Tuesday, April 13, 2021
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Tag: VRS shortfall

GOP Fiscal Policy: Borrow, Ignore, and Postpone

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Two dubious legacies are already emerging as the hallmarks of Bob McDonnell's tenure as governor. The first, certainly not entirely his fault, is the burgeoning shortfall in the Virginia Retirement System, which now is only funded at 68% of its future liabilities. The second is a failing transportation system with an inadequate revenue stream to maintain and modernize it, even as McDonnell happily acquiesced to a phony transportation plan driven by debt, much of it to be paid back with future federal road money, money certain to be cut in subsequent federal budgets.

Get ready for one consequence from the VRS shortfall in the next session of the General Assembly. Now that the GOP controls all of state government, I fully expect some form of defined contribution (401k) VRS retirement plan to pass the General Assembly.That's how the state will deal with its past irresponsibility. All the risk and vagaries of the stock market will be shifted onto future retirees, while state services will suffer to pay back some of the past VRS fund borrowing.

As for transportation, the Republican aversion to paying for necessary vital services with tax revenue means that McDonnell is punting the continuing crisis in transportation down the field to a successor. By using the typical Republican ploy of borrow and spend, McDonnell has assured that he won't have to solve that problem, one that has been screaming for a solution for years.

So, get ready Virginia. Federal budget cutbacks will have serious consequences for our state, felt most severely in northern Virginia and Hampton Roads. The two biggest money problems in the state have been swept under the rug yet again. Meanwhile, our state tax system has loopholes and tax expenditures almost equal to the revenue the state does collect. All of this means there is a fiscal train wreck in our future, especially if voters continue to elect Republicans.  

State Shifts Burden to Localities…Again

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It's no secret any longer that the Virginia Retirement System, once one of the soundest pension systems in the nation, is now underfunded to the tune of $17.6 billion. The budget just passed in the General Assembly short session didn't help the situation.

Legislators wiggled budget figures in order to squeeze out $108 million in additional money for VRS. Typical of the state government in too many cases, much of that money -  $62 million - was "found" by telling localities to pay that much for teacher pensions in yet another unfunded mandate.

While state employees, through bookkeeping sleight of hand, were given a 5% raise and then required to pay 5% of gross pay into VRS, localities were not given the option of requiring teachers and other local employees in the system to pay a portion of their retirement. Yet again, the fiscal cowards in Richmond have shifted the burden of beginning to shore up VRS to local government, which has few budgetary options other than raising property taxes or slashing needed services even further than they already have. By the way, making state employees pay that 5% won't garner any savings for the state in this budget. Instead, it is expected to cost the state an additional $15 million in extra Social Security taxes to cover the raise.

Santa Bob Plays Grinch to State Employees

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Since becoming governor, Bob McDonnell has blithely promised Virginians that they could have free transportation fixes and free increased graduation numbers from colleges and universities. He even magically pulled a phony "budget surplus" out of his Santa hat and gave a small salary bonus to state employees, in spite of hiding away a $620 million IOU to the state retirement system (VRS). Alas, now Santa Bob has been forced to become the Grinch, thanks to a blistering report by JLARC stating that VRS is unfunded to the tune of $17.6 billion. Why? Well, the General Assembly has used its required contribution to VRS as an ATM whenever the politicians needed extra cash to "balance" the budget.

According to the Shad Plank, "In 16 of the last 21 years lawmakers have opted to underfund the [VRS] account rather then make painful and politically risky budget decisions." Amazingly, the General Assembly did the same thing last session, but not before passing a law that would require new hires to pay the full 5% employee contribution the state had been paying since 1983, a perk originally given in lieu of pay raises. Now, Grinch Bob has also announced his plan to get the older employees to pony up some money. By using a 3% salary raise, minus a requirement that the employees pay 5% into VRS, Grinch Bob doesn't have to come right out and say, "You're getting a 2% pay cut next year."

This bipartisan fiscal mess that was created over the years through chronic state underfunding of VRS has become so awful that Del. Dave Englin announced that he will introduce a constitutional amendment at the upcoming General Assembly session to force the state to fund VRS at the level required by its board of trustees, unless four-fifths of each house of the legislature votes otherwise. The amendment would also establish criteria for the VRS trustees to use in determining contribution rates, based on industry best practices.

It's about time. If Englin's amendment gets on the ballot - a big if - and then becomes part of the state constitution - another big if - one way for legislators to "cook" the state budget books would be ended. Good for you, Del. Englin!

