Category Archives: Government workers and pensions

Northam Asserts “Systemic Inequity” Exists in State Government, but Doesn’t Say Where

Janice Underwood (foreground). Photo credit; Washington Post

by James A. Bacon

Governor Ralph Northam has appointed Virginia’s first director of diversity, equity and inclusion.

In the new “senior-level position,” Janice Underwood, former director of diversity initiatives at Old Dominion University, will develop a “sustainable framework to promote inclusive practices across Virginia state government,” stated a press release from the governor’s office. As part of that job, she will implement a “measurable, strategic plan” to address systemic inequities in state government practices, and turn feedback from state employees, external stakeholders and community leaders into “concrete equity policy.”

Well, this  is quite the indictment of Virginia state government, including the tenure of Northam’s four gubernatorial predecessors, three of whom were fellow Democrats: Terry McAuliffe, who is rumored to be pondering running again for the governorship, as well as Virginia’s two U.S. Senators Mark Warner and Tim Kaine. Who knew that Democrats allowed inequities to persist so long?

Remarkably, Northam, who has vowed since his blackface controversy to dedicate himself to racial equity, provided no details regarding what “systemic inequities” exist in state government. The inequities must be pretty grievous if they are to be described as “systemic.” But he leaves citizens hanging as to what they might be. Remarkably, the Washington Post and Richmond Times-Dispatch, which normally are hyper-alert to evidence of racial injustice, neglected to inquire what Northam might have been referring to. (The Daily Press covered the story, too, but I could not get past the firewall.) What, oh, what could the governor mean? Continue reading

Bacon Bits: Black Diamonds, Tarnished Silver, Wilting Green

Free falling. As coal production declines, the economy of far Southwest Virginia is in free fall, with potentially dire fiscal consequences for local governments. “A sharp decline in coal production jeopardizes the fiscal health of local governments, degrading their capabilities to provide adequate public services and issue and serve debt,” finds a report by Columbia University’s Center on Global Energy Policy and the Brookings Institution. Between 2007 and 2017, Virginia coal production fell by 50% from 24.9 million short tons to 12.8 million. The study identifies Dickenson and Buchanan counties as the fifth and sixth most mining-dependent localities in the nation, with 17% and 16% respectively of the labor force engaged in the industry in 2015. The Virginia Mercury has the story here.

Tarnished silver. Phase One of the Washington Metro’s Silver Line to Tysons ran $220 million over budget and was completed six months later. Now Phase Two of the $5.8 billion project funded largely by commuters on the Dulles Toll Road, reports the Washington Post, is running late. The project, expected to be wrapped up next month, may not be completed until next spring or summer. The construction project has been plagued by cracks in concrete structures, defective rail ties, and faulty dimensions for a rail-yard platform. It is not clear yet if the problems will exceed the project’s $550 million contingency fund.

Why do today what you can put off until tomorrow? Bacon’s Rebellion has made much of Virginia’s $5.8 billion in unfunded pension liabilities. Now a new study, “The Sustainability of State and Local Government Pensions: A Public Finance Approach,” says there’s no reason for Virginia or any other state to panic. After “reverse engineering” future benefit cash flows of the pension plans, the authors find that pension benefit payments in the U.S., as a share of the economy, are currently at their peak level and will remain there for the next two decades. Thereafter, the reforms instituted by many plans will gradually cause benefit cash flows to decline significantly.”  Continue reading

VRS Hybrid Plan Drawing Even Fewer Contributions

Virginia Retirement System overall investment returns, all funds. Source: JLARC

The percentage of state employees making voluntary contributions to their own retirement pot, contributions which are matched with free money, has continued its rapid decline over the past year.  As of March 2019, fewer than half of state employees who should be investing in their own retirement are doing so, according to a Virginia Retirement System update Monday.

