|"Some of the legislators probably are under the impression that [McDonnell's proposals] will cure the VRS problem - it doesn't," VRS Director Robert P. Schultze told his board of trustees after McDonnell finally released his budget recommendations. "It takes so long to phase in."
That's common sense economics. If new hires are put under a pension system that will cost the state less, unless all those new hires are a year or two away from retirement, there will be no savings for many years.
"It's just borrowing from the future," said Robley S. Jones, lobbyist for the Virginia Education Association. Teachers account for the largest money fund administered by the $48 billion state system. "Down the road, future taxpayers are going to have to ante up."
Either that, or Virginia will end up in the same condition as states like California, where borrowing from the pension fund and then investing in risky assets in a futile attempt to recoup lost money has bankrupted their pension system.
The Times-Dispatch also reported that the Pew Center for the States has issued a national report that warned of the seriousness of an estimated $1 trillion gap between the liabilities facing state retirement systems and the money available to pay for them. The report warned that states are flirting with disaster by not fully funding their pension plans and other benefits.
"It is irresponsible to defer dealing with the problem because the costs will only go up," said Susan K. Urahn, managing director of the center.
Urahn said that the state pension funds in trouble have practiced a policy of "kicking responsibility down the road." That is, they have used the method now being advocated by Virginia's new Republican governor: not fully funding the pension system in order to balance a strained budget.
The report rated Virginia's pension plans in the middle of the plans studied, but the report was based on data from mid-2008, before the stock market crash and the "Great Recession" drained billions of dollars from state retirement system investments.
According to the Times-Dispatch, Virginia's pension plans were funded at 84 percent of their future liabilities for state employees last summer and 76 percent for teachers; by 2013, VRS projects the plans would fall below 62 percent of their obligations for state employees and 59 percent for teachers at current contribution rates.
McDonnell and former Gov. Tim Kaine both proposed sharp reductions in the contributions that state and local governments make to pension plans. Kaine proposed forgoing contributions altogether in the fourth quarter, saving the state $135 million while costing the system about $338 million, to help balance this year's budget.
Kaine also proposed shifting a portion of the cost to state employees over the biennium, McDonnell wants to shift contributions by employees to new workers only.
Localities would save more than $500 million under the governor's proposals, but according to the Times-Dispatch, they are uneasy about the tradeoff. Mary Jo Fields, a budget analyst at the Virginia Municipal League said the cuts would push the problem into the future, while counting on the stock market to make up the difference.
"It's a gamble," she said.
Anyone who dares to gamble on big returns from the stock market after last year is a fool.
Personal aside: I remember when the state and localities took over the 5% that employees used to pay into VRS. That action occurred during the last really serious economic downturn in the early 1980's. Because government employees had not received pay increases for several years - exactly the situation today - the employee contribution was taken over by governments.
The action was cheaper for government because the 5% given to employees that way did not have to be counted by the employer in figuring its share of the Social Security tax. So, that benefit was given as an alternative to a pay raise.
McDonnell wants to endanger the pension system and postpone the pain to employees by shifting costs to the future. How typical of what has become the Republican, and too often also the Democratic, response to the fiscal mess this country is in right now. The philosophy is, "Borrow from the future and let the children and grandchildren suffer the consequences!"
News Flash: Reaganomics and Grover Norquist are phony, folks. You cannot get what you refuse to pay for indefinitely. At some point, the books have to balance. There are two ways to do that. First, increase your revenue. Or, cut your expenditures and programs. Or, do some of both.
We must never forget that government services are the safety net for those in our society who need help the most: the poor, the young, the sick, the elderly. They do not have another recourse. If we cut assistance to those people in order to avoid the wealthy and the comfortable having to pay estate taxes or higher income taxes, all of us must live with the consequences. We will become a much meaner, albeit a leaner, society.
What a tragic turn of events caused by selfishness and greed.
"Lord, when did we see you hungry or thirsty, a stranger or lacking clothes, sick or in prison, and did not come to your help?" Then he will answer, "In truth I tell you, in so far as you neglected to do this to one of the least of these, you neglected to do it to me." - Matthew 25: 44-45