David Coates: Vermont has a negative net worth

By David Coates

Just recently the state’s financial statements were published for the fiscal year ending June 30, 2018. For perhaps the first time in history, the state’s balance sheet shows a negative net worth of $200 million. In other words, our liabilities exceed our assets. By contrast, the fiscal year ending June 30, 2017, showed our net worth was a positive $1.3 billion. So the logical question would be, what happened to give us a variance to the tune of $1.5 billion?

Vote for Vermont/Pat McDonald

David Coates is a retired managing partner for KPMG.

The answer is really quite simple. The GASB (Government Accounting Standards Board) finally required that all unfunded liabilities (pensions and other post-retirement benefits) must be recorded on governmental financial statements. Pensions were required in prior years, but the big hit this year for Vermont was the OPEB, or commonly referred to as the retiree health care benefits for teachers and state workers. These newly recorded retiree health care benefits, which now total $2.2 billion, created the negative net worth as noted above. I have previously reported this was coming, so it shouldn’t be a complete shock for those who have been paying attention. Vermont is certainly not alone with a negative net worth. Several other states find themselves in a similar situation. But, Vermonters have always lived within their means, including balanced budgets, and somehow a negative net worth seems like a big step backwards.

Because the State is using a rate of return assumption of 7.5% on pension investments, which is not realistic given past results and current market conditions, I believe that our negative net worth of $200 million is really much larger. For 2018, S&P recorded a 6.2% decline and the Dow a decline of 5.6%. Over the last five years the actual rate of return for the pension investments was 6.3% and over ten years, 5.5%; nothing close to the assumed 7.5%. Per the Actuary, if the rate was 6.5%, it would add over $600 million to the State’s pension liability. When that happens, it will add an additional $30 million plus in required annual payments to the $205 million now due in 2020, as you will see noted below.

Another disappointment in 2018 was the forewarned loss of the State’s Triple A bond rating. One of the factors stated by Moody’s that could lead to such a downgrade was “substantial growth in debt or unfunded post-employment liabilities.” This loss means the State will pay more interest on new bonds issued, as will other organizations that rely on the State’s bond rating.

The negative net worth and the downgrade in our ratings could both have been avoided if we had taken corrective action several years ago to make structural changes to the State’s benefit plans. The Pension Commission (of which, I was one of nine members) in its 2009 report made several recommendations to improve the pensions. A key recommendation that was passed by the Commission would have required the plan participants to share in any annual costs that exceeded 3.5% (the then Legislative Joint Fiscal Committee provided the 3.5% as the annual benchmark for retirement and health care benefit increases). When the union contracts were negotiated, this recommendation was not included.

According to the PEW Foundation, there are 29 states that have some form of cost sharing or other mechanism with plan participants, but we aren’t one of them, and the State would be in much better shape if it had cost sharing.

The unfunded liability for pensions increased by $73 million this past year and now totals $2.3 billion. The State continues to fund pensions in accordance with actuarial recommendations, which increased from $66 million in 2008 to $205 million in 2020 and continues to place great stress on our revenues and other important programs.

However, the State is NOT funding the actuarial recommendations for the retiree healthcare plans, leaving a substantial shortfall every year. In 2020, this will be around $85 million and will continue to grow unless something is done. Obviously, it is not being paid because the State does not have the resources available without raising taxes.

Finally, since 2009 the State’s population has essentially remained the same, the total workforce has decreased by around 15,000, however, the number of retired and active participants in the pension plans has increased by 17%. One must ask why we are providing benefits that we cannot afford and are not paying. Instead, we just keep running up the tab for the next generation and the one after that.

David Coates is a retired managing partner for KPMG and current member of the Vermont Business Roundtable. Reprinted with permission from the Ethan Allen Institute Blog.

Image courtesy of Vote for Vermont/Pat McDonald

10 thoughts on “David Coates: Vermont has a negative net worth

    • Thanks for sharing, some great video testimonials from folks that now understand that the left represents hate. As I’ve said before I don’t have issues with liberals, I can have a rational discussion with them. I have issues with the “Left” It’s the left who is tearing what was once the great state of VT apart. Hopefully some day it will regain it’s former glory that I recall when I lived there decades ago.



  1. It’s no surprise. What do you expect from the people that are running this State. The middle class will take another hit and there will be more jobs lost as people exit this State for greener pastures and affordable living.

  2. Democrats doing what democrats do, turn everyplace they run into a bankrupt –hole (which is really why they hated Pres Trump using that word as it’s what they own)
    Burnee boy’s union pensions are going be the death of financial well being for a lot of states that have leftist culture running their states. It’s hardly a surprise to see it here when our leftarded government is hell bent to “lead the pack”.

