Virginia Gov. Bob McDonnell’s proposal to pump $2.2 billion into the depleted Virginia Retirement System was warmly received by state employees Thursday, but critics fear the move would place an additional burden on cash-strapped localities already struggling with their own fiscal woes.
Mr. McDonnell announced that his proposed budget, scheduled to be formally introduced Monday, will include $2.2 billion in employer contributions for state employee and teacher funds — the largest such figure in history.
“I do not intend to pass this problem on to another administration,” Mr. McDonnell, a Republican, told state employees at a town-hall meeting Thursday.
Between the state employee and teacher funds, the state would contribute $876 million in general fund monies in Mr. McDonnell’s biennial budget. The rest would come from non-general funds, which do not come from taxes earmarked for a specific purpose, and local governments.
“Obviously, the first step in getting the unfunded liabilities under control is to begin to fund it systematically, and that’s what we’re doing here,” Secretary of Finance Richard “Ric” Brown said on a conference call Thursday.
A report released this week by the General Assembly’s investigative arm showed that the unfunded liabilities in Virginia’s retirement funds have swelled from $11.8 billion to $19.9 billion over the past two years.
R. Ronald Jordan, executive director of the Virginia Governmental Employees Association, lauded the move.
“The governor has demonstrated what needs to be done,” he said. “Local governments may have a different slant, but I know for state employees, this is something that we’re very supportive of.”
Local governments would cover about $1 billion of the $1.6 billion recommended for the teacher pension fund, the cost of which is shared with the state. Employer contributions for state workers come entirely from the state and would total nearly $600 million.
Dean Lynch, deputy executive director of the Virginia Association of Counties, applauded the governor for trying to stabilize teacher retirement funds but warned that cash-strapped localities would feel the pinch.
“It’s going to be hard to meet the bar, I guess, but if this passes, we will have to,” Mr. Lynch said. “I’m very cautious on the increased state funding for the teacher retirement. I hope this new level of increased funding is not coming out of other core services. It’s something that we’ll be looking at.”
Mr. Brown, though, disputed the notion that requiring pension contributions from local governments amounted to an unfunded mandate on localities, since teachers are considered local employees.
“At the end of the day, these are local teachers,” he said. “It is a statewide local retirement plan for them, and we’re paying our fair share of it. We are paying the full rate, and localities will pay their share of the rate.”
Mr. McDonnell has proposed and enacted significant changes to the state retirement system in recent years, including legislation this year that had all employees pay into the pension system for the first time in nearly two decades. Employees hired before July 1, 2010, received a 5 percent salary increase to help offset the contribution.
The governor hinted Thursday that more legislative proposals could be coming in the next several weeks.
Mr. McDonnell’s budget also will include an incentive program that would grant state employees a 3 percent bonus next December if the state finds an estimated $160 million in savings, or twice the cost of the bonus, at the end of the fiscal year on June 30. The employees would have to meet certain criteria on their performance evaluations.
Mr. McDonnell, citing other priorities in the budget, such as K-12 and higher education, as well as the lingering uncertainty in the global and U.S. economies, said he thought another performance bonus was more prudent than full-on pay increases. A similar bonus was given out in 2010.
“Even in tough budget times, you always have to think about the future,” he told employees. “I wish I could sit here and tell you I’m going to give you a 5 percent pay raise.”
• David Sherfinski can be reached at dsherfinski@washingtontimes.com.
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