There is a predictable rush to spend the $1.3 billion the state is set to receive in stimulus money from the federal government. Even in good times the money available doesn’t match the size of the requests. As we inch our way toward the end of the pandemic, and continue to tally the trail of the virus’s economic damage, the push is on for everyone to get as much as they can as soon as they can.
To avoid making mistakes we will later regret, it would be smart to put the money in a box [a big one] with a message on top that said: “Do not open for a year.”
The reason? That much money can’t be spent wisely if it is spent quickly.
Gov. Phil Scott has also noted that none of the money should be spent on ongoing programs. It’s one time money. Spend accordingly.
Which gets us to the issue of the state’s massively underfunded pensions for teachers and state employees. The stimulus bill passed by Congress and signed into law by President Biden stipulates that the stimulus money could not be spent on public pension liabilities. But legislators are considering a “sleight of hand” maneuver to get around the restriction. The thought is to prefund the pension with money freed up within the existing state budget and then replace the budget money with the money from the stimulus fund.
In January, before the stimulus package was approved, State Treasurer Beth Pearce announced that the unfunded liability of the state’s pensions had increased in a single year by $604 million dollars. That would require the state to pay $96 million more each year in servicing costs. That means the annual required payment to fund the pensions would soar to $300 million. Which means we’d have $100 million less to spend on budget items than we had last year, assuming the same level of revenue. Ms. Pearce said the state had no alternative but to ask public employees to pay more and to get less. [This did not apply to those already in retirement.] She recommended cost of living reductions for future retirees, increasing contributions levels from teacher and state employee contributions, and changing the way we calculate benefits and the waiting times for pensioners to draw benefits.
Ms. Pearce said if her proposals were accepted that it would reduce unfunded liabilities by $600 million and cut the required annual payment by $97 million. The changes would reduce the health care portion of the liabilities by $1.5 billion. She recognized her recommendations were “extraordinarily painful” but unavoidable.
If the Legislature were to forego Ms Pearce’s recommendations and use the swapped out stimulus money in its place, keeping the public employees whole and today’s system intact, no changes, then not only would we be violating the spirit of the “American Rescue Plan” we would be derailing any progress on reducing the roughly $5.6 billion we owe in unfunded liabilities.
We’d be right back where we were, except we’d be poorer any stimulus money that was spent. We would be on a course whereby the gap between assets and future costs would eventually become unbridgeable.
It’s an issue that has to be dealt with this legislative session and it’s anything but easy in the political sense. The union representing state employees and teachers is a force to be reckoned with and it’s a given the union opposes Ms. Pearce’s recommendation. The $1.3 billion stimulus bill gives them the chance to try to shift the Legislature’s attention from the pain of Ms. Pearce’s recommendation to the promise of easy stimulus money.
It will take some political courage for the Legislature’s leadership to stay the course. And they should not have to do so without Gov. Phil Scott’s backing. Mr. Scott should back Ms. Pearce’s recommendations and reject any move by the Legislature to swap out budget funds for stimulus money. There is no issue before our legislators that carries a greater sense of urgency or one, properly addressed, that will give Vermonters hope that the stimulus money will be spent with the future in mind and not spent for short-term political gain.
by Emerson Lynn