Chesterfield’s $50 Million Fiscal Landmine

Virginia and its local governments are constitutionally obligated to balance their budgets ever year. But as I have repeatedly pointed out, there are many ways to duck that obligation. One is to rack up unfunded pension liabilities. Another is to under-fund maintenance.

Today we discover that even a highly reputed county with a AAA bond rating can engage in fiscal sleight-of-hand. From today’s Richmond Times-Dispatch: “Chesterfield County needs $50 million for school maintenance problems that could keep kids out of schools if they are not addressed soon.”

The county issued $300 million in bonds after a voter-approved referendum in 2013 to replace and renovate county schools. Apparently, there’s only $13 million left for fixing facilities — far short of what’s needed.

Dan Champion, a program manager for the firm EMG, said there are schools across the county with serious electrical, air conditioning and roofing problems. If not adequately addressed over the next two decades, the cost of the repairs could rise to nearly $1 billion, he said.

The Times-Dispatch article delves into the riff between the county administration and the school system. There’s a lot of finger-pointing going on. Regardless of who is to blame, it is clear that Chesterfield schools have run $50 million in maintenance deficits over the years. And now the county is on notice that, absent corrective action, the maintenance deficit could reach $1 billion over 20 years.

How many other Virginia school districts have engaged in deficit maintenance spending? How many other agencies and localities have piled up unfunded liabilities for deteriorating roads, highways, bridges, mass transit systems, water and sewer plants and pipelines, libraries, administration buildings, courthouses, jails, prisons, municipal gas systems, IT systems, automotive fleets, and the rest of the state’s vast infrastructure?

Administrators and elected officials have no interest in knowing the truth that might make them look bad. So, nobody tracks this information until it becomes an explosive issue. What’s that noise we hear in Chesterfield? Kaboom!

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22 responses to “Chesterfield’s $50 Million Fiscal Landmine

  1. Actually, it’s not the administrators and elected fault. It’s all because we have all these immigrants with kids who can’t speak English costing us big bucks so we don’t have it for real needs!

    But I digress….

    We forget that people run these publicly-funded entities and in our world, we have responsible stand-up folks who do the right thing for their own finances as well as the work-related jobs. Others are irresponsible – in their own finances and when they are in charge of public finances.

    For every school or county on the edge of fiscal disaster – there are usually dozens that are not – and, in fact are well run with some garnering AAA ratings.

    So – focusing on the basket cases are “proof” that government sucks and cannot be trusted… well… it’s a sorry tune… we play way too much.

    Not that we should not fully point to the miscreants…we should… but it’s kind of a one-sided story some days.

    Finally, in terms of unfunded or underfunded pensions – can anyone tell me what the standard is for a FULLY-funded pension? Obviously, any school or county COULD just pay-as-you-go – just budget whatever the cost of the pensions are next year. We don’t do that… but I’m not too sure most folks know why we don’t …and what we do instead… and what it does mean to “fully-fund” a pension. Some say 50% funded is not terrible… but what exactly does that mean?

    As much as this issue comes up in BR.. don’t yall think we need to understand what it means?

    • From InvestoPedia: “Fully funded is a term that describes when a pension plan has sufficient assets to provide for all accrued benefits. In order to be fully funded, the plan must be able to make all the anticipated payments to pensioners.”

      The determination of whether or a pension is fully funded or not depends on a key assumption: the projected rate of return. The higher the assumed rate of return, the greater the risk that the pension will not be fully funded.

  2. Focusing on the basket cases are “proof” that government sucks and cannot be trusted… well… it’s a sorry tune.

    I haven’t seen anyone — other than you — extrapolate from examples of fiscal folly to the argument that “government sucks and cannot be trusted.” The implication that all governments suck is entirely a straw man of your making.

    What I have said is that governments and quasi-government authorities in Virginia often play games with numbers that hide deficits. How many examples do I need to provide before you acknowledge this basic truth?

    • re: fully funded – so fully funded means that at any point in time there is, on hand, sufficient money to pay out the total amount of the pension for the anticipated years of pension received?

      you got closer but it’s still not clear.

      so if someone retires at age 65 – their pension is fully funded – ONLY if there is enough on hand right now – to pay out their pension until their anticipated death .. and anything short of that is an unfunded liability?

