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Dangerous Trends and the Need for Action Presented by David R. Coates, Member Vermont Business Roundtable.

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Presentation on theme: "Dangerous Trends and the Need for Action Presented by David R. Coates, Member Vermont Business Roundtable."— Presentation transcript:

1 Dangerous Trends and the Need for Action Presented by David R. Coates, Member Vermont Business Roundtable

2 “Just the Messenger” 2

3 Outstanding General Obligation Debt 6/30/08$438,582,000 6/30/09 440,633,000 6/30/10 479,896,000 Debt Service Payments (Interest & Principal) 6/30/08$ 69,419,000 6/30/09 70,459,000 6/30/10 70,747,000 New Debt Authorization by Fiscal Year 2007 $ 45,000, ,200, ,650, ,960, ,825,000 3 Vermont’s Debt Picture Source: Office of Vermont State Treasurer

4 Net tax supported debt as percentage of gross state domestic product Vermont Highest % MA 7.98% % MA 8.32% Net tax supported debt per capita 2008$707CT $4, Net tax supported debt as percent of personal income % Hawaii 9.9% % % Net tax supported debt service as percent of revenues ActualGuideline % 6% % 6% % 6% 4 Other Debt Related Information

5 How is Vermont’s Debt Rated? FITCHAAA MOODY’SAAA S&PAA+ Highest in New England How is Vermont’s Debt Managed? Capital Debt Affordability Advisory Committee Guidelines of AAA Rated States Debt Per Capita Debt as a Percent of Personal Income Level Principal Payments (80% paid in 10 years) State Moral Obligation Indebtedness Improved rating lowers interest rate for other Vermont borrowers 5 Other Debt Related Information

6 (Largest Items) Information Systems150 M Health Laboratory 25 M State Hospital 80 M State Buildings, Parks and Colleges200 M State Correctional Expansion100 M Pollution Control / Drinking Water100 M TOTAL650 M + 6 Department of Buildings & Grounds (BGS) Estimated Capital Costs for Fiscal Years

7 Retirement Plans Three Major Plans —“State Employees” – Vermont State Retirement System (VSRS) —“Teachers” – State Teachers’ Retirement System (STRS) —Municipal Employees Retirement System (MERS) 7

8 State Employees6/30/096/30/08 Active Members8,0958,442 Covered Payroll$404,516,000$404,938,000 Average Wage$49,971$47,967 Employee Contribution3.35% *3.35% Teachers6/30/096/30/08 Active Members10,79910,685 Covered Payroll$561,588,000$535,807,000 Average Wage$52,004$50,146 Employee Contribution3.54%3.54% * Employees hired after 7/1/08 pay 5.1% 8 Pensions

9 9 Unfunded Liabilities as Determined by Actuary StateTeachers* Total 6/30/09$326.5 M$727.8 M$1,054.3 M 6/30/ M M M Increase$239.4 M$348.3 M$ M Annual Required Contributions (ARC) as Determined by Actuary StateTeachers* Total 6/30/10$39.7 M$60.6 M$100.3 M 6/30/ M 63.5 M M 6/30/ M 66.5 M M Percent Plans are Funded StateTeachers 6/30/ % 80.9% 6/30/ % 65.4% * Before impact of H 764 Pensions

10 Unfunded Liabilities as Determined by Actuary StateTeachersTotal 6/30/09$775.0 M$872.2 M$1,647.2 M 6/30/ M M 1,614.6 M Increase$ 24.0 M$ 8.6 M$ 32.6 M State and Teachers are on “pay as you go system” ARC 1 “Pay As You Go” Teachers:2011$62.1 M $19.9M M 38.3 M State:2011$61.0 M $28.0 M M 46.5 M 1 Annual Required Contributions as Determined by Actuary 10 Other Post Employment Benefits (OPEB)

11 11 StateTeachers Total Pension$ M$ M$1,054.3 M OPEB M M 1,647.2 M Totals 2009$1,101.5 M$1,600.0 M$2,701.5 M Totals 2008$ M$1,243.1 M$2,081.2 M Increase$ M$ M$ M 2009 Impact based on Benefits Already Earned (Rounded) Per Working Vermonter$ 4,000$ 5,000$ 9,000 Per Capita$ 2,000$ 3,000$ 5,000 Combined Unfunded Liabilities for Pension and OPEB

12 6/30/09Per Actuary ReportEstimated Impact Pension $727.8 M $679.3 M OPEB $872.2 M $829.1 M Annual Required Contribution (Pension) As of 6/30/09 Valuation $63.5 M Revised Per H M Savings for M Estimated Savings from 2011 – M OPEB ARC“Pay As You Go” As of 6/30/09 Valuation$ 62.1 M $19.9 Revised Per H M 19.9 Savings for M ~ Estimated Savings from 2011 – 2020$374.9 M $32.2 M 12 Impact of H 764 (Changes to Teachers Pension and OPEB)

13 Key Findings –  These costs are growing much faster than state revenues  State’s combined contribution for just pensions represented 5% of G.F. revenue in In 2011 it is projected to be 7%  The Joint Fiscal Committee’s pension growth target is 3½% per year  Investment returns will not get the state out of this problem  The state has not been able to prefund for OPEB  The Annual Required Contribution (ARC) has been increasing at an unsustainable pace, even before consideration of current economic events 13 Report of the Commission on the Design and Funding of Retirement and Retiree Health Benefit Plans for State Employees and Teachers (The Retirement Commission)

14  No change to persons already retired or person within 5 years of retirement  Do not replace defined benefit plan and transition to a defined contribution plan  Fully fund ARC for pensions  Implement a plan to fully fund OPEB obligations  Revise normal and early retirement dates  Raise normal retirement age to 65 from 62 (or rule of 90)  Raise early retirement age from 55 to 58  Lengthen salary compensation period – use 5 years instead of 3 years  Increase maximum benefit from 50% to 60% of final compensation Report of the Commission on the Design and Funding of Retirement and Retiree Health Benefit Plans for State Employees and Teachers (The Retirement Commission)  Revise contribution rate for employees beginning in fiscal year 2011  State workers – from 5.10% to 5.83% (Group F)  Teachers – from 3.40% to 5.47% (Group C)  Cap state share of annual pension contribution at 3.5% - share in anything over/under  Tiered medical premiums co-payment structure 40% - 10 years 60% - 20 years 80% - 30 years  Provide ability to “recapture” the retiree health benefit  Do not use pension obligation bonds to fund pension obligations Key Recommendations 14

15 Other Thoughts and Observations … 15


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