Bacon's Rebellion

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Virginia’s 12.3 Billion Liability

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by

James A. Bacon
in

Once upon a time not long ago, in 2001 to be exact, Virginia’s pension fund obligations were fully funded — 106 percent funded. No longer. According to a new study by the Pew Charitable Trusts Center on the States, Virginia’s obligations for state employees is only 81 percent funded, or about $10 billion short. Additionally, the state is $2.3 billion short on funding “other” retirement benefits.

What’s going on? A couple of things. First, Virginia shifted to slightly more conservative actuarial methodology: assuming compounded returns of 7.5 percent annually instead of 8.0 percent, which is probably wise in the current financial climate. But the study also states, “The state has stumbled a bit in making its full annual contributions toward its long-term obligation. … In the last 10 years, the Commonwealth has frequently made less than the annual required contribution, as set by its own actuaries.”

Virginia’s funding ratio is a hair worse than the national mean — which means it’s nothing to be proud of. In the private sector, monkeying with pension payments is a notorious trick for boosting cash flow. Looks like Virginia has been doing the same thing since 2001. Before cranking up spending on other programs, Gov. Timothy M. Kaine and other lawmakers might consider taking care of core responsibilities first. Twelve billion dollars is a lot of money, even if spread over decades.

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8 responses to “Virginia’s 12.3 Billion Liability”

  1. Anonymous Avatar
    Anonymous

    State and local government need to take several actions, including: 1) reevaluate the types of benefit programs offered to make sure that they can be funded going forward; 2) move to defined contribution plans when appropriate; 3) start funding obligations every year; and 4) stop expanding other programs.

    It makes no sense to promise employees programs that cannot be funded. Be honest with employees and tell them what is realistic and then keep the promises. Cut back on a going-forward basis to protect existing employees.

    TMT

  2. Anonymous Avatar
    Anonymous

    And to think people mocked Walter Stosch for saying that there were unpaid bills in the drawer.

  3. Larry Gross Avatar
    Larry Gross

    this concerns me.

    It appears that Kaine inherited it and a question as to whether Warner inherited it or instituted it.

    Any any rate.. this is not good.

    And the Gov cannot take all the blame here.

    How come we here about this ..NOT from our “transparent” Virginia budget – INCLUDING our elected legislators .. to include the loyal opposition who are always yammering about “fiscal responsibility”?

    It would seem to me that the guys who complain so bitterly about the RINOs.. this would have been their opportunity to clearly delineate themselves by pointing out that it IS fiscally irresponsible for the State to not fulfill it’s pension obligations.

    Now that the cat is out of the bag.. I wonder if the GA is going to deal with it or just pretend it never happened.

  4. Anonymous Avatar
    Anonymous

    Larry, I suspect that the much bigger problem lies with local governments, including schools. They probably don’t have much more than a nickel or two put away. Fairfax County has been an exception, by escrowing money in each budget.

    This problem needs to be addressed before we start expanding government programs. We also need fair defined contribution plans that permit state and local governments to cap their liabilities.

    TMT

  5. Larry Gross Avatar
    Larry Gross

    “We also need fair defined contribution plans that permit state and local governments to cap their liabilities.”

    I’d much rather hear an advocacy from the R’s to do this.. and things like this.. even if politically tenuous… make the case for fiscal responsibility vice the really dumb “no new taxes” concept.

    I’m not in favor of more taxes at all but I think “no new taxes” REQUIRES intelligent articulation of how we accomplish more with less – like any business operation

    and yes… clearly.. a pension fund system that is unbounded in it’s liabilities is .. not fiscally responsible…

    and one thing further.. in my usual blah blah blah form…

    Defined Benefit Pensions encourage people to stay in a job that is no longer a career… when they should be taking their 401 and moving to where they really want to be.

    Defined benefit pensions employer-provided health care chain people.. to a job… chain them to commuting…

    If folks had portable pensions and health care that they could take with them.. and maintain..

    Politicians could make this case. They could show – even the teachers that having portable benefits empowers them as able to make the changes that they want in their careers…

  6. Anonymous Avatar
    Anonymous

    Be glad you don’t work for the stae of Maryland. Their unfunded liability is 14.5 billion.

    RH

  7. Anonymous Avatar
    Anonymous

    It is quite possible to design attractive defined contribution plans. The feds have, for example.

    Also, with more turnover in jobs, having vested rights to the plan’s funds could help a lot of people.

    Care must be taken, however, not to implement these plans in a way that hurts late-career people. It would not be a good idea, for example, to push workers in their 50s and 60s into the defined contribution plan.

    Larry – if “no new taxes” is wrong, what about those, especially Democrats, who slogan is always “more new taxes”?

    Government, at all levels, could operate more efficiently; corporate welfare can be slashed; and all communications between lobbyists and appropriators must be made public. Let’s make changes and then see how revenues match expenditures.

    Finally, any guest worker program must require the payment of substantial fees by employers to cover the costs of providing services to workers and their families.

    TMT

  8. Larry Gross Avatar
    Larry Gross

    …”slogan is always “more new taxes””

    yes.. that’s the heck of it.

    the tax&spend types can ALWAYS articulate the benefits

    but can the “no mo taxes” folks articulate how to get more for less – benefits?

    No.. they essentially preside over existing byzantine government processes that business abandoned long ago…

    I don’t believe that we need 10,000 people at VDOT – at the same time we’re crying for transportation funds.

    Ask yourself what exactly are they doing that could not be done more efficiently by private enterprise.

    Have the “no taxers” considered the “overhead” cost of a road done by VDOT verses a road done by PPTA?

    Has the “no taxers” recognized why PPTA build roads in 18 months when it takes VDOT… 5-10 years?

    I don’t mean to pick on VDOT per se because there are other examples in government.

    Virginia’s “no tax” folks are the virtual equivalent of “see no evil, hear no evil, do no evil” as opposed to intelligent articulation of … say … a concept like PAYGO which would force folks like Kaine to think long and hard about wringing out efficiencies to fund new program rather than raising taxes.

    My disdain for the tax&spenders is only exceeded by my disdain for the “no mo taxes and we’re not saying anything more” gospel singers.

    If the R’s want to retain a prominent role in Va – both RoVa and NoVa .. this is how they got to do it IMHO.

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