Legislative Report 4/5/2021 - The Intractable Problem of Underfunded Pensions

 

The announcement in January by State Treasurer Beth Pearce that the state pension funds for teachers and state employees were grossly underfunded and that action had to be taken to make the plans sustainable alarmed all Vermonters, but most especially teachers and state employees who are counting on those funds for their retirement. Her recommendations for plan changes included painful changes to pension benefits, including increasing the retirement age, increasing employee contributions, and lowering the payouts. Teachers and state employees reacted immediately to protect the benefits they had earned by contacting legislators to plead their case. This issue quickly became the dominant topic rivaling and intertwining with the budget in legislative deliberations. As such, it touches all Vermonters and deserves a closer look at the facts and figures.

In the 1990s the legislature cut back on the appropriations to the pension funds under the assumption that investment returns would continue to exceed the actuarial predictions. Over the years this contributed to about a third of the current $3 billion unfunded liability in the pension funds for teachers and state employees. Other contributing factors include an aging workforce with the number of active teachers/employees roughly equal to the number of retirees, increased longevity of retirees, and the consistently low returns on investment experienced since the “great recession” of 2009. The revised actuarial estimate this year added another $600 million to the pension system’s unfunded liabilities in this year alone.

The legislature does not manage the pensions or dictate the investment strategy, but we are taking the lead to bring stakeholders to the table to come up with a solution. Vermonters need the unions representing employees, the Governor, and the Treasurer to come to the table as well. Between 2016 and 2020 the annual contributions from the taxpayer-supported state General Fund to the pension funds increased from $184M to $303M while the teacher/employee contributions increased from $59M to $76M. The House Government Operations Committee has been considering not only the recommendations of the Treasurer but also alternative approaches to save the defined benefit model.

The legislature has already stepped up with a significant increase in funding for pensions this year. The FY22 budget that was recently passed by the House contains an appropriation of over $300 million for the pension funds. This represents an increase of roughly $100 million over the actuarial required contribution last year. While federal American Rescue Plan Act (ARPA) stimulus funds cannot be used or applied to the pension system directly, they can be used to free up General Fund dollars to make a significant pension investment. Another $150 million in general fund dollars have been set aside for this purpose, for a total FY22 contribution approaching half a billion dollars.

Late last week Speaker Jill Krowinski announced that the House Government Operations Committee would push forward with much-needed pension governance reforms and create a task force to work over the summer to gather stakeholder input and recommend structural reform to the pension systems. The governance changes are key to solving the pension crisis. These reforms will increase the level of professional expertise of those managing the pension funds and take the politics out of decision-making at the Vermont Pension Investment Committee (VPIC), which consists of employer and employee representatives. They will streamline the decision-making process around changes to actuarial assumptions, require more frequent experience studies, and enhance transparency around investment fees. Both the new governance structure and the pension task force need to maintain representation and participation from key employee and employer stakeholders.

Defined benefit public pension plans, when properly designed and managed, are the most affordable way to provide secure income in retirement. The legislature is working to ensure the sustainability of the plans in a way that protects not only the benefits that employees and retirees earned but also the Vermonters whose taxes contribute to the pension funds and are increasingly under pressure to shore up the funds each year.

I welcome your emails (myantachka.dfa@gmail.com) or phone calls (802-233-5238).

4/3/2021 - HOUSE SPEAKER JILL KROWINSKI REMARKS ON THE EFFORT TO STABILIZE VERMONT’S TEACHER AND STATE EMPLOYEE PENSION SYSTEM

 

Press Release

For Immediate Release

April 2, 2021

 

Media Contact

Conor Kennedy, Office of the Speaker

ckennedy@leg.state.vt.us

Montpelier, Vt. – Earlier this morning, House Speaker Jill Krowinski was joined by members of the Democratic Caucus at a press conference and provided the remarks below regarding the effort to stabilize the public pension system. A link to the press event can be found at the bottom of the page.

 

Good morning,

 

We are here today because we want to save our public pension systems and give teachers and state employee’s confidence that the money won't run out.

 

When we began this legislative session, I stressed the need to build a COVID recovery plan that leaves no one behind. Because of the tremendous amount of federal relief dollars the state has received, it has given us a once in a lifetime opportunity to think creatively about how to solve our biggest challenges and build us back stronger than ever before in all 14 counties. 

 

One of our state’s biggest problems is our unfunded public pension liability, which has risen exponentially to $5.6 billion. We cannot ignore this situation any longer; we must act. We must stabilize our pension system, so that our hard-working state employees and teachers can retire with peace of mind. Over the past few weeks, we as legislators, along with the House Government Operations Committee, have been taking a deep dive into the seriousness of the problem, how we got here over decades, and examining ideas and solutions that will move us forward on a productive path for the future.

