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).

Speaker of the House Mitzi Johnson on the 2017 Legislative Session

The June installment of the Chittenden County Democrats Show featured an interview with Speaker of the House Mitzi Johnson, who reflected on the 2017 legislative session so far. The legislature will gavel back into session next week for two days, June 21st and 22nd, for an override session on the Governor's budget veto. Host Bob Hooper and Speaker Johnson discussed several topics including the impasse between the legislature and Governor over teachers' health care benefits, the future of the Windsor prison, and potential impacts of proposed federal tax cuts. The interview can be seen here.

House Adjournment Recap 5/19/2017

The gavel came down shortly after midnight ending the 2017 session of the Vermont House pending a veto session in June and a possible callback in October.  The October date was set aside in case the passage of the federal budget later this year deals some major impacts to Vermont.  The last day was not without its hopes and tensions.  Thursday morning Speaker Mitzi Johnson and Senate Pro Tem received word that the Governor wanted to meet over the stalled teacher health insurance issue. 

The legislators presented the agreed upon language that they would vote on which included:
1) setting up a commission to study the implications and feasibility of having a statewide teachers health insurance program;
2) setting a statewide termination of teachers health insurance contracts that have not yet been negotiated to December 31, 2018;
3) exempting from that termination any contracts negotiated prior to July 1, 2017; 
4) exempting those negotiated afterward that fit the Governor's proposed 80%-20% premium split with a $400 deductible; and
5) passing legislation in 2018 that would reflect the results of the commission's study.

This proposal would honor the dozen contracts that have already been negotiated, encourage the adoption of the terms that the Governor says will achieve the $26M savings ($13M in FY18), and allow the legislature to properly examine, with everyone's input, over the course of a regular session the pros and cons of a standard statewide health insurance program for teachers. No agreement was reached.

In the afternoon, the three parties were joined by the Dean of the House, Alice Emmons, and the Dean of the Senate, Dick Mazza, the longest serving members of each body.  After hours of discussion focusing on the points everyone agreed on, the talks once again reached an impasse as the Governor insisted that the contracts had to be negotiated at the statewide level instead of between local teachers and boards.

At around 9:30PM the House received word that the House-Senate Conference Committee agreed on language for H.509, which was passed by the Senate 20-8. The House was now ready to vote on the language described above except for points 4 and 5. H.509 also set the education tax yields for FY18, which was the original purpose of the bill. The yields, how much $1 of the property tax will raise per student based on the statewide grandlist, determine the local education tax rates.  The higher the yield, the lower the tax rate needs to be.  For residential property tax payers not income sensitized, the yield will be $10,160.  For those eligible for a property tax adjustment, the yield is $11,990.  These yields result in an average homestead property tax rate of $1.505.  The nonresidential rate will be $1.555, down from $1.59. This measure passed on a vote of 84-54.

In his remarks to the House in closing the session, Governor Scott told us he would veto the budget because we did not agree to statewide teacher negotiations. So, we will be returning on June 21 to consider overriding his veto.  What will change between now and then, I don't know. As I stated in my vote explanation after voting for H.509,  "The right of employees to enter into collective bargaining with their employer is a right that was hard-fought and won over the last century and a half. It is a right that we should not throw away. My yes vote underscores my support for this sacred principle.”

At the same time the teachers' unions would do well to ensure that their demands are reasonable when they enter negotiations so as to avoid alienating the property taxpayers whose support they need in times like this. 

Impasse on Teachers' Health Insurance Plans

The Legislature reached an impasse in negotiations with Governor Scott on his plan to use $26 M in potential savings from the new VEHI health insurance plans for teachers.  After 12 days of negotiations with the Governor and his staff, the Governor was unwilling to compromise according to House Speaker Mitzi Johnson and Senate President Pro Tem Tim Ashe who held a joint news conference on /Wednesday, May 17th. The goalposts kept moving from one meeting to the next, according to Johnson. The Governor would not move from his position to short-circuit the collective bargaining process, so there was no point in continuing to negotiate.  The legislature will now convene a Committee of Conference between the House and Senate to come up with a joint proposal that will address the potential savings in a way that will preserve the bargaining process and allow the savings to reduce property taxes.  The collective bargaining process is a hard-fought and won right of workers to negotiate directly with their employer.  We should not allow Vermont to become a state which devalues this right.  I recommend reading the editorial by David Moats, editor of the Times Argus newspaper, which can be found at this website: 

http://www.timesargus.com/articles/budget-impasse/.

Legislative report 5/17/2017 - Stuck in Session

As I write this late Friday afternoon on May 12th, I should be home in Charlotte. Instead, I am in a holding pattern in Montpelier. There are a number of bills that are still under negotiation, all of which deal in some way with money. The Budget cannot be passed until all the constituent parts are finalized. These parts include the capital bill that deals with the overhead required to run the state government, the fee bill that covers the expense of administering regulations and licenses, the transportation bill that maintains our transportation infrastructure, and the education tax bill that determines what the statewide property taxes will be. While the capital, fee and transportation bills, have already passed both the House and Senate, the education bill has become the sticking point over how to deal with the new health care plans being proposed for public school teachers.

