot for the moon and establish a “legacy.” Most people want to see tangible results and good government. It’s too bad so many politicians don’t understand that.
    Mark Warner, as a U.S. Senator, seems to be following the same path. Let’s make progress on a number of issues. Then, there is Jim Webb — the anti-war candidate, who became silent once the war was Obama’s.

  2. larryg Avatar
    larryg

    If Kaine had said this… he would have been immediately set upon by the ” where are you going to get the money from” folks.

    so that was the first think I thought of… but it would have been the same no matter what political stripe was making that point.

    remember how the last budget got “balanced”… actually a surplus was claimed.

    Now ..we are 2 billion behind.???

    no real criticism here.. it is what it is… but methinks the standard for judging changes…

    Kaine would have been castigated for allowing such a shortfall and/or castigated at the same time for dare suggesting that we have obligations that need to be funded.

    I’ll be a LOT MORE IMPRESSED if McDonnell can take care of this problem without raising taxes or stealing from other programs.

  3. Andrea Epps Avatar
    Andrea Epps

    I agree with TMT on making actual progress, and with Larry on taxes and stealing the money from other programs. I must also admit to being way behind the 8 ball here.
    But, didn’t they balance the budget by raiding the VRS? If the 10 year payback plan is intended to address this, what is the difference in the cost over the 10 year period versus not raiding it to begin with?
    I’m really not trying to be critical, but I’m not sure I understand all of this.
    Yea, I know I should not comment if I’ve not done all of my homework, but sometimes I learn more from the thread.

  4. Groveton Avatar
    Groveton

    McDonnell and the General Assembly have already passed a tax hike without actually passing a tax hike.

    Borrowing from the pension fund to “balance the budget”, the road construction bonds and now the commitment to shore up the deficit in VRS are obligation that, along with the rest of the state’s obligations, will not be possible without a tax hike.

    The “good lie” is that the improving economy wil generate more tax receipts without any need for a hike in tax rates. First, as Obama is witnessing, the economy is just not coming out of the recession and subsequent quasi-recession as fast as anybody thought it would. Second, a critical ingredient for US secular economic growth is a reduction in government spending. This will not bode well for Virginia.

    Yet, our state government is borrowing from VRS with the expectation of more money to make payments in the future, borrowing from the capital markets with the expectation of having more money to make payments in the future, etc.

    The end game is a repeat of the “Mark Warner Shuffle”. While running for governor Mark Warner said on at least 13 separate occasions that he would not raise taxes. Then, once in office, he quickly passed the biggest tax increase in Virginia history. When asked about this he claimed that he didn’t know just haw bad Virginia’s finances had become until he became governor.

    Expect a repeat of the “Mark Warner Shuffle” from whoever becomes our next governor.

    Also, expect the Clown Show to say and do nothing to stop this from happening. All of them know we need higher taxes but very few of them have the courage to say it.

    You see, that’s how government works here in Virginia – in smoky rooms, behind closed doors, with unlimited campaign contributions, in the dark.

  5. larryg Avatar
    larryg

    well.. I give McDonnell credit for … at least… belatedly recognizing that the underfunded pension fund cannot be fixed just by converting it to a defined contribution plan…. but given how he initially approached it…. and given how he is dealing with transportation by institution a tax that Kaine got blamed for … and using it to leverage loans for infrastructure – leaving a dead end for future funding of transportation…

    the best word I can find is SLICK.

    Warner might have promised no taxes but at least he was man enough to realize that his promise was too ambitious given the circumstances.

    and for those who think that Warner or Kaine raised taxes for no good purpose…that it was clearly unnecessary… please tell me what it is that we currently spend money on in the state budget that Kaine/Warner added money to – that you’d advocating cutting back to the original funding levels.

    In fact, if McDonnell was really THAT serious about this – he’s say just that – that Warner/Kaine raised taxes when they should not have and he is going to roll it back to pre Kaine/Warner levels.

    wanna bet that McDonnell does that?

    😉

    oh.. and don’t say it can’t be done…. the new Gov of Florida did just that.

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