Senate Finance Committee chair Ann Cummings is a mixed bag. She’s not the most imaginative or energetic policymaker; she barely bothers to campaign and waltzes to re-election every two years. She’s one of the many veteran senators with a very well-developed sense of entitlement.
On the other hand, she knows her stuff. That’s nothing to sneeze at when it comes to issues as complex as taxes and state revenue.
But that didn’t seem to be the case during a Thursday committee hearing. Quite the opposite; she was shockingly uninformed on one of the biggest financial issues facing state government in 2021. I couldn’t believe it at first, but then she did it again.
The subject was S.59, a bill introduced by Sen. Cheryl Hooker and four other senators. The bill is an attempt to address the glaring shortfalls in the state teachers’ and public employees’ pension funds — an issue brought to the forefront by Treasurer Beth Pearce this year. After having defended the funds throughout her tenure, she started ringing the alarm bell on funding shortfalls and advocating substantial changes.
The Dem-dominated Legislature now faces a choice between finding a big new pot of money for the funds, and imposing pain on two of the party’s most important constituencies. S.59 opts for the former; it would add a 3% income tax surcharge on Vermonters with incomes of $500,000 or more, and devote the revenue to filling the hole in the pension funds. Sen. Ruth Hardy, a member of Senate Finance and an S.59 co-sponsor, presented an initial look at the bill. It didn’t go well.
Pearce’s pivot has been the unexpected policy story of 2021 (so far). She’s been making the rounds of relevant legislative committees, laying out the problems and presenting lawmakers with the unpleasant policy choice described in the previous paragraph. On February 4, she offered her pension testimony to Senate Finance.
One week later, Cummings made it clear she didn’t have a clue about Pearce’s position or the status of the pension plans.
After Hardy gave a brief introduction to the bill (it’s a short bill), Cummings spoke. “We have been fully funding retirement accounts since 2007,” she said. “We’ve been paying more than required. So I’m not sure if this is meant to pay down a shortfall.”
That’s a colossally ignorant statement from the Senator who (a) is in charge of tax issues and (b) just heard from Pearce a week earlier!
Let’s go over this. The state significantly underfunded the accounts from the early 90s through the mid-2000s. Finally the Legislature and Gov. Jim Douglas came to their senses, and since then, we have indeed been fully funding the pensions.
The problem, as Pearce had laid out before Senate Finance on the 4th, is that things have been going badly for the funds since 2007. They haven’t earned as much interest income as expected, and payouts have ballooned due to demographic changes. (Older workforce, more retirees, they’re living longer.)
There’s now a more than $1 billion shortfall in the state employees’ fund, and a nearly $2 billion shortfall in the teachers’ fund. Most of that has accrued since the 2007 come-to-Jesus moment. The “funded ratio” (difference between available funds and accrued obligations) for the employees’ pension plan has dropped from 94.1% in 2008 to $66.4% in 2020. For the teachers’ plan, the numbers are 80.9% in 2008 and an abysmal 51.3% in 2020.
And Cummings’ committee heard all of this on February 4. One week later, she had no idea that the pensions were on the rocks because, in her mind, all the problems were solved 14 years ago.
Later in the hearing, she doubled down. “We’re not moving anything until we get a handle on the pension issue,” she said. “We’ve been paying more than we’ve been assessed. No one seems to — we didn’t know what caused this problem.” (Italics mine.)
How the hell could she say that, one week after getting a full briefing from Pearce?
I don’t get it. And having a powerful chair in such a state of ignorance is not going to help the Legislature bring the problem under control.