      • Incorrect. The pension is fully funded only if there will be enough money on hand when taking into account the growth of the investment portfolio.

      • Larry. If, according to actuaries, a pension fund that does not have sufficient funding to meet projected liabilities under the plan’s assumptions is underfunded. And the actuaries are supposed to critique the assumptions. For example, if current projections are people, on average, will live longer than what has been planned by the pension fund, it needs more funding and more assets. If the expected market rate-of-return has increased, the plan needs less funding and assets.

        I’ve had conversations with Fairfax County pension administrators. The increases in corporate earnings since the end of the Obama administration has reduced the amount of underfunding in the various county pension plans. Were that to go in the opposite direction for a significant period of time, the amount of underfunding would increase.

        The big fiscal problem is that expected government revenues are insufficient to make up pension funding deficits and other needed government expenditures. Meeting defined benefit requirements is crowding out other government activities. More in some places and less in others.

        • @TMT – we understand the mechanics but what is the standard ?

          Why does a pension at any time have to be “fully funded” to be able to pay out the entire pension amount owed over the life of the pension rather than a year at a time? Why is it said to be “unfunded”, for instance if the fund covers ….say only the next 10 years and not to end of life?

          why is that “un-funded” if that money won’t be paid out until years later?

    • re: ” What I have said is that governments and quasi-government authorities in Virginia often play games with numbers that hide deficits. How many examples do I need to provide before you acknowledge this basic truth?”

      you tend to focus on the FEW almost always as imply it is representative of govt …in general.

      you did this just now: ” quasi-government authorities in Virginia often play games with numbers that hide deficits. How many examples do I need to provide before you acknowledge this basic truth?””

      no they do not do this “often”. the vast majority do not. there are a few that do, yes… but you do imply it’s a problem common to the government.

      and it’s not. It’s a problem that happens with govt, corporations and individuals… there are always those who are not responsible but the vast majority are not that way – they ARE responsible.

      The unfunded pension issue is another example. We do not define what it is and what it is not so that when we use the phrase “unfunded pension liabilities” – it implies there is wrongdoing and reckless financial dealings and the truth is that few folks really understand what it means and if they actually did – they may not agree at all… because MOST pensions ARE advanced funded for a number of years – and in the ensuing years – more money is put into the fund from employer/employee and the fund earns more money from investments. It’s a moving target but as long as there 5-10 years of fund available and each year – another year of contributions and investments earned are added…it will never not pay out the full pension.

      A fundamental difference between Govt and a Corporation is that the Government will never cease to exist – it will always exist whereas with companies – they do cease to exist and when they do – the pensions they owe to their retired is at issue and that’s actually why there is a Govt agency called PBGC that takes over defunct corporate pensions.

      I’m not dinging you for this per se… but I do think we do need context for both issues – irresponsible govt agencies – and unfunded pensions.

      The former are a small number of the total – most are not on the edge of disaster and the latter is similar – most unfunded pensions are also not on the edge of disaster – unfunded pension liabilities is an artificial construct where the “standard” is that for any given pension – in order to be fully funded – the entire amount owed to the pension holder has to be in hand in order to be categorized as fully funded? That’s crazy! Where did such a standard come from? You can sure see that with a corporation -that could go away at any time -you’d want that standard to protect the pension holders but for a govt.. what kind of sense does that make? Anything less than ALL the money that the pension holder is supposed to get – as long as he/she lives.. anything less than that is an unfunded liability? really?

      • “No they do not do this “often”. the vast majority do not.

        How do you know that the “vast majority” do not? Have you conducted a detailed fiscal analysis? No, you have no earthly idea. And neither does anyone else. The fact is, we just don’t know.

        The difference between you and me is that I have seen enough examples of unfunded liabilities and deferred maintenance and outright accounting shenanigans that I think we need to take a closer look. You, apparently, don’t want to know. You’re happy assuming everything is OK.

        • We KNOW that the vast majority are NOT reported to have the same problems and for anyone to presume they do until proven otherwise is presuming guilt until proven otherwise!

          Most all of these entities are required to have audits – and that’s exactly how we find out the ones that have problems.

          The “difference” is that I duly note that most of them have the requisite financial reporting which turns out to be not terrible and we do find out who is terrible.

