MONTPELIER — The pension fund crisis estimated at about $4.5 billion in unfunded liabilities has worked its way into the budget talks currently playing out at the state capital.
With lines being drawn over the proposed $5.86 billion budget, lawmakers have suggested using $34 million in surplus funds to pay down the unfunded pension liabilities. Gov. Phil Scott, however, would rather the money go to easing the tax rate this year.
Scott says his five-year economic plan that focuses on changes to education policy can bring $475 million in savings over that period. Proponents of spending $34 million on pension fund debt say they can save $100 million in interest over the long-term.
Looking to make good on his pledge of no new taxes or fees, Scott dug in his heels at a news conference Wednesday.
“By the way, that $100 million in savings they keep talking about won’t materialize until the year 2038,” he said.
“We can still do that if they’d like, but it doesn’t have to come at the expense of the nearly $200 million in property tax relief and the nearly $300 million in savings we can reinvest in our kids — both of which our analysts believe can be achieved in five years, not in 20 like the legislature’s proposal.”
Scott said his five-year plan will pay down both the pension funds and the tax rate.
“I’m saying you can use the savings if you move forward with the plan that we have,” he said. “There will be savings along the way, and we believe that $475 million is the plan if initiated today. You can utilize some of that to put back into teacher retirement if you want.”
Scott said while he’d prefer to invest those savings into early care and technical education investments, he’s open to compromise.
David Coates, a retired managing partner at KPMG, has been sounding the alarm on the looming pension fund crisis for years. He says unless steps are taken to stop signing new teachers onto the current pension plans, there is little hope that clever budgeting is going to make a difference.
“Unless you put some parameters around it, it’s like throwing it into a black hole,” he said. “I think the only way that we’re going to be sure that we’re going to be able to handle this is if we stop new workers from going into it. Bring them back to a plan that is reasonable, like all other Vermonters get.”
Coates added that the total liabilities in the state pension fund may be worse than what’s been reported, and that the $34 million that the governor and lawmakers are arguing about isn’t likely to make a big difference — meaning the money might have better use elsewhere.
“We have to face reality in the state of Vermont, and the only way we are going to face reality is to start making some changes — not impact anybody in the system now, but future people have got to get back to a realistic plan,” he said.
He blames the Vermont National Education Association for resisting changes to the pension, but he praised state Treasurer Beth Pearce for her oversight.
“The treasure has done a sterling job managing a lot of pieces and she’s made some great changes,” he said. “Otherwise we would have another billion dollars we would owe if she hadn’t made the changes. However, nobody can dispute the fact that this is unsustainable and we can’t afford it.”
Tom Golonka, chair of the Vermont Pension Investment Committee, told True North he’s happy to see any effort taken in Montpelier to address the pension funds. He added that his committee doesn’t take political positions as far as which policies are chosen.