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MONTPELIER — It was nearly unanimous: The teachers and state employees testifying before the House Government Operations Committee on Friday afternoon all blasted the committee’s initial pension reform proposal, calling its proposed increases in service time and employee contributions and reductions in benefits “a betrayal,” “a sucker punch,” and “an affront to working-class Vermonters.”

With two minutes each to testify, the witnesses, mostly teachers, said the proposal, aimed at closing the pension system’s multi-billion dollar unfunded liability and reforming its governance, would cause economic hardship and drive younger workers out of the state. Many encouraged the committee to throw out their work and start over.

“Where is the dignity in this proposal?” asked Jen Zoller, a Health Department employee, who said she would have to work another 11 years as a result. “You should be ashamed of yourselves. … How do you thank the Health Department for tireless work on COVID and then tip away our pensions in the same breath? It’s disrespectful,” Zoller said.

Another hearing is set for Monday night.

The proposal, which lawmakers emphasized is a starting point and applies to workers more than five years away from retirement, would double the pension vesting period for employees from five years to 10. It would eliminate early retirement at age 50 with 20 years of service for state police and other public safety employees, increase base employee contributions by 2.25 percent, to 7.25 percent of gross salary for teachers, and base the annual benefit on the average of an employee’s seven highest consecutive years of salary, up from the current three years.

On cost of living allowances, a benefit State Treasurer Beth Pearce had earlier suggested might need to be eliminated entirely for new retirees, the proposal retains COLAs but bases them only on the first $24,000, and caps them at 5 percent of the consumer price index.

Several called on the Legislature to pursue a dedicated source of revenue instead, such as a dedicated 3 percent surcharge of incomes $500,000 and above. The House rejected that proposal as bill amendment Friday morning, but some voting against the plan said that was due to it not being vetted by the body’s financial committees.

“That additional revenue is not even considered is an affront to working-class Vermonters,” Eric Hitchins said. “This plan is regressive. It is an affront.”

In a news conference Friday, House Speaker Jill Krowinski said she was wary of making a tax proposal that would not withstand a veto from Gov. Phil Scott, and has yet to see indication of support for a dedicated revenue stream from Scott. She also noted the $150 million in one-time funds the House budget, passed Friday, would allocate to paying down the unfunded liability.

{p dir=”ltr”}”I think it would be really unfortunate if we went through this process and had a veto and we weren’t able to override it,” Krowinski said. “There’s been a tremendous amount of work put in by people to try to find a solution, and we’re still in the process of hearing differnet propsoals and ideas ... Our goal is to find something we can find consensus around.”

Robin Bobo-Long, a teacher, said forcing older teachers at the top of the to work longer would add tax burdens to towns and exacerbate the graying of the profession in the state. “Be creative. Find another source to fund and fix this mess,” she said.

Bob Morgan, of the Vermont Business Roundtable, was the only voice not critical of the proposal, He didn’t endorse it, but he said the unfunded liability must be addressed, and not making changes would lead to more trouble down the line. “I commend you for having the courage” to address the issue, he said.

Committee members got a hint at the harsh reception in testimony Thursday and Friday by union leaders.

“In the simplest terms this requires teachers to pay more, work longer and get less,” Jeff Fannon, executive director of the Vermont NEA, told the committee Friday. “To be honest they’re shocked, and frankly angry.”

Steve Howard, executive director of the Vermont State Employees Association, said the members “feel abandoned, feel attacked, and some feel betrayed. ... They thought that especially in the midst of a pandemic, the political leadership of the state would have their backs.”

Mike O’Neil of the Vermont Troopers Association said his members responded with “shock anxiety, anger and concern.”

“They see this as a betrayal,” he said, adding that the plan would hurt recruiting and retention at a time when it’s already hard to hire police.

Committee chairperson Rep. Sarah Copeland Hanzas, D-Orange 2, pointed out that the Legislature is on the hook for $119 million for the state employees’ pension and $196 million for the teachers’ pension this fiscal year alone. “If we do nothing to slow the growth of our unfunded liability we will need to take over $300 million away from other important General Fund programs just to pay the [annual contribution],” she said in an email. “This trend is not sustainable.”

According to the proposal, the state’s unfunded pension liabilities are expected to rise to $1.04 billion for state employees and $1.93 billion for teachers in the current fiscal year, with required state payments of $119.9 million and $196.2 million respectively. That represents general fund dollars the state can’t spend on other priorities, and is a significant concern for Wall Street bond ratings agencies.

A combination of factors — underfunding of pension obligations in the 1990s and early 2000s, missed actuarial assumptions, investments that failed to meet projected targets, and changes in state and local policy that affected who could retire and when — have all been cited as factors in the growth of the pensions’ unfunded liability.

Lawmakers estimate the changes they’ve proposed together with a proposed $150 million one-time infusion of state funds in the House’s proposed budget, would reduce the state’s unfunded pension liability by more than $500 million and reduce the size of those annual payments.

SLOW DOWN

On Thursday, witnesses including union leaders, retirement board members and State Treasurer Beth Pearce told the committee that the process needs to be more deliberate.

“This is too important to just run and do this quickly because we think there’s a need to settle some issue. Let’s do a thoughtful approach about how we can make it better and move forward,” Pearce said Thursday. She suggested hiring a professional consultant to study the issues over the summer and fall, and “bring solutions and recommendations back to you in time for the next legislative session.”

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Howard and O’Neil also called for additional study on Friday.

“We’re told it’s because of the political calendar we have to rush this through this year,” Howard said. “[Members] don’t believe the political calendar is their problem. They asked me to come here today to ask you once again to slow this down.”

“There are six people on this committee who can still save this process,” he added, referring to the voting majority on the 11-member committee.

But members including Copeland Hanzas and Reps. Mike Mrowicki, D-Windham 4, and John Gannon, D-Windham 5, said the process has to start now — and that the proposal on the table is a starting point.

“We put a proposal on the table and we are eagerly awaiting engagement from the stakeholder groups to offer their vision for better pension governance. ‘Let’s study this for a year’ is not engagement,” Copeland Hanzas said.

Responding to criticism from Howard about the way the proposal was crafted, Gannon, the committee vice chair, acknowledged that the proposal was developed among leadership, “but the process of deliberating what we’re going to do starts in this committee,” he said.

HOUSE DEBATE

On Friday, the pension problem found its way to the House floor with a lengthy consideration of whether progressive taxation — an element not included in the current proposal — should be part of the solution.

An amendment to H.436, a miscellaneous tax bill proposed by Rep. Brian Cina, P-Chittenden 6-4, to add a 3 percent surcharge onto taxpayers earning more than $500,000 and apply that money to the unfunded liability, was soundly defeated, 21-125. While some members said they were willing to entertain a tax increase to address the gap, others were concerned that the amendment was presented to members half an hour before the floor session and did not go through the committee process.

“This is not about who cares the most about Vermonters in need. This isn’t how we do things here,” Mrwoicki said of how the amendment came to the floor.

