Editor’s note: This commentary is by Rep. Linda Joy Sullivan, of Dorset, a Democrat who represents the Bennington-Rutland District in the Vermont House of Representatives and is a member of the House Committee on Corrections and Institutions.
Three years ago I wrote that we as a state were, with respect to our health care system, joined at the hip with what had become an “unreliable partner” in the federal government. Given the events of the last several weeks, I can’t but feel, “Here we go again.”
As the clouds surrounding our daily lives start to lift and we get “back to business” over the coming weeks and months, we ought to assume that we as a state are going to have to bear a huge load in righting our little ship – there’s just no sense in counting on a generous federal bailout. Vermont, as we know, can little afford deficit spending. We don’t have the industrial tax base to support it; our real estate tax base is stretched to capacity; we can only tax wage earners, retirees and second home buyers so much.
Accordingly, our work to anticipate shortfalls and spending needs, and to protect important public investments, must start right now. We can’t just sit by and wait to see how bad it is going to be and deal with it in next year’s budget. This looming once-in-a-century fiscal crisis is going to require hard once-in-a-century fiscal choices this summer.
There are at least three things we should be doing in the coming months.
First: revisiting historic spending decisions. Our budgets get “built” every year by using the previous year’s budget as a baseline — individual spending programs get increased, reduced or left alone. They rarely get eliminated. Much of our budget for this year was already constructed before legislators were sent home. We need to start over. If, as our speaker promises, we will be kept in session until September or longer, we should make reworking our budget priority one. And, as the magnitude of anticipated negative impacts won’t be known by the fall, we should aggressively put in reserve monies we ordinarily would be allocating for nonessential spending – indeed, the situation is dire enough that we ought to be taking the position that no discretionary spend is beyond reconsideration, even if it’s only in the form of a one-time, one-year reduction or suspension.
Second: realistically forecasting and planning around the coming deficits. Plainly tax revenues will have by this autumn taken a major hit while unanticipated spending will have gone through the roof. We just can’t toss this on the backs of taxpayers, businesses and the education fund (which has become increasingly relied on to cover spending pressures). There is a screaming need here for collaboration between the Legislature and the administration – we need to forget that this is an election year, set aside political jockeying and roll up our sleeves together right now to make accurate projections and to circle partisan-free strategies to deal with our coming deficits.
Third: embracing pension reform. If ever there were a time to be worried about our teacher and state employee pension and health care funds, it is now. If as is expected we fail to develop a vaccine and face a recurrence of the virus and economic slowdowns in the fall, we’re looking at a potentially devastating impact on the stock market. We already own one of the country’s top 10 worst performing pension funds. Further market declines will only serve to deplete the value of Vermont’s public investment funds.
Very early in our 2020 legislative session, three distinguished financial experts, supported by impressive charts and a well-presented “white paper,” appeared at the Statehouse and argued to a scant group of attendees (including but a single legislator) that we in Montpelier must stop kicking this can down the road. They urged instead that we must address the fact that our 35,000 active and retired teachers and state employees have spent years in public service on the promise of pension and retiree health care benefits that will require payments from all of us of at least $4.7 billion — supported today by a minuscule “pension fund” comprised of assets that, even assuming years of healthy market growth, will never remotely be adequate to satisfy that debt.
We cannot in the short term make a significant dent in the huge unfunded pension liability hole. It will take years of work — but there are contributing factors that we can today begin to remedy with hardly any effort at all: a lack of accountability and a system where conflicts of interest have oversized influence.
By accountability, I don’t mean politically embarrassing finger-pointing over decisions that were made in Montpelier years ago. Rather, I am referring to the need to create a reporting system that will make clear to all that the people are watching and that a failure by elected officials to protect these plans will have consequences at the ballot box. We need to act on the legislative initiative now pending before the General Assembly to create a much needed financial “stress test” system that would create true accountability around how we’re managing the public retirement and health plans.
As for conflicts, Vermont state employee pension and health benefits boards are populated in significant part by teachers and employees — while it’s of course appropriate to give beneficiaries meaningful input over administration of these plans, protecting the retirements and health care of our public employees is the imperative. We can’t afford to fail here. Inside board members cannot be expected to have the discipline of financial professionals trained to fashion the hard remedies that poor financial results require. In addition, year after year our plans have failed to meet wholly unrealistic investment earnings projections that have helped keep member and public contribution levels low and benefits high — all at the cost of increasing the gap between what we owe and what funds we will have on hand to pay our debt. Further, prudent professional fiduciaries may suggest movement away from defined benefit plans for new employees or even unpopular changes in contribution levels. All options should be explored objectively – now more than ever we need experienced, disinterested navigators at the helm.