Budget Balancing by Deception

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I'd like to underline Ward Armstrong's comments about how we in Virginia have been fooled about the state budget that was passed early this year . Since we are in an economic recovery that will be slow at best, the next Virginia biennial budget will start with very serious problems, in part because of decisions made last January when the legislature borrowed from the future to avoid looking at new revenue sources or ways to cut the budget other than what it only too readily did - slashing social services to the poorest and sickest Virginians.

The budget cycle we are now in has an obligation for ten years into the future to repay the Virginia Retirement System (VRS) $620 million borrowed to help "balance" the budget, plus interest. In order to repay that, starting in 2013 the state will have to come up with about $74 million over and above its regular payment into VRS, according to Finance Secretary Richard D. Brown. That doesn't include the underpayments to VRS that have been going on for years.

In the budget legislators also forced retailers to pre-pay sales taxes a month early, thus using that revenue to "balance" the budget. The same gimmick will be used next June to balance the budget we are now in. But, the legislature inserted into the budget an amendment Bob McDonnell wanted, one that will end that sort of practice, but only after McDonnell leaves office. Isn't that convenient?

When McDonnell reported his phony $403 million budget "surplus," I was disgusted. Republican Del. Ben Cline (R-Rockbridge) got it right when he told the Washington Post, "Before we rush to spend any surplus, we should first put our fiscal house in order. These creative accounting maneuvers may have helped to technically balance the budget, but they have frustrated taxpayers and slowed business growth in the commonwealth."

The Virginia Municipal League also recently complained about other ways the state pretended to have a "balanced budget."

Budget “Surplus” Lie Grows Like Pinocchio’s Nose

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Brace yourselves, folks. Not only have the state's Republicans hypocritically refused to acknowledge the importance of federal stimulus money to saving vital state services, but Bob McDonnell has promised once more to enlarge on the lie that the state budget has a surplus, promising reporters, "I'll see you Thursday," the day I fully expect him to tout the "enlargement" of the so-called surplus to about $400 million. Well, let's look at that "surplus" the way a teacher of math might.

The Virginia biennial budget, largely written by outgoing Gov. Kaine and changed by the General Assembly early this year to avoid adding any revenue, was "balanced" by cutting programs for the poor, the mentally ill, children in school, local law enforcement, college students, etc. You get the idea.

Thanks to the two stimulus bills regularly trashed by the GOP at the same time that Republicans are proudly cutting ribbons on local stimulus-funded projects and using the funds to restore some of the draconian cuts to education and public health, the worst effects of refusing to raise revenue have been avoided. Even with all those cuts and federal money, however, the state legislature couldn't balance the books. So, they resorted to accounting tricks.

By requiring merchants to turn in June sales tax receipts a month early, legislators effectively got 13 months of sales tax revenues by the end of the 12-month fiscal year. Still unbalanced, the budget then was put into phony balance by "borrowing" a $620 million payment the state was supposed to make to the Virginia Retirement System, instead giving VRS an IOU saying the money would be paid to the fund, plus interest, starting in 2013 and ending in 2023. So, that's the "Pinochio nose" in Virginia's "balanced" budget.

Here are the real accounting figures:

Rosy Scenario Makes a Return

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Back when the Reagan administration was trying to make their failed "supply side economics" appear valid, some wag joked that "the most popular woman in the Reagan White House is Rosy Scenario." Now, Rosy has taken up residence in the Governor's Mansion in Richmond.

Last week, Bob McDonnell trotted out and told reporters that Virginia had - gasp - a "budget surplus," for which he happily took credit. Ah, but that "surplus" is in the eye of the beholder.

Ask the people who won't receive medical care because of state cuts in Medicaid if there's a surplus. Ask the teachers, firefighters, and municipal workers laid off all over the state if there is a surplus. Ask the trustees of the Virginia Retirement System (VRS) that provided the cushion in funds that cooked these books if there is a surplus.

Mark Rozell of George Mason University explained exactly how this "surplus" was engineered.

"Anyone who works in the state public sector understands and has experienced that there is a real budget shortfall in Virginia. So, although it's politically beneficial for the governor to mention that the budget carries an actual surplus, it doesn't tell the real story of the fiscal situation in state government."

The General Assembly created the possibility the state would have the illusion of a surplus by passing a bill the contained extremely conservative revenue forecasts, coupled with not paying the state's fourth quarter payments into the VRS trust fund. That, plus making a 3% state employee bonus contingent on the state having $83 million in "surplus funds" by July 1, "balanced" the budget.

Hmmm. With that kind of economic thinking, maybe I should "defer" paying my mortgage for three months and then declare that - magically - I have a "surplus" in my bank account. Then, I could give myself a "bonus."