The path to a deal on public-sector pension reform is narrowing.
After months of throat-clearing, a task force responsible for pitching a set of reforms to pay down the system’s debts finally took a look Wednesday at an initial set of possible scenarios.
After a meandering post-lunch discussion, Rep. Sarah Copeland Hanzas, D-Bradford, the panel’s co-chair, cut in.
“The clock is ticking,” she told fellow committee members. It was time to break into groups and figure out what additional possibilities they might like the state’s number-crunchers to cost out, she said.
Leona Watt, a representative from the Vermont State Employees Association, asked a clarifying — but pointed — question. Should these scenarios include one-time and recurring revenues from the state or only adjustments on the employee side?
“In my political analysis, it is not realistic for us to expect that, with a Republican governor, we would ever come to a solution on the pension problem that involves raising new taxes right now,” Copeland Hanzas replied.
Andrew Emrich, a representative from the Vermont-National Education Association, jumped in.
“I’m very confused about that,” he said.
The legislation that created the task force they were sitting on, Emrich said, talked explicitly about examining “permanent and temporary revenue streams” to fund the state employees and teachers pensions.
“I’m confused where we wouldn’t take that into consideration?” he asked.
“What I hear you asking for is for there to be a new tax raised in order to fix an unsustainable pension system,” Copeland Hanzas countered. “And what I’m saying is, we don’t have a political reality that would allow us to raise new taxes.”
The tense exchange illustrated the key rift animating the panel. Unions representing educators and state employees have been clear that they believe any pension reform must include a recurring, dedicated revenue source — such as a wealth tax — for paying down the system’s unfunded liabilities. But lawmakers on the panel have committed only to ponying up a one-time lump sum — if workers agree to cuts.
In an interview after, Copeland Hanzas faulted employee groups, and particularly the teachers, for not offering greater concessions. And while she did not unequivocally shut the door on dedicated revenues, she reiterated a lack of appetite for them.
“I’m not willing to pledge that I think that has to be part of the solution,” she said.
Sen. Jeanette White, D-Windham, the panel’s co-chair, added that she could see the state committing to some form of additional, ongoing support. But she said she did not like the idea of saying where exactly this money should come from.
“I’m uncomfortable about saying where a dedicated revenue source could be because there are so many pressures on everybody,” she said.
Between the four funds that pay pension and health care benefits for retired state employees and educators, Vermont has a $5 billion debt it must pay between now and 2038. The state is already on a payment plan to do so, but the bill grows each year and already consumes more than 10% of the state’s general fund.
A 2020 analysis lowered the pension system’s assumed rate of return and found that the state would need to find an additional $600 million to cover the system’s obligations. That precipitated a proposal by State Treasurer Beth Pearce, at the start of 2021, for deep cuts in benefits and for contribution hikes to make up the shortfall.
House lawmakers last session then proposed a plan similar to Pearce’s but quickly shelved it in the face of blowback.
Pearce has since endorsed a strategy similar to what the unions are asking for. She told lawmakers in late summer that dedicated revenues and one-time funding, in concert with benefit changes, was the best way to pay down the system’s debts.
But officials in Gov. Phil Scott’s office have indicated that something like a wealth tax is a nonstarter. And top Democrats have shown little interest in pressing the matter.
Unions, meanwhile, say their position has not changed.
“We’ve been extraordinarily clear what any pension solution must have. It must have significant one-time money, given that the state is awash in surpluses and federal dollars, and it requires a dedicated revenue source,” said Darren Allen, a spokesperson for the Vermont-NEA. “And it must not have substantive changes to the actual benefit.”
Steve Howard, executive director for the Vermont State Employees Association, said the union was willing to consider things such as higher employee contributions, but it wants lawmakers to identify a long-term source of additional funding as well.
“Our response wasn’t, ‘Well, we just want revenues. Nope. No other changes.’ Our response was, ‘OK, we’ll work with you.’ So I was really disturbed when I heard those comments that dedicated revenues couldn’t possibly be considered because that would be too hard,” Howard said.
The unions point to estimates that Vermont’s wealthy residents are saving about $500 million a year thanks to the Trump tax cuts of 2017 and say they can well afford a tax surcharge. But Howard said the VSEA would accept alternatives, including marijuana revenues or sports betting fees.
“We’ve supported (a wealth tax) because it’s the fairest thing to do, and it’s the most popular with Vermonters. But if they don’t want to do the fairest thing, the thing that’s the most popular — fine. Find some other ways to do it,” Howard said.
Technically, the task force is supposed to submit its final report by Thursday, but lawmakers routinely blow past such statutory deadlines. Still, with holidays clogging the calendar in December, and the Legislature reconvening in a month, there remains little time to hash out a deal.
As a carrot in negotiations, lawmakers had set aside $150 million in one-time funds last year to put toward the state’s obligations once a reform was agreed to. But if the parties are not able to come to agreement, Copeland Hanzas said, that money might be used elsewhere.
“150 million goes back to the appropriations committees, and they figure out what the priorities are,” she said.