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VA Dems Blast McDonnell’s VRS Plan as “unfunded mandate,” Forcing Cuts to Kids, Seniors’ Healthcare


This morning, Bob McDonnell released his plan to supposedly shore up the Virginia Retirement System (VRS). In fact, McDonnell’s proposals are more of the usual smoke, mirrors, accounting tricks, and utter evasion of responsibility that have characterized his entire governorship to this point (how he can be popular simply boggles the mind; at best, you could argue the guy’s accomplished absolutely nothing).

In response to McDonnell’s latest irresponsibility, Virginia Democrats are piling on. According to Sen. Donald McEachin’s (D-Henrico) office:

{McDonnell’s proposal} is yet another effort to impose more of a burden on local governments, which are already strapped and which are responsible for critical vital services like public education, public safety, and public health. Local governments cannot afford to absorb this. To use an overused expression, it is an ‘unfunded mandate.’

As Ben points out at NLS, “local governments {have} only two options to meet this massive unfunded state mandate- raising property taxes or slashing county spending on schools, police, fire, parks and other local needs.” Meanwhile, Ben adds, the VRS is “a disaster from the General Assembly underfunding it,” and now instead of actually raising the money to properly fund it, McDonnell and the Republian’ts are “passing the buck on to localities.” Disgraceful.

For his part, Del. Scott Surovell (D-Mt. Vernon) weighs in with several points (and questions). First, “how is {McDonnell} gonna pay for this?” Second, “We’re giving an extra $200M to Higher Ed, Jacking up VRS contributions, taking $110 [million] from General Fund to pay for roads, and now fully funding VRS?” Third, that inevitably means “Cut healthcare for kids & low-income seniors (Medicaid).” Fourth, Surovell notes that Republicans claimed “there wasn’t a problem” with VRS at all. Hmmm. Surovell concludes:

VRS is massively underfunded because the General Assembly has not been following the VRS’ Trustees’ advice for most of the last two decades.

The situation we are in now is akin to you financial advisor telling you to put away $400/mo. for college when your first kid is born, only doing $200/mo. and then being surprised when you don’t have the money to pay for college.  

There’s no question everyone needs to step up to make VRS solvent, the real question is where do we come up with the money to do it.  

Yes, indeed, that IS the real question. We also know the real answer(s), as (presumably) does Bob McDonnell. The problem with the latter is that he’s a right-wing ideologue, jockeying for the national Republican ticket, and without the courage to buck his own party in any case. I mean, seriously, what else would we expect from the guy who put Fred Malek – found liable for ripping off Connecticut’s pension system to the tune of $75 million – in charge of his “reform” committee? Duhhhhh.

Governor McDonnell to Propose Largest Employer Contribution to VRS in History

Budget will Call for State and Local Governments to Greatly Increase Annual Employer Contributions Into VRS

Employer Contribution for State Employees for FY2013/2014 is Record $596.9 Million

RICHMOND – Building on the important reforms to the Virginia Retirement System (VRS) which passed the General Assembly during the 2010 and 2011 Sessions, Governor Bob McDonnell announced today that his proposed biennial budget will recommend a total of $2.21 billion in employer contributions to state employee and teacher funds by state and local governments – the largest employer contribution to VRS in history. The recommended employer contribution for state employees alone for FY2013/2014 is a record $596.9 million.  The Governor’s budget will fully fund the projections made by the VRS actuary, with the exception of the VRS rate of return which is funded at the level normally used by the General Assembly.  The budget will also fully fund the next installments of the 10-year payback of previously deferred contributions.  According to JLARC’s review released December 12th, in the past two years, from 2009 to 2011, the gap between the VRS liabilities and assets on hand to pay such liabilities increased 69 percent from $11.8 billion to $19.9 billion.

Speaking about the VRS funding proposal, Governor McDonnell remarked, “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. To do this, our budget will propose the largest employer contribution to the Virginia Retirement System in history, recommending a total of $2.21 billion in new funding to the systems for state employees and teachers.  This much needed increase more than doubles the employer contributions from the FY2011/2012 budget.  We cannot afford to wait in addressing this issue – the time to act is now.  We are doing that.  This historic new investment will begin to reverse the downward spiral VRS has been on and get us back on a path to revival.  It is a major step towards reducing the system’s unfunded liabilities and increasing the fund’s long-term security and stability.  More reforms must be made during the legislative session to get our retirement system in a stronger position.  I will not pass on a broken system to another governor.”

           Senator Walter Stosch (R-Henrico), a member of the Senate Finance Committee, added, “I applaud the Governor’s proposal to address the chronic shortfalls in VRS contribution levels.  Virginia is blessed to have hundreds of thousands of dedicated and hard-working state and local employees, and we must work now to ensure that their retirement is secure and solvent.  This investment is an important part of protecting their retirement, minimizing the unfunded liability and fulfilling Virginia’s commitment to our state workforce.”

Governor McDonnell’s VRS Funding Proposal:

Fully funds the regular contribution rates, assuming an 8.0 percent rate of return, 2.5 percent inflation, and 30-year amortization.

These are the same assumptions as used by the VRS actuary, with the exception of the rate of return which is set at the rate normally used by the General Assembly.

The total VRS rate is 8.76 percent for state employees and 11.66 percent for teachers, of which 1.0 percent and 1.43 percent, respectively, are included for the payback of deferred contributions.

These numbers assume payroll for state employees as of July 1, 2011 and total creditable compensation for teachers for fiscal year 2011. The data are for employer contributions, which do not include contributions from state or local employees.

Total Employer Contributions to VRS for FY2013 and FY2014 will be $2.21 billion ($875.9 million GF).  Specifically, VRS will receive total employer contributions of $596.9 million ($270.3 million GF) for state employees and $1.61 billion (state and local) ($605.6 million GF) for teachers during this upcoming biennium.

Total Payback of Deferred Contributions to VRS for FY2013 and FY2014 will be $264.5 million ($104.7 million GF) million, which is included in the total employer contributions described above.  Specifically, VRS will receive payback of deferred contributions of $67.1 million ($30.4 million GF) for state employees and $197.4 million ($74.3 million GF) for teachers during this upcoming biennium.  As promised, this budget fully funds the first two installments of the 10-year payback of deferred contributions.

A comparison of prior investments in VRS is available below:

This proposed total employer contribution of $2.21 billion to VRS for FY2013 and FY2014 will be the largest total employer contribution to the Virginia Retirement System in history.

The $2.21 billion in employer contributions being recommended to VRS for FY2013 and FY2014 marks a significant additional commitment compared to FY2011 and FY2012 contribution total for state employees and teachers, which totaled $915.2 million. Specifically, for FY2011, total employer contributions to VRS totaled $74.1 million for state employees and $271.3 million for teachers. In FY2012, it is estimated that total contributions will be $108.5 million for state employees and $461.3 million for teachers.

Of the total employer contributions set forth above, localities as employers, will be making significant contributions toward VRS solvency for their teachers and local employees.

Previously, the next largest total employer contributions for state employees and teachers took place during FY2007 and FY2008, which totaled $1.72 billion compared to Governor McDonnell’s recommended $2.21 billion for FY2013 and FY2014.

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