For years now, State Treasurer Beth Pearce has served the state of Vermont well.
In fact, the Democrat has been the voice of reason for a lot of decisions that have been made — or, perhaps more importantly, not made.
While she understands how politics are played, it is hard to point to Pearce and say, “She is a Democrat.” It is far easier to point to her record and say, “She is fiscally responsible.”
Because she is.
Across her terms as treasurer, she has weathered some serious downturns in our economy. But under Democrat Peter Shumlin and Republican Phil Scott, Pearce has wagged her finger at ideas that would have hurt the state’s overall bond rating — in other words, our ability to borrow and invest.
For years now, Vermont has had among the highest bond ratings of any state. And that is attributable to her dogged pursuit to responsible management.
And while she has issued warnings before about what should (and should not) be done through that lens of fiscal policy, she has steered away from certain third rails seem to vaporize in an explosion of “back off” from charged sides.
Pearce steered her office right into one of these rails last week, and has set off a fierce conversation about how to keep the state’s pension fund solvent.
In a report to lawmakers, Pearce said the state will need to make “extraordinarily painful” cuts to retirement benefits for teachers and state employees to be sustainable.
“Pension” in Vermont vernacular is a sacred cow. Until now.
Here’s what is at stake:
A number of factors have conspired to increase the so-called “unfunded liability” in the pension system — the gap between assets in the fund, and the cost of meeting pension obligations in the future, she said. She urged the board that oversees public pensions in Vermont to close that gap by reducing or eliminating cost-of-living adjustments for future retirees.
“Unfortunately, there is really no other particular element of the pension plans that would get you to significant decreases (except the) issue of cost-of-living increases for employees in retirement,” Pearce stated.
The unfunded liability demands have to come from somewhere, and the can keeps getting kicked down the road. But Pearce’s report says “enough” and warns that without some kind of review and adjustments, the bankrolling is going to roll us into a fiscal nightmare — one that we can’t afford to be in, especially facing economic recovery as a result of the pandemic, which has decimated many of our business sectors and Main Streets.
Pearce said increased pension costs and lower fund returns have increased the unfunded liability across the pension system by more than $600 million. And she said in order for the state to eliminate that unfunded liability without making any changes to pension benefits, lawmakers would have to appropriate an additional $96 million annually to the pension fund, which Vermont can’t afford.
Pearce said the recommendation would not affect the more than 17,000 retirees currently drawing down pension benefits. Her recommendations would result in significant reductions in future cost-of-living adjustments for the approximately 8,500 employees working for the state of Vermont right now. And it would eliminate cost-of-living adjustments entirely for nearly 10,000 public school teachers when they become eligible for retirement benefits.
That has outraged workers and the workers’ union — both of which have significant sway over lawmakers in Vermont.
Dan Tinney, president of Vermont-NEA, was quoted on Vermont Public Radio saying: “We think that would be unfair to our teachers, who have held up their end of the bargain and paid every single dollar that they’ve been asked to pay. … That (cost-of-living-adjustment) has been part of the bargain — that as they retire, they know their pensions would keep up with the rate of inflation. So we don’t believe this adjustment should be made on the backs of teachers, who have devoted their entire lives to the service of the children of Vermont.”
Tinney said the union is choosing a different solution: encourage lawmakers to close the unfunded liability by increasing taxes on Vermont’s highest-income households.
One way or another, this issue is about to come home to roost. And while there are options on how we get there, we are grateful Pearce took the bold move to call it out.
The state ran out of road. The can cannot be kicked another time.
Go to bit.ly/pension0123 to find the full report.