The education tax bill, H.509, was close to being finalized until Governor Scott proposed his teachers' health insurance plan to capture an alleged $26M savings within days of adjournment. The fact that only $13M would apply to the FY18 budget, since the new insurance plans don't start until January 1, has not stopped him from repeating the $26M figure. The Governor insists that the only way the savings can be achieved is with negotiations between the administration and the statewide union. This runs counter to the right of workers, the teachers, to negotiate directly with their employer, the school board. With the backing of the Republican caucus, he has refused to compromise on this point. He also has proposed that only 30% of the savings should go for property tax reduction.

Meanwhile, the House and Senate have been working toward a way to realize the estimated savings while maintaining the integrity of the employer-employee relationship of teachers and school boards. The latest amendment passed by the Senate would require $13M to be saved in the second half of FY18 which would reduce the statewide homestead property tax by 3 cents. Based on the number of employees, each school district would be allocated a proportion of the savings which would be achieved by negotiations between the school board and its teachers, a process that is already taking place across the state, by the way. Any difference between what the district actually saves and the allocated amount would reduce the state's payment to the district. Since each action on a bill requires a 24 hour waiting period, the failure of the Governor to work with the legislature to find a solution guarantees that the session will run beyond the budgeted 18 weeks.

A couple of weeks ago the 2017 session seemed to be moving along nicely with no new taxes and a budget that got nearly unanimous support. Yet, here we are. Despite agreement on what could potentially be saved, the issue has boiled down to labor relations and how much should be applied to reducing property taxes. I hope that by the time you read this we'll have a solution and a budget that won't be vetoed.

I encourage you to let me know your concerns and opinions. I can be reached by phone (802-233-5238) or by email (myantachka.dfa@gmail.com).

The Word in the House 5/11/2017 - Teachers' Health Care Proposal

In the final week of the legislature bills move at a fairly rapid pace between the House and Senate as differences are resolved and agreement is reached. Some legislation, however, deals with highly controversial issues such as marijuana legalization, paid family leave, and education issues. These bills often generate much floor debate and take hours, if not days, to bring to completion. On two different days of the expected final week, legislators remained on the floor until nearly midnight before completing business.

One of the most contentious bills was the education financing bill, H.509. This bill was being amended to include the Governor's proposal that would create a statewide health insurance contract for teachers. While the proposal sounds like a good idea, it was offered so late in the session the legislature was not able to properly investigate the assumptions, tax implications and labor policy implications in the way the legislature conscientiously approaches all legislation. Issues like this are not black and white and require getting input from many sources and affected parties..

With that in mind, the House Ways & Means Committee did examine the proposal and determined that there may be up to $26M of savings to be realized, but only half of that in FY18. It is important to note also that the $26M figure is a “guesstimate” based on a presumed decreased use of health care services by teachers under the new plans. Furthermore, the Governor's proposal would direct much of the savings to be used for other purposes than reducing the property tax. Rep. Kate Webb of Shelburne offered an alternative proposal as an amendment that would use the same expected savings from the lower premiums of the new teachers' health insurance plans to go to the Education Fund and be funneled back to the individual districts according to the savings realized by the district.

The right of employees to unionize and bargain collectively with their employer is a fundamental right of American workers that was hard fought for and won over the last century and a half. Without unions we would not have a 40-hour work week, overtime pay, safety standards, workers' compensation, a minimum wage, and other employee rights we take for granted. The Governor's proposal would take the negotiation of health care contracts out of the hands of local bargaining units and districts and give it to a statewide union and the Department of Education. Since teachers are employees of individual districts and not of the state, the proposed arrangement takes both the employees and the districts out of the process. And if negotiations broke down and teachers went on strike, it would affect the entire state instead of being localized to a single district. This would not be good for Vermonters.

The Webb amendment keeps the negotiations local and guarantees that the savings will come back to the local districts. As a practical matter, since about 25% of teachers’ compensation comes in the form of health insurance, removing that huge piece from the local negotiation of teachers’ contracts takes a big piece off the table as the negotiators balance pay increases against health insurance benefits.

As you probably have heard, the vote ended in a tie, 74 - 74, on the Beck amendment, and the Webb amendment was subsequently passed. The bill went to the Senate, which will have its own say. Our hope is that the Governor and the legislature will come to some compromise agreement that will accomplish the savings in a mutually satisfactory manner and avoid a potential veto session. The expected May 6^th adjournment has been postponed as those negotiations take place and will resume the following Wednesday.

I encourage you to let me know your concerns and opinions. I can be reached by phone (802-233-5238) or by email (myantachka.dfa@gmail.com).