 

I want to pause and acknowledge how hard and emotional this conversation has been for all concerned. We are talking about the economic security and the futures of our dedicated state employees and teachers, and that’s deeply personal for those impacted by any proposal. We have been listening closely to our constituents and hearing their concerns. Change is hard, it takes methodical, determined work, and we are only successful if we work together. As I’ve been listening to people give their feedback, while trying to get people to come to the table to add their voices and solutions, it is clear people are struggling with how to find real systemic change to resolve this crisis right now. Some stakeholders like the Vermont State Employees Union have brought a few ideas to the table, and others like the Governor have not.

 

The added challenges of trying to do this kind of deep policy work in a virtual environment, and not being in the State House together, are creating obstacles towards having a difficult, yet solutions-oriented conversation. 

 

However, in the midst of the frustration, we are seeing a path forward towards fundamental change. A majority of what I’ve been hearing, and the Government Operations Committee has been hearing is focused on the question of, “how did we get here?” Circumstances largely beyond the State’s control have led to this crisis situation, including an aging population with increasing retirements; lower than anticipated investment returns, in part, due to the Great Recession; and changes in actuarial assumptions, including a reduced rate of return. 

 

Moving forward, I believe we should focus on where I’m seeing the most consensus, which is changing the way we make our investment decisions with our governance structure. The legislature doesn’t make investment decisions, but we can change the board structure to make it more transparent, independent, and get more expertise at the table. This is no small lift, but I know we can do this. Second, I’d like the committee to create a Pension Task Force that brings all stakeholders, from the unions to the Governor, to the table to look at possible revenue sources and plan and benefit changes to fix this problem. Lastly, I recommend we keep the one-time $150 million in reserve while the Task Force does its work. We also have the $300 million in this year’s budget to pay for pensions and OPEB.

 

I want to thank Chairwoman Copeland Hanzas and the Government Operations Committee for all their hard work to save our pension system. I also want to thank all of the members for joining in and helping us find a solution. Thank you.

 

A recording of the event can be found here.

 

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Legislative Report 2/11/2021 - Budgets and Broadband

The Vermont House has worked productively in the last two weeks.  We approved the annual Budget Adjustment bill (H.138), a mid-year technical adjustment to keep the state’s Fiscal Year 2021 budget in balance.  H.138 passed with strong support and included investmentsto support the Legislature’s continuing response to the Coronavirus pandemic. Much of the adjustment was a result of reallocating unused Coronavirus Relief Funds, which were supposed to expire at the end of last year but were extended by the $900B relief bill passed by Congress last December. CRF money was redirected to assistance for the hard-hit hospitality industry, for emergency food, hotel-housing for the homeless, and rental assistance, for Vermont State Colleges system support, and for completion of broadband expansion projects.

Speaking of broadband, the pandemic has highlighted the necessity of high-speed internet for education, work, and communications. The Energy & Technology Committee has been working on a major bill to accelerate broadband deployment to every part of the state. Building on the Communication Union District (CUD) model that was authorized in 2015 and enhanced last year, availability to planning grants and low-cost loans will be provided to CUDs to build fiber networks throughout Vermont. CUDs are organized by towns that want to build fiber to the areas where for-profit internet service providers find it unprofitable to reach.  Most for-profit companies build their infrastructure along the main arteries with a higher residential density. Fiber-optic lines cost about $33,000 per mile to build. The more subscribers within that mile, the lower the cost per subscriber.

Local telecommunications carriers like WCVT or Consolidated Communications also provide internet service. The US Department of Agriculture recently accepted bids from traditional carriers to extend broadband in rural areas under the Rural Digital Opportunities Fund (RDOF). With the objective of getting service to every Vermonter as quickly as possible, we are encouraging CUDs and telecom providers to work with each other to avoid duplication of effort. The rate at which high-speed broadband can be built depends not only on funding but on the availability of skilled line workers and of the required materials, both of which are in short supply. Our bill will also include funding for workforce training in partnership with Vermont Technical College. Even with this support, broadband to the “last mile” will take years to accomplish. We will continue to work on the details of the bill over the next few weeks.

There's good news on the 9.5 cent education property tax rate increase that created a stir in December. Improved non-property tax revenues in the Education Fund and input from school districts have resulted in a reduction to roughly a one cent increase. This may change as more information about actual budgets becomes available, but it is not expected to change dramatically.