A year earlier, according to the comparable report given the Joint Legislative Audit and Review Commission and reported on Bacon’s Rebellion, 58 percent were contributing something and drawing in matching funds.  A year before that it was 79 percent.  Just how much money the 52 percent adding nothing this past year failed to invest, and how many matching dollars were therefore not captured, is not in the report.  Continue reading

Dumping, Again, on the Lowest-Paid Folks

A recent article in the Washington Post highlights an issue I alluded to in my recent post on government outsourcing  functions.  To summarize:  The Alexandria school superintendent’s budget proposal called for eliminating 30 custodian positions and outsourcing the jobs to a private company.  (The system already contracts with private companies for custodial services in many schools.  This proposal would have completed the outsourcing.)  The reason for the proposal was budget savings.  After a lot of blowback, the superintendent relented some, proposing that custodians who had worked for the school system for at least five years could keep their positions during the next school year.  That left 10 custodians facing the loss of their jobs.

This sort of outsourcing is common at all levels of government.  In Richmond, the custodians for state buildings are not state employees, but work for a company that has contracted with the state to clean the offices.  The same is true for security guards at the entrances to state buildings, with the exception of the Capitol Police. Continue reading

Bacon Bits: A Little Bit of This, a Little Bit of That

Safe hospitals. I’ve long maintained that the best thing you can do for your health is stay out of hospitals — 160,000 deaths occur annually across the country from avoidable medical errors monitored by the Leapfrog Hospital Safety Grade. Fortunately, Virginia hospitals are safer than most. The Old Dominion has the second highest percentage — 53% — of hospitals in the country of hospitals meriting Leapfrog’s A rating. In Maryland only 25% of hospital scored an A, and in Washington, D.C., there are no A-rated hospitals, reports the Richmond Times-Dispatch.

Expanding hospital. Speaking of  hospitals, Carilion Roanoke Memorial Hospital has just announced a $300 million expansion that includes a new tower to care for emergency and heart patients, a new behavioral health hospital across the street, a parking garage and a pedestrian skyway to connect it all. The expansion is part of Carilion’s plan to invest $1 billion over the next seven years, according to the Roanoke Times. Roanoke Memorial scored a B in Leapfrog’s ranking, incidentally. Roanokers might legitimately inquire if some of that $300 million could be better spent on preventing avoidable medical errors.

Bye, bye, Jeff, baby. The Commonwealth Transportation Board unanimously voted yesterday to allow Arlington County to change the name of Route 1 from Jefferson Davis Highway to Richmond Highway, reports the Washington Post. The United Daughters of the Confederacy had spearheaded the naming of the highway after the president of the Confederate States of America, as a “direct and antagonistic response” to the establishment of Lincoln Highway across the northern states, said Arlington Board Chair Christian Dorsey. Continue reading

Northam Seeking “Diversity and Inclusion” Officer

Governor Ralph Northam is looking for a new senior-level official to promote diversity and inclusion within state government, reports the Richmond Times-Dispatch. The new employee will report directly to the governor and his chief of staff.

Among the qualifications listed in the job description: the “understanding of systemic and institutional bias.” States the RTD:

The director will be responsible for developing a plan to promote inclusive practices and address system inequities in state government. The person who fills the post will be tasked with “promoting diversity and fostering an inclusive environment throughout state government where employees feel a sense of belonging.”

Questions: In what way is Virginia state government infected with “systemic and institutional bias”? Are we to believe that the Virginia state government apparatus, which has been run by Democrats for four of the past five gubernatorial administrations, is riddled with racism? I know the political justification for this appointment — Northam is trying to atone for his blackface scandal. But is there a factual justification — as in actual evidence of bias — for creating the office? If there is, why haven’t we seen it?

VRS Not Out of Woods Yet

Following up on Jim’s recent post about the WMATA pension problems, I decided to check on the recent performance of the Virginia Retirement System.  Now that I get a monthly check from these folks, my interest is more active than in the past.

Analysis of pension plans is out of my league, but there is a recent report that does create some concern and even I understand it.  VRS is required by statute to conduct periodic stress tests.  The latest one was released in December.  For those who are interested in digging into the weeds, here it is .  Toward the end of the report, the authors point out that VRS lost about 25% of its value in the first couple of years of the Great Recession.  They warn that, if there is another great shock or even a period of a few years of returns lower than needed, the plan would be in a worse position to absorb the shock than it was in 2009.  The Free Lance-Star had a good summary of the issue in this editorial.

In summary, to keep VRS able to meet its pension obligations, the General Assembly needs to continue its recent practice of paying down the plan’s unfunded obligations.