          I DO NOT “assume” – that’s the problem. I do not ASSUME that there are problems… I go by the financial reports that are provided and the reality is that MOST of them are reasonably well run. There ARE …SOME exceptions that should be duly noted but it does NOT mean that govt – as a rule – is fiscally irresponsible by nature and cannot be trusted.

          similarly on the unfunded liabilities. Most do not know what that REALLY means. It does NOT mean that in 99% of the cases that people do not get their pensions – it’s the opposite. I bet that ZERO percent of the retired in Fairfax or Henrico or Chesterfield or EVEN Petersburg and Richmond have actually not got their pensions – DESPITE the fact that we hear that they have unfunded pension liabilities – so what exactly does “unfunded liabilities” mean – if almost no one that works for govt actually does not receive their pensions?

          we need to understand what this means instead of using it as a fiscal cudgel against “irresponsible’ government.

          Don’t get me wrong – I’m a fiscal conservative -in many ways that those who claim to be fiscal conservatives are not… but at the same time I seriously question the anti-govt rhetoric that emanates non-stop from “conservatives” these days.

  3. How much of these vast amounts of money were wasted by gross negligence approaching fraud? Just a little? Or a whole lot? Or most of it? Who is responsible? Who is accountable? Who fixes it? Who cares? Will the public ever know? Welcome to modern America. And the collapse of its communities, save for those private ones serving the elite, and their private support networks.

    • In Prince William the answers to your questions:
      1. Gross negligence and fraud resulted in a whole lot
      2. The School administration is responsible for the spending and the School Board and County Board responsible for allowing it to happen without proper oversight.
      3. No one is held accountable.
      4. No one has the stones to fix it.
      5. Only a fraction of the abused taxpaying public truly knows about it and thus cares.
      6. Working on better public knowledge.

  4. If you step back and look at this mess, it looks like just another example of what happens when an “outside” funding source (in this case the taxpayers through a bond issuance) makes the capital investment, then the local government is presented with this shining new building and tasked with the ongoing maintenance. We do very poorly at allocating the burden appropriately between two different funding sources when as everyone knows the line between up-front investment and maintenance is flexible, and ever more complicated as buildings become less bricks-and-mortar and more “systems” oriented. What the School Board buys up-front commits the County to a whole raft of consequential expenses and management options. Which leads to LG’s comment “that governments and quasi-government authorities in Virginia often play games with numbers that hide deficits” — too true! And one of the easiest ways to hide a deficit is not put it on the books at all — simply defer the expense. “Deferred maintenance.” Wait until it becomes necessary to rebuild the entire structure — that’s a capital burden, and we can go back to the taxpayers for bonds to pay for that!

    • Acbar makes an excellent point. Much of this problem is cultural problem, one that has been building for decades.

      We have become a throwaway nation. It is so easy now to develop the throwaway habit, tossing out and replacing with the new, rather that maintaining and fixing the old, is now often encouraged, even mandated and required.

      Things like lawnmowers now are designed to be hard and expensive, or impossible, to fix. You got to buy a new one, said to be better instead. Like I-phones. So the wastage here now is huge. It has been going on for so long that far too often we do not see it. For example, only when I took up serious climbing many years ago, did I realize what a waste agent I had become. I had to relearn lessons taught to me as a child about thrift, husbanding and taking care your gear, because your life and livelihood depended on it.

      We’ve been for rich so long, and entertained with the new, that we’ve become incredibly wasteful and irresponsible in ever increasing numbers of ways. This likely is magnified with public assets. Why no one cares about them anymore.

  5. Like this, you mean?

    • It rather looks like the County of Fairfax, if it were an animal.

      Seriously, it will be a good step if the BoS take the proposed actions to reform pensions and even better were the School Board to take additional reforms to their pension plans.

  6. I’m NOT sympathetic to incompetence and irresponsible behavior in government but I still continue to point out that we have 133 jurisdictions in Virginia and each one has a BOS, a school board, and other authorities, etc and while we hear every year of some “mess” – the VAST MAJORITY of them are reasonably run – and some are exceptionally well run, in the eyes of the credit rating folks. Is the glass half empty or half full?

