Kory’s Report from Richmond: the budget stalemate

My friend, Sen. Creigh Deeds, shared with me his thoughts on some major budget issues. Since those issues are of as much concern to us in the 38th District as they are to Sen. Deeds’ constituents down in Bath County—and since the senator’s views are congruent with my own—I  thought you would find the following message informative.

The General Assembly adjourned, sine die, on March 10, without passing a final budget. The outline of a budget appears to be close, and the General Assembly will reconvene on March 21 and I expect that a budget will be approved shortly thereafter.  A couple of important measures dealing with the Virginia Retirement System (VRS) and transportation were passed on the last day of the session, and I wanted to provide some up-to-date information. 

One of the big issues this session has been the retirement system.  All of the retirement systems, including those for state employees, teachers, local employees, state police, other law enforcement officers, and the judiciary, have roughly a combined $24 billion unfunded liability.  This is the additional amount the system needs to be on track to meet its future obligation to pay retirement benefits for present employees. 

Experts in public pensions suggest that the accounts have to be 80 percent funded in order to be viable over the long haul. Our accounts do not meet this benchmark. This is not a problem that occurred overnight, and we have known for years it needed to be addressed.  Historically, the general assembly and the governor have reduced the contribution below the suggested amount to fund other priorities. 

If the general assembly began funding the retirement accounts this year at the amount suggested by the VRS  Board of Trustees, we would reduce the unfunded liability to under $18 billion in the next decade and achieve the 80 percent funding level. This is exactly what Sen. Janet Howell (D-Reston) proposed last year in a constitutional amendment that passed the senate and died in the house of delegates. It seems only fair for the state to contribute the amount proposed by the VRE board, which is what we require local governments to do for local employees. However, we would have to shift hundreds of millions of dollars from other core services to VRS or find additional revenue.

There are changes with respect to benefits.  The multiplier is changed from 1.70 to 1.65 for members with less than five years of service as of Jan. 1, 2013, and benefits are based on the last five years of service rather than the last three years. The bill respecting state employees makes significant changes as well. All new employees will have a hybrid retirement system. Four percent of the employee’s contribution goes into a defined benefit plan and 1 percent goes into a defined contribution plan.

I [meaning Sen. Deeds, but Kaye Kory did the same in the house] did not support the retirement plan revisions for a number of reasons. I am concerned that we are imposing on local governments a mandate with an unknown cost.  I am also concerned that we are providing a disincentive for people to work in public service. It is important that we not only maintain trust with those people who are already vested in VRS (and these bills do not affect those people who are vested), but that we provide an incentive for highly qualified and talented people to come to work in public service.

The bottom line is that there were too many unanswered questions for me on all of these bills. I am committed to restoring the health of VRS, and the quickest way to do that is simply to pay into the system what the trustees propose. The problems we presently have with respect to the retirement system did not arise because of mistakes by local governments or their employees.  They arose because the general assembly and the governor, over the last number of years, have chosen to underfund it. I am convinced that we can find a better way to fix VRS.

Another major issue we have continued to ignore in recent years is transportation [Kaye Kory has discussed the governor’s proposed shift of general fund dollars into transportation in her last newsletter]. 

The governor’s plan for transportation also included a proposal to sell the naming rights of our highways, bridges, and tunnels. The house and senate came up with different approaches for transportation, and those proposals were reduced to a conference report representing the compromise between the two sides.

The house agreed primarily with the governor and also included language that assured the devolution of responsibility to local governments. This constitutes a major change in transportation funding in Virginia.  The senate took a different approach, rejecting the idea that we sell the naming rights of our public infrastructure and also rejecting the ideas that we shift general fund money from public schools, public health, and public safety to transportation.  Rather the senate, in a bipartisan manner, chose to index the gas tax which would have resulted in about two-tenths of a cent increase in the gas tax over the next year.  Both the house and the senate views on raising money for transportation were rejected by the conference report. 

I voted against the compromise because in the end it only does two things, neither of which I think are good ideas.

 First, the conference report requires an unprecedented interaction between localities and the Commonwealth Transportation Board with respect to local highway planning.  In my view, this sets the stage for the devolution of funding for highway maintenance to local governments. Few local governments have the ability to raise the money necessary to build or maintain highways.  In my view, this is a step toward a balkanized transportation system. 

Second, the conference report provision allows the selling of naming rights for bridges, tunnels and highways, which the governor’s office suggested could potentially generate $100 million a year.  I have not seen any evidence to suggest that sort of revenue can be raised by selling the naming rights to our highway infrastructure. In fact, I think the idea is demeaning. Traditionally, we have named bridges and tunnels for fallen police officers, Medal of Honor winners, or other military heroes.  We have named highways after local people or events of significance. In each case, the naming has historical or geographic significance. For these reasons, I voted no. 

As mentioned, we have not yet completed work on the budget.  It is increasingly common that the budget be late, but the situation is exacerbated this time because of the 20-20 split between Democrats and Republicans in the senate, with no provision for a tie-breaking vote by the president of the senate (i.e., the lieutenant governor). I would prefer to complete our business on time, but it is more important we get it right.