A Pension System At Risk

Under a “shock” scenario in which Virginia Retirement System (VRS) investment returns replicated the disastrous performance of the 2008-2009 market crash, the state portion of the retirement plan would see an increase in unfunded liability of $6.9 billion. Employer contribution rates would have to increase to 22% of covered payroll from 13.5% now in order to maintain the integrity of the system. State and local governments would have to cough up hundreds of millions of dollars more in pension payments each year even as a recession was eroding revenues.

Those numbers are found in a recently released report to the General Assembly, “VRS Stress Test and Sensitivity Analysis.” The report is not predicting that such a scenario will occur. Rather the purpose is to show how vulnerable the Commonwealth would be if it did. While investment returns have performed handsomely since the 2008 mortgage-crisis recession, shrinking Virginia’s unfunded pension liability, the global economy is slowing and the strong investment gains of recent years cannot be taken for granted.

Even investment returns on the VRS’s portfolio only modestly lower than the assumed 7% could prove devastating. “If the VRS fund only returned 5% annually each of the next five years, the State plan would see an increase in unfunded liability of approximately $2.2 billion,” the report says. Continue reading

Educators, Stop Your Whining!

by Bob Shannon

Having attended last Thursday’s Joint School Board and Board of Supervisors meeting at Hamilton Holmes Middle School, I have a few observations.

Dr. David White, King William County school superintendent, made specific mention of the low morale problem among school personnel. Of course the remedy, according to Dr. White, is an across-the-board 5% pay raise for everyone. He cited the lack of a pay raise last year and the need to keep King William schools’ compensation attractive/competitive.

Last year in an effort to keep anyone’s take home pay from declining, measures such as higher co-pays and deductibles had to be raised in order to accomplish this. Have these folks already forgotten the hundreds of thousands of dollars that tax payers picked up in their increased health care costs?

In the economic contraction beginning in 2008 and lasting six years, did a single school employee get laid off or lose their job? Did one school employee have to take a pay cut? Did a single school employee have their pension contributions cut?  Did even one of them lose a week of the 12-13 weeks they get off each year ? Continue reading

Equal Access for Teachers Organizations!

Bill DeSteph

by Chris Braunlich

Should Virginia teachers have equal access to any legitimate employee association offering professional support, insurance and other benefits, so they can find the best deal for their money?

Legislation introduced by Sen. William DeSteph, R-Virginia Beach, SB1236, would give non-profit Virginia teacher associations an equal opportunity to make their pitch to teachers in every school division. It would end the practice in many school systems of providing monopoly access to politicized employee associations, notably the Virginia Education Association.

The issue is no trivial matter – not for the associations nor, especially, for the employees. In a litigious world, teachers – who regularly interact with underage minors, parents, colleagues, and powerful administrators – are especially in need of professional support and liability insurance providing legal protection. It is something they never want to use but know they need to have. Continue reading

How to Look Fiscally Responsible While Being Fiscally Irresponsible

Governor Ralph Northam wants to boost the retiree health credit for state police, law officers, sheriffs and their deputies. He has included $8.1 million in his proposed FY 2020 budget to pay for a $2-per-year of service increase for state police and a $1.50- to $5-per year increase for sheriffs and deputies.

While the increase in benefits will be paid for, it legislative hearings have revealed how poorly these retirement plans are funded to begin with. Northam’s proposal would add $76 million in liabilities to two plans that are funded at less than 10% of their long-term obligations. House Appropriations Chairman Chris Jones, R-Suffolk, called the benefit increases “fiscally irresponsible.” Continue reading

Fairfax Supervisors Face County’s Monster Pension Crunch

Fairfax County Board of Supervisors Chair Sharon Bulova

Once upon a time, way back in the year 2000, Fairfax County’s general-employee pension plan was amply funded at 109% of projected needs. But the funding ratio dropped severely during the last recession and has been hovering around 70% in recent years. Today unfunded pension liabilities for Virginia’s largest local government are roughly comparable in size to that of the Virginia Retirement System, which which state employees and many local government employees participate.

Taxpayer groups are sounding the alarm and, astonishingly, the Board of Supervisors is actually studying proposals to address the shortfall.

