Gov. Bob McDonnell vowed Thursday to make the largest contribution to the public employee pension fund in Virginia history and the net result could be higher local property taxes.
McDonnell’s announcement follows on the heels of a state audit showing that the Virginia Retirement System is $20 billion short of what it needed to pay benefits, including $8 billion lost in the past two years alone. It comes just days before McDonnell presents his first two-year state budget Monday.
McDonnell plans to recommend that state and local governments pump a total of $2.2 billion into the retirement fund for teachers and state workers over the next two years. The generous contribution won’t begin to cover the shortfall, however. McDonnell is hoping only that it would “put the brakes on any further skid and begin to make the system turn around,” Finance Secretary Ric Brown said Thursday.
The $2.2 billion payment — $1.6 billion for teachers and $600 million for state workers — fully funds pension obligations through fiscal year 2014. About $1 billion of the contribution for teachers would come from localities, who help pay teacher retirement benefits. That’s twice as much as they will pay in the current budget.
Communities already struggling with tight budgets and less state aid are running out of options to cover the retirement expenses, said Mary Jo Fields, research director for the Virginia Municipal League, and property tax increases “could be on the table.”
“It’s a hefty price tag and it wouldn’t be as high if the General Assembly and governors had been funding it at [full] levels all along that it should have been,” Fields said.
Since 1992, the state failed to meet its obligations to the pension system in all but four years for public employees and twice for teachers. In 2010, the General Assembly at McDonnell’s behest chose to defer $620 million in pension contributions over the next 10 years.
A pension system is considered healthy if it’s 80 percent funded, as Virginia’s was in 2009. Since then, it has dropped below 70 percent and is still falling. There is bipartisan agreement that it’s a problem.
“I think it’s probably a pretty good idea [to fully fund pensions],” said Sen. Chuck Colgan, D-Prince William, who chairs the powerful Senate Finance Committee. “We’ve got to do something. Maybe it’s time we’ve had to have this action.”
