Dangerous Trends Presentation

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Dangerous Trends and the Need for Action Presented by David Coates and Lisa Ventriss On behalf of the Vermont Business Roundtable September 29, 2009

Dangerous Trends and the Need for Action : 

Dangerous Trends and the Need for Action “Just the Messenger” 2

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Mandatory Expenditures Debt Service Education Funding Retirement Plans Other Post Employment Benefits (OPEB) 3

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Debt Service Highest rated state in NE AAA rated by Moody’s Benefits other agencies (VMBB, VHFA, VEDA, VSAC) General Obligations (GO) Debt 6/30/08 $438.6 Million 6/30/09 $440.6 Million Debt Service 6/30/08 $69.4 Million 6/30/09 $71.5 Million 6/30/10 $70.7 Million 4

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Debt Service (continued) GO Debt Guidelines 1) Per Capita VT Triple A Rated 2008 $707 $998 2009 $692 $899 Debt as % of personal income VT Triple A. Rated 2008 2.0% 2.8% 2009 1.8% 2.4% Recommended Debt 2008 $49.2 Million 2009 64.7 Million 2010 70.0 Million 2011 73.6 Million (estimated) 5

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Educational Fund Outlook – 12/08 (millions of dollars) * Includes renter rebate of $5.9 ** Excludes renter rebate of $5.9 (2010), $5.6 (2009), $5.3 (2008) Projected 2016 using same growth 2005 – 2010 1,793.9 414.0 30.0% 6

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Education Funding Formula driven – not transparent / complex Statewide school tax Declining enrollment / increasing teacher/staff count Cost shift from residential to non-residential $4 out of $5 on salaries, wages, and benefits Should education fund pay all school related expenses – teachers retirement and other post employment benefits (OPEB) Should each school district pay for teachers retirement and OPEB 7

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Retirement Plans Three Major Plans “State Employees” – Vermont State Retirement System (VSRS) “Teachers” – State Teachers’ Retirement System (STRS) Municipal Employees Retirement System (MERS) 8

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) State Employees – (VSRS) Defined Benefit Plan Employees contribute 3.35% / 5.10% Retire after 30 years of service or age 62 / age 65 or rule of 87 Early retirement eligibility – age 55 with 5 years of service Receive 50% of highest three consecutive years pay Active members 6/30/08: 8,442 Covered payroll 6/30/08: $404,938,000 Source: State Financial Audit Buck Actuarial Report State Treasurer’s Office 9

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Teachers – (STRS) Defined Benefit Plan Teachers contribute 3.54% Retire after 30 years of service or age 62 Early retirement eligibility – age 55 with 5 years of service Receive 50% of highest three consecutive years pay Active members 6/30/08: 10,685 Covered payroll 6/30/08: $535,807,000 Source: State Financial Audit Buck Actuarial Report State Treasurer’s Office 10

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Other Post Employment Benefits (OPEB) State Employees (VSRS) Medical Insurance Plan Retiree pays 20% of the premium Covers retirees and dependents Teachers (STRS) Medical Insurance Plan (have a choice of three) Retiree pays 20% of the premium Covers only retiree State Employees Teachers Net obligation 6/30/08 $ 29.5 Million $ 60.2 Million Unfunded liabilities as determined by Actuary $751.0 Million $863.6 Million Source: State Financial Audit Buck Actuarial Report State Treasurer’s Office 11

Dangerous Trends and the Need for Action (continued) : 

Unfunded Liabilities per Actuary Dangerous Trends and the Need for Action (continued) 12

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) (All numbers in millions) Source: Buck Actuarial Report State Treasurer’s Office State Dept. of Finance and Management * To fully amortize over 30 years unfunded liabilities * 2011 preliminary estimate is $104.7M, an increase of $31.2 M 13 Pension

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Summary of Other Post Retirement Benefits (OPEB) (all numbers in millions) Source: Buck Actuarial Report 14

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) Other Thoughts and Observations … 15

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) National difference on average compensation is 16%; Vermont is 31% Number of private sector jobs to support one state job … 30+ Pension commission update 16

Dangerous Trends and the Need for Action (continued) : 

Dangerous Trends and the Need for Action (continued) “Just the Messenger” 17