  3. Vermont’s legacy of eugenics, infanticide and financial suicide. What has this state and its high profile reps done for anyone? Can anyone answer me that? Vermont Strong? Is that akin to Obama telling us we’re all going to feel the pain during the transformation? Maybe we should forget legalizing pot for revenue and just go straight to opiods? That way our future generations of drones, assuming anyone is left, can really feel the Bern and really enhance the states image! The goal of pacifying the plebeians will be achieved! We don’t need to worry about redistributing more of our income to the Montpelier cartel. Bernie’s a 2020 shoe-in and the first thing he’ll do in the oval is declare a national emergency, take control of the financial sector and assign every VT household its monthly stipend equal to $15/hr. No more work, no more worries, just Utopia!!

  4. “Legislators are elected by special interest groups feathering their nest at taxpayer expense. When more than 30% of Vermont GDP is represented by the fastest growing segment of its economy – nonprofit and governmental agencies – we find ourselves confronting a dysfunctional majority electorate that won’t repair the waste of its system until it runs out of other people’s money….or, in this case, until other people can no longer borrow the money to support them. Only when taxation becomes intolerable to those milking the cow, as they become the only ones left to feed it, will this cronyism stop.”


  5. Vermont has a negative net worth for the ” First Time” in history, the state’s balance sheet shows
    a negative net worth of $200 million. Along with that, it looses it Triple A Bond Rating !!

    Now that’s some outstanding work coming out of Montpelier, with all the Progressive DemocRATs
    in charge, be prepared for another financial bashing !!

    You Voted these fools in, how do you like them now ??

  6. We’re in Bigger Trouble Than Anyone is Willing to Talk About !

    This report by Mr. Coates paints a grim picture of the state’s financial condition – however, as with all “really big numbers” it is difficult to relate them to your personal part of the obligation.

    To bring this report home, let’s consider two additional numbers:
    1 – The total population of Vermont in 2019 is approximately 624,263 according to the U.S. Census (http://worldpopulationreview.com/states/vermont-population/2019)

    2 – The simple arithmetic that every one million dollars in debt, expenses, obligations, liabilities, assets, etc. represents an obligation of about $1.60 for each man, woman or child living in the state, whether they are a taxpayer or merely a inhabitant temporarily residing here ! Obviously, the obligation increases when those who are not financially responsible for covering the debt are excluded – thus, if the number of responsible citizen taxpayers is actually 325,000, the individual responsibility increases to $3.10 per taxpayer/citizen.

    Therefore, as you read through the report consider that your obligation is $3.10 for every million dollars mentioned. For example, the reports bottom line statement that the “unfunded liability for pensions (for state employees and teachers) now totals $2.3 billion” so your personal obligation is $3.10 X 2,300 (2,300,000,000/1,000,000) = $7,130., just for the pension obligations.

    Not discussed here is the real “kicker” – Vermont’s annual budget for 2020 will be $6.11B (https://spotlight.vermont.gov/state-budget) which is $18,941. per taxpayer for the one year – as the young folks “tweet” OMG !

    Of course, for the individual taxpayer there is an easy solution – MOVE OUT, and leave the rest of us holding the “bag” because expecting the State Legislature and Chief Executive to figure out this monumental problem – is simply EXPECTING TOO MUCH !

    • As usual Mr. Paige come to the only logical conclusion. The same one I came to 3 years ago. The writing has been on the wall for years folks. You either take charge or you and your family are going to be left holding the bag of….

      “Of course, for the individual taxpayer there is an easy solution – MOVE OUT, and leave the rest of us holding the “bag” because expecting the State Legislature and Chief Executive to figure out this monumental problem – is simply EXPECTING TOO MUCH !

    • Vermont is the figurehead on the bow of the Titanic. We as Americans can still choose where we want to live and many of us have made that choice. I have many friends still in Vermont who would leave but, for family or financial reasons cannot. While Vermont is a beautiful state, the liberal/progressive/socialists who completely control the state government, and all of the non-profits and NGOs that have come into existence in the last twenty years, have made it impossible to live there. The political climate in Vermont has gone WAY too far to the left. If you think things are bad now, wait until the Democrats control the Whitehouse and both chamber of congress. Baring the Second Coming of Christ or an extraterrestrial invasion, we are on a path to violent conflict the likes of which have not been seen since the mid nineteenth century. Our nation has become more divided in the last two years than in the last two decades, and it’s only going to get worse.

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