County officials have proposed a range of tweaks to the pension plans for public safety workers and general employees. (School teachers have their own plans not controlled by the county board.) Among the changes: The minimum retirement age would be bumped from 55 to 60, the retirement-eligibility formula would increase age + years served from 85 to 90, and the final salary-averaging period for calculating retirement-payments would be increased from three to five. The changes would apply only to new employees hired on or after July 1, 2019, reports Inside NoVa.

Said Board Chair Sharon Bulova (D): “The Board, all of us, have felt this is a contractual, really, issue. If you joined the county under certain expectations and you’ve based your retirement plans on what you believed would be the deal when you came to the county, we are not changing that for current employees.”

Sean Corcoran, president of the Fairfax Coalition of Police Local 5000 described the proposed pension changes as “a completely contrived crisis.” Others speaking for county employees warned that the plan would create a new class of “second-class employee” and would hurt morale and recruitment.

But taxpayer advocates said the proposed reforms were just a start.

Arthur Purves, president of the Fairfax County Taxpayers Alliance, said while the county’s population increased 20 percent since 2000, inflation-adjusted salaries for county employees rose 35 percent, health-insurance payments went up 194 percent and pension costs increased 244 percent.

County real estate taxes since 2000 have increased three or four times more than the inflation rate, said Purves, who blamed compensation increases as the culprit.

The proposed pension cuts for new employees “are only a small and necessary start,” he said. “You need to look at raises.”

McLean Citizens Association president Dale Stein said county pension borrowing went up $600 million during the last three years and added officials were basing their calculations on average annual returns on investment of 7.25 percent, while returns over the past decade averaged just 5.9 percent.

“We strongly urge the Board of Supervisors to ensure a strong, competitive compensation package for all county employees,” Stein said. “In making those packages possible, the realistic question is, ‘Where in the heck is that money going to come from?'”

The Inside NoVa article did not say how much the proposed changes would reduce the unfunded liabilities.

Bacon’s bottom line: You can keeping kicking the can down the road but eventually you run out of road. The time to act is now. Relatively small changes today can fix a problem that is still a couple of decades away from a full-blown crisis. Failure to enact reforms, however, will make necessary changes all the more painful in future years.

Virginia Unfunded Liabilities: $5.4 Billion

Source: Truth in Accounting

Here is more confirmation, as if any were needed, that the Commonwealth of Virginia is running hidden deficits in the form of unfunded pension and retiree healthcare liabilities… Truth in Accounting, a nonprofit devoted to transparency of government finances, gives Virginia a grade of “C” for its financial practices.

By the standards of the 50 states (and District of Columbia), that’s not a bad score. Virginia’s unfunded liability averaging $1,900 per taxpayer is less onerous that that of all but 11 states. So, if you’re inclined toward Pollyanna-ish views on government finance and debt, we’re not doing so badly.

But here’s what Truth in Accounting has to say in its Virginia profile: “Virginia’s financial condition is not only disconcerting but also misleading as government officials have failed to disclose significant amounts of retirement debt on the commonwealth’s balance sheet. Residents and taxpayers have been presented with an unreliable and inaccurate accounting of their government’s finances.”

Highlights:

  • Virginia has $35.8 billion in assets to pay $41.2 billion worth of bills.
  • The $5.4 billion shortfall averages $1,900 per taxpayer.
  • Despite reporting all of its pension debt, the commonwealth continues to hide $936.9 million of its retiree health care debt.
  • Virginia’s reported net position is inflated by $1.5 billion, largely because the commonwealth defers recognizing losses incurred when the net pension liability increases.

The best funded states are Alaska ($56,000 surplus per taxpayer), North Dakota, Wyoming, Utah, and South Dakota, all of which have set aside more than enough money to pay their pensions and retiree healthcare liabilities. The top “sinkhole” states are New Jersey ($61,400 debt per taxpayer), Connecticut, Illinois, Kentucky, and Massachusetts.

Remember, the Truth in Accounting methodology does not take into account hidden deficits in the form of maintenance backlogs on roads, bridges, mass transit, school buildings, water and sewer plants, etc., much less the potential liability associated with rising sea levels. Nor does it cover the liabilities associated with local governments or a welter of independent and quasi-independent authorities. The fiscal health of the Commonwealth and its localities is far more precarious than even Truth in Accounting portrays it.