Also on the education front, the sustainability of the pension funds for teachers and state employees has become a top priority with the release of a recommendation from State Treasurer Beth Pearce which would increase contributions and decrease benefits.  The source of the underfunded pension fund problem was a decision by the legislature in the 1990s to underfund the system based on overly optimistic assumptions about investment returns. The unfunded liability is $1.5B at present and is expected to grow another $600M if remediation steps are not taken.  The legislature is studying the report and seeking alternatives by working with all parties to assure Vermonters that they will have their retirement benefit while also curtailing the unfunded liability. Pension contracts are an obligation that should not be set aside. Teachers and state employees should not be penalized for the fiduciary mistakes made by government. We must solve this dilemma fairly.

I welcome your emails (myantachka.dfa@gmail.com) or phone calls (802-233-5238).  

The Word in the House 2/29/2016 - Divestment, Voting and Protection

As I write this the weekend before Town Meeting, I’m looking forward to one of the great New England traditions where voters can get together in an exercise of direct democracy to make decisions affecting their local government. It gives me a chance to talk to constituents and find out what’s on their minds and get some idea of whether I am doing my job properly in Montpelier.

Last week saw passage of several bills as well as a resolution on fossil fuel divestment in the Vermont House. The resolution, HR.13, calls on the State Treasurer working with the Vermont Pension Investment Committee (VPIC) to eliminate coal and ExxonMobil stockholdings from Vermont’s pension funds. The rationale for the measure included recognition that: climate change due to human consumption of fossil fuels is real and has significant negative consequences for our environment; given the recent bankruptcy of America’s largest coal company and efforts around the globe to curtail use of coal, investments in fossil fuels pose a threat to Vermont’s pension funds; and ExxonMobil specifically has been documented to have misled the public and its investors and funded climate change denial despite having evidence to the contrary from its own scientists. While it encourages divestment, it also recognizes that the pensions belong to the employees whose money is invested and that they, through the VPIC, have the ultimate responsibility to divest while taking care to invest wisely. The resolution passed on a vote of 76 to 57.

On the same day that the resolution was voted on, a bill that changes the “motor-voter” law, that is, the ability to register to vote when applying for a driver’s license, was passed. Today the applicant must choose to register on the form. This bill, H.458, now provides that the default is to submit a voter registration application unless the applicant chooses otherwise. Of course, the applicant must fulfill the requirements of U.S. citizenship, be a resident of Vermont, have taken or self-administered the Voter’s Oath, and attest to the veracity of this information on the form. While many other states continue to restrict voting privileges by erecting roadblocks to registration, Vermont continues to embrace the right of every citizen to vote and encourage them to do so. This bill passed on a voice vote.

Another important bill that passed was H.749, which allows a friend to file a relief from abuse request for a minor or for a person who lacks capacity to protect his or her interests due to psychiatric, intellectual, or developmental disability. It also allows a minor who is at least 16 years old to file a request on their own behalf if they are currently or were previously engaged in a sexual or dating relationship with the defendant. This provides a measure of protection for young people and vulnerable adults who are in a recognizably abusive relationship and may be reluctant to file the request themselves. This bill also passed on a voice vote. H.749 as well as H.458 will now be considered by the Senate.

I welcome your thoughts and can be reached by phone (802-233-5238) or by email (myantachka.dfa@gmail.com).

State Treasurer Beth Pearce Discusses Vermont's Fiscal Situation

Vermont State Treasurer, Beth Pearce, recently appeared on the Chittenden County Democrats show on Burlington's public access TV, Channel 17, with Bob Hooper, Chair of the Chittenden County Democratic Committee, and Rep. Mike Yantachka (Chitt 1-2).  The segment can be viewed at http://www.cctv.org/watch-tv/programs/beth-pearce-vermont-state-treasurer.

Hooper started the discussion by commenting that the state pension funds seem to be in good hands.  Treasurer Pearce described the status of the state's pension funds to be growing over the past two fiscal years despite the poor economic conditions.  They earned an interest rate of 18 and 20 percent in 2010 and 2011 respectively.  This fiscal year, which started on July 1st, has proven to be more volatile, but Vermont's pension funds are expected to be in the top five performing state pension funds in the nation.

Another topic that was addressed was the missing property database managed by the State Treasurer's office.  this database lists individuals and organizations that have been identified as having unclaimed property, either cash or objects, that have been turned over to the state.  These may be closed bank accounts, uncashed checks, or abandoned safe deposit boxes, for example, for which the owners could not be found.  Recently, additional proceeds from the John Hancock Life Insurance Company were identified as a result of a state audit, and the Treasurer's office has initiated an ad campaign urging people to check the website to see if their name appears.  Some states have reciprocal agreements, so newcomers to Vermont may find money that they have coming from when they lived in another state.

The Treasurer's office also sponsors a program called MoneySmart which helps parents talk about money to their kids to encourage good money habits.  Finally, Treasurer Pearce talked about the challenge facing lawmakers in the upcoming session to balance the budget in the face of repairing the damage caused by hurricane Irene.