    Yes, we SHOULD hammer the ones that screw up – no question – but again using a few bad apples as a premise that the CONCEPT of Government is basically flawed or wrong-headed is just plain stupid and these days it’s a virtual war between SOME folks and the Govt – ANY govt – because they believe that any/all govt is corrupt and bad.

    So, in Spotsylvania, we also have “tensions” between the BOS and the School Board and I suspect that’s fairly common in Va because we’re pretty much alone out of 50 states that don’t give taxing authority to the school boards and they have to get the money from the BOS and invariably, one or more members of the BOS wants to make an issue of the “irresponsible spending” by the School Board. In our case, it’s about capital facilities, wages, pensions and OPEB benefits. It’s an annual rite!!!

    But let’s cut to the chase., There is continual pressure to not tax more and not spend more -not only on the schools but on the county and what BOTH of them often will do is DEFER maintenance from year to year… it’s one of the first things on the chopping block when push comes to shove on the tax rate.

    The county is especially remiss on things like transportation – which , except for Arlington and Henrico (and all cities) – most counties are downright irresponsible about unfunded transportation needs. They basically wash their hands of it even as they approve much more intensive land-use than the existing road infrastructure was designed to support.

    Same thing happens to schools.. they’re under intense pressure to keep costs down and so they will “low-ball” capital and maintenance costs to get what they can get – and hope to come back for more in the future.

    It’s the way things actually do work – across Virginia and the basic issue is how much tax verses how much stuff done.

    Unless someone can point out that the money already proffered was misspent or stolen – chances are it did go for the intended purpose but it was not enough because there was pressure to not ask for “too much”.

    It’s plain old politics -not bad faith are irresponsible behaviors in 99% of the cases. Almost never – is the money actually embezzled or stolen – it’s spent and the argument is that it was spent on the “wrong” things… which is a favorite political game between opposing forces

  7. Acbar said: ” And one of the easiest ways to hide a deficit is not put it on the books at all — simply defer the expense. “Deferred maintenance.” Wait until it becomes necessary to rebuild the entire structure — that’s a capital burden, and we can go back to the taxpayers for bonds to pay for that!”

    You need to look no further than VDOT to see this in action.

    The problem is – it’s ALWAYS about PRIORITIES. There is NEVER enough money to do all that is needed. That’s why even VDOT has a LONG LONG list of needed maintenance/repairs on even things like bridges. To their credit, they inspect them all and categorize them as “ok”, “not ok” and “close it now and find money to fix it” ( usually by robbing Peter to pay Paul).

    I don’t see this as irresponsible behavior myself. I’m sure if each one of you looked at your own situation – you too are sitting on something that you KNOW needs attention and you’re just waiting until you are forced to deal with it. Sound familiar?

    We have a stupid tire monitor warning light on the instrument panel of the Rav4. There is nothing wrong with the tire – it’s the sensor. It will cost $250 to “fix” it… guess what .. it’s NOT fixed for 3 years now and my views of Toyota being super-reliable has been seriously dinged!

    Point is – Counties and Schools have the same problems. They budget to fix something ..and something else they had not budgeted -breaks – and there is no waiting… just like VDOT with a washed out drain pipe… you got to get the money from somewhere and fix it.

    That’s NOT malfeasance folks!!! Sorry!! It’s LIFE! and even govt runs into it all the time… That 200K HVAC that was supposed to last 20 years at the local elementary school… guess what .. it FAILED right after the warranty expired! Sound Familiar?

    So….Lighten UP… yes.. attack ACTUAL MALFEASANCE with a vengeance but geeze…know the difference first!!!!

  8. There are two groups to blame for this. One is the voters of Chesterfield who approved the $300M bond in 2013 but voted against a meals tax to pay for it on the same ballot. The other is the Board of Supervisors who allowed those ballot initiatives to be voted on separately.

    • Sounds right to me. Every bond issue that a local jurisdiction is going to have to pay for ought to be put before the public for approval along with, and linked to, the revenue sources to pay for it.

      • That would be a great addition to transparency. It would show how much future budget dollars must be allocated over each fiscal year to cover debt service. Ditto for post retirement benefits. The project should assume continuation of the same tax rate against expected changes in the valuation of property and changes in other tax revenues.

        I suspect, without knowing, that an every growing portion of the expected local budgets would go to these types of obligations.

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