Future employees will be expected to put more miles on state tires.
Words/Photo by:Katy Burnell
Incoming Governor Bob McDonnell took issue with his predecessor’s plans to tackle the Commonwealth’s staggering budget deficit. So he took matters into his own hands. The result: ending car tax relief and unfreezing composite index funding for education, thereby creating a $2 billion hole in the existing budget.
Sometimes, a man has to take a stand.
Unfortunately, this stand necessitates legislation to fill the new gap in the Commonwealth’s 2010-2012 budget. Of course, some non-essential programs may have to go; the Commonwealth’s version of SCHIP (FAMIS), some subsidized health care costs for Medicaid patients, and a $730 million reduction in state education funds are all potential casualties of the suggested changes to former Gov. Kaine’s budget.
The unintended consequences of Gov. McDonnell’s adjustments may be eclipsed in the long run by the aftermath of House Bill 1189, a piece of legislation that expert analyst Michael Cassidy, the executive director of Richmond-based think tank, The Commonwealth Institute, is watching very carefully.
In an e-mail interview, Cassidy said that the General Assembly’s proposal to mortgage the state retirement system will help balance the budget in the short run, but lawmakers are bracing for the long-term impact of the debt that Virginia will incur by introducing legislation to decrease retirement benefits and increase service requirements for new employees by up to ten years.
“They are saying more or less, ‘We know we are sort of underfunding for a couple years, but we’ll make that up eventually and oh by the way, we are also reforming our overall system so our long-term liabilities won’t grow as much given that we will be less generous in our pension for our new hires’”, Cassidy said.
Gov. McDonnell, the House, and the Senate are backing moves to slash State contributions to retired employees hired beginning July 1, 2010 from 10 percent of salary to either 5 percent or 4 percent of salary. Certain employees, such as state police, law officers and judicial retirees will not fall under the new formula. State employees will also see a hike in eligibility requirements. The old formula entitled employees to full retirement benefits when they turned 50 if they had 30 years of service. The new requirements raise the sum of age and eligible years of service to 90.
Cassidy explained that the legislators’ calculated tweaking of the retirement system is part of a grander strategy.
“It does not get the state any near-term savings, but it serves as a signal to the bond rating agencies that the state is not be foolish in its management of its retirement liabilities,” Cassidy said. “Like most states, Virginia often worships at the alter of the bond rating agencies”, Cassidy continued.
The General Assembly’s support for mortgaging the VRS would save lawmakers from targeting an additional $500 – $800 million more in budget cuts, by Cassidy’s estimation.
According to an analysis of the 2010-2012 budget conducted by Cassidy’s think tank, the Commonwealth Institute, budget cuts fall short of even beginning to address the complex issues that Virginia faces in the current economic climate. The report illustrates the importance of smart, targeted spending as an antidote for the ailing economy.
