Cynthia Browning: Insufficient state funds?
Vermonters may wonder why there is a continual struggle to fund state initiatives, and why raising taxes is often discussed. One cause of this complex problem is the state's unfunded pension liabilities for the state employees' and teachers' retirement systems.
The state is paying current retirement benefits, but we do not have enough in the accounts to ensure that future benefits can be paid. Expert actuaries are in charge of setting the amount required to build up the funds. They have increased this annual payment based on longer lifespans of beneficiaries, increases in the size of salaries at retirement, or decreases in the rate of return earned on invested funds. The unfunded pension liabilities are a form of debt, but instead of staying at the same level so that it can be paid down, the amount can suddenly increase for reasons beyond the control of state government due to these changes in actuarial requirements.
This means that every year millions and millions more dollars from the state General Fund must be allocated to the pension funds. It becomes harder to fund child care, clean water, paid family and medical leave, weatherization, economic development, college education, and many other needed programs. What are the causes of this problem? It is a defined benefit system, so we must pay established benefits and cannot change them without permission of the beneficiaries. Years ago the full required annual funding payments were not made. And as mentioned above, the rates of return on fund investments have been lower than anticipated, retirees are living longer, and their salaries are higher so their pensions are larger.
The state has been making the required payments into the pension system in recent years, and when possible we have made extra payments with surplus funds. Ten years ago we renegotiated some benefits to reduce costs, but this has been overwhelmed by the recent increases in required payments. But it is not sustainable for the required payments into this system to continue to grow unpredictably so that it is difficult for the state to provide needed services to Vermonters.
Therefore I have introduced the bill H.447 with Rep. Linda Joy Sullivan of Dorset. This would impose a one percent tax on both the compensation of those state employees and teachers still working and on the pensions of those retired. There would be no new tax on anyone else. The revenue would be deposited in the pension funds, so beneficiaries would contribute directly to ensuring that their funds are solvent. Such additional amounts deposited will reduce the future unfunded liabilities significantly given returns on investment that will be earned over the years. And there would be more resources available for other programs in the state budget now. This proposal will likely be politically unpopular with teachers and state employees who would pay the tax. I honor them for their work and they deserve the benefits earned. I understand that I will likely be attacked for even suggesting this. But these retirement systems are costing far more than ever anticipated, and it is fair to ask beneficiaries to contribute more rather than imposing so much of that burden on others. I am obligated to offer a proposal to prevent the unfunded pension liabilities from taking up so much of state resources that it is hard to fund programs that benefit all Vermonters.
Cynthia Browning represents Arlington, Sandgate and Manchester in the state House of Representatives.
TALK TO US
If you'd like to leave a comment (or a tip or a question) about this story with the editors, please email us. We also welcome letters to the editor for publication; you can do that by filling out our letters form and submitting it to the newsroom.