by Anne Galloway/VTDigger.org
The Scott administration says the governor made an error last week in his budget address when he said he would pay $20 million “more than required” to pay down teacher retirement liabilities.
That statement was incorrect.
In fact, the Scott administration is not making an additional payment toward the overall $2.7 billion in unfunded liabilities for teacher and state worker retirement obligations, it is merely making the required annual payment of $124 million.
In his speech, Scott painted a dark picture of the state’s economic future, in part as a result of the state’s unfunded retirement liability. He told lawmakers it is “increasingly difficult” to maintain the state’s Triple A bond rating because of the state’s shrinking workforce and the amount of retirement debt now carried by Vermonters.
Then the governor suggested that he planned to take action immediately. “Put simply, the difference between the money we set aside to pay benefits is hundreds of millions of dollars less than it should be. And if we do nothing, these unfunded liabilities will be more than we raise in annual revenue,” Scott said. “It’s time to deal with this issue, head on.”
“That’s why my budget devotes $20 million more than required, to pay down these liabilities,” Scott said last week in his address to the Legislature.
The statement was untrue, misleading and led to confusion — both in the Legislature and outside the Statehouse. The Rutland Herald published an editorial last week praising the governor’s commitment to paying down retiree debt obligation.
Adam Greshin, commissioner of the Vermont Department of Finance and Management, said Scott made the statement in error. “Candidly, it was an oversight,” he said. Susanne Young, the secretary of the Agency of Administration, also characterized the misstatement as an “error” in an interview with Seven Days.
“I think that was incorrectly written and stated by the governor,” Greshin said. “What it should have said is the budget devotes $20 million more than required last year.”
The statement “implicated we’re prepaying — that’s what people took by what we said,” Greshin said.
The correct numbers were presented by Greshin in a slideshow provided to lawmakers the day of the budget address.
But there was no attempt by the Scott administration immediately after the speech to acknowledge the “error” and correct the record until Seven Days reported on the issue Tuesday.
Sen. Jane Kitchel, D-Caledonia, told her colleagues in a Democratic caucus Tuesday that she was surprised by the governor’s remarks.
“There was a lot of confusion,” Kitchel said, “and I wasn’t sure how we could accommodate that reference made in the governor’s speech about pensions. I was like I don’t know how you’re going to put in $20 million on top of everything else with these constraints. But the reality is, it is not $20 million [in additional monies] to help us buy down that outstanding underfunded liability.”
The amount in the budget for this year is $20.4 million more than last, but the additional payment is not for paying down the overall liability. The increase meets the state’s basic obligation, also known as the annually determined employer contribution, for retired state workers’ pensions, retired teachers’ pensions and health care for retired teachers.
The state’s annual required contribution to retirement obligations increased because of changes to actuarial assumptions. There were four factors, according to the treasurer’s office: The rate of return on investments fell from 7.95 percent to 7.5 percent; mortality tables were updated to reflect current statistics for life expectancy; the rate of retirement shifted; and the actuarial methodology changed.
The overriding problem with the state’s retirement system is that it was underfunded for more than a decade. In the 1990s, when former Gov. Jim Douglas was treasurer and Howard Dean was governor, and again in the mid-2000s when Douglas was governor, the state underfunded the teachers’ pension system by more than $150 million, according to data from the treasurer’s office. (See page 7 of this report.)
That means on teacher retirement debt alone, the state is paying $25 million more to maintain its obligations than it otherwise would have, according to data from the treasurer’s office.
Kitchel told her colleagues that retirement and education obligations make it difficult for lawmakers to fund other programs.
“The sins of deferring and underfunding are coming back in a huge way,” Kitchel said.
“The amortized liability increase [for state and teacher retirement], the increase we have to pay for retired teachers health care … and the increase in the general fund increase to the education fund more than exceeded the entire revenue growth” projections for fiscal year in 2019 prior to the impact of federal tax changes, she said.