State's $20B Pension Debt Left Out of Fiscal Talks

By Bill McMorris, Virginia Statehouse News Monday, November 21, 2011

Lawmakers from across Virginia spent two days taking an intensive look at the state’s fiscal house, but left one $20 billion issue untouched — the state’s pension debt.

A report by policy analysts at the Senate Finance Committee titled “Funding of the Virginia Retirement System,” or VRS, was buried at the bottom of handouts delivered at the committee’s Fall Retreat.

It also was the only report left undelivered to the hundreds of policymakers, politicians and interest groups at the conference Thursday and Friday.

Committee Chairman Sen. Charles Colgan, D-Manassas, was in charge of setting the conference’s agenda. He said the Finance Committee sent several reform proposals to be analyzed by the Joint Legislative Audit and Review Commission, or JLARC, a bipartisan body that conducts long-term studies into issues before the General Assembly. JLARC also oversees VRS.

“JLARC is doing a study, and we’re not going to take any action until we get that report,” Colgan said. “We sent the whole (pension) package to JLARC, so they could give us a good compromise.”

JLARC is expected to finish its study on Dec. 1.

One newly elected lawmaker said such a report would help lawmakers prepare for the 2012 session, which begins Jan. 11.

“Until we see what the situation was during the session, it’s difficult to commit to anything,” said state Sen. Dick Black, the Loudoun County Republican elected this month in a close race against Democrat Shawn Mitchell.

The report contained a sobering analysis of the pension fund. The state has more than $50 billion sitting in its portfolio. But that is $19.9 billion short of meeting the state’s obligations to the 600,000 government workers and retirees, a $2 billion increase from 2010.

Despite the increased debt, Colgan said the problem is a long-term concern.

“The retirement system is in good shape, the last we checked (the fund) was at about $52 billion, which is not too weak,” he said.

Some of the committee’s experts disagreed.

VRS “is clearly one of your biggest cost drivers for the next biennium,” said Beckey Covey, a legislative analyst for the Senate Finance Committee.

After a year of steady investment gains in 2010 and 2011, market turmoil during the debt ceiling debate in July and August resulted in $3 billion in losses. The fund is about 70 percent funded, according to the report, a drastic drop from the 106.8 percent funding ratio the state reached in 2001.
VRS also owes its weakened state to lawmakers.

The General Assembly has failed to contribute its share to the pension fund for more than a decade. In 2010, Gov. Bob McDonnell deferred a $650 million payment to balance the state budget; he claimed a budget surplus for the year.

Covey said the General Assembly could no longer afford such practices.

“We have not paid the board-approved rate and that has come back to hurt us,” she said.