The national debt now exceeds $21 trillion, and I read recently that the federal government has unfunded liabilities of roughly $100 trillion over 30 years. Yet Democrats are campaigning on expanding entitlements (Medicare for all, free college for all, etc.) while President Trump is promising another round of middle-class tax cuts. Both political parties are in total denial. The federal budget is unsustainable, and when the national government can no longer maintain its promises and breaks its social contract, and the country slides into chaos, state governments will be the main line of defense against anarchy.

Hint: Do not even think about moving to New Jersey or Illinois. Alaska is looking pretty good right now. Grizzly bears don’t riot or throw Molotov cocktails.

A Thoughtful Reminder of Another Pension Landmine

A recurring theme of Bacon’s Rebellion is that billions of dollars of liabilities lurk in the balance sheets of Virginia’s state/local government and quasi-governmental organizations — from the $20 billion unfunded pension liability of the Virginia Retirement System to the $3.5 billion unfunded pension liability of the Washington Metro system. Some don’t get the attention they deserve. As I come across new examples, I’ll bring them to your attention…

Like Fairfax County’s $5.6 billion pension liability. According to the Fairfax County Taxpayers Association (FCTA) Watchdog Report:

The Fairfax County pension liability is now $5.6 billion. … There are 400,000 homes in Fairfax County, so the liability amounts to $14,000 per household. To pay the liability will require an increase in the real estate tax of $1,000 for 14 years. The liability and the real estate tax will increase unless the retirement age is increased to 65 or 70 years of age — as compared to the current 55 to 60. Without such a change, the liability per household will get worse in the future because the number of county and school employees has been increasing 1.6% per year while the population has been increasing only 0.9% per year.

The debt bomb is worse than you think. Much worse.

Virginia’s Highest-Paid State Employees

Charles Phlegar: Virginia’s highest paid state employee in 2017,

The Washington Business Journal has just published its database of the highest paid state employees in Virginia, and the list is dominated by people you never voted for, or in many cases people you’ve never even heard of. For the most part, the highest-paid state employees work for colleges and universities — not just any old college and university, but Virginia’s elite schools and research institutions.

Charles D. Phlegar tops the list, making $661,700.00 in 2017. Phlegar is vice president for Virginia Tech’s department of advancement, which means he runs the all-important fund-raising operations. He made more money than Virginia Tech President Timothy Sands, who raked in a salary of $527,850. (These numbers do not include non-salaried perks such as presidential residences, cars, and flunkies.)

At the University of Virginia, David S. Wilkes, dean of the school of medicine, snagged the top spot at an even $600,000. He beat out President Teresa Sullivan at $580,000. Other top earners at UVa included Jayakrishna Ambati ($590,400), a research scientist who may have discovered a cure for macular degeneration, and Irving L. Kron ($561,100), chair of the Department of Surgery who has since taken a top spot at the University of Arizona. 

Ambati and Kron illustrate the hyper-competition for top research talent. Ambati joined UVa in 2016 after directing the Kentucky Eye Institute in Lexington, Ky., while Kron departed from Charlottesville, where he had lived many years, to become Interim Executive Dean at the University of Arizona College of Medicine.

For point of reference, Governor Ralph Northam is paid a salary of $175,000 yearly. But he does get cool perks like free rent in the Governor’s Mansion and a contingent of state police guards.

A major difference between Virginia’s research universities and everyone else is that the research universities can tap endowments and other sources of funds to supplement state salaries. Thus, UVa’s Sullivan was paid $197,620 in state salary p;us $362.210 in non-state salary. Adding up the salaries for the 148 highest-compensated administrators, coaches and professors at UVa, I found that they collectively earned $39 million in state salaries supplemented by $10.8 million in non-state salaries. Contrast that to a small, liberal arts institution like (to pick one at random) Longwood University. Of the 25 highest-paid administrators and profs, only one — President W. Taylor Revely — had his $154,000 state salary supplemented by outside funds.

Among state employees, competition is the most intense for university executives who can either (1) bring in lots of outside money, and (2) win football and basketball games (which translates into bringing in outside money, just in a different way). So, someone like economics professor Kenneth Elzinga, one of the most popular lecturers and teachers in the history of UVa, makes a handsome salary of $238,000 but doesn’t make a dime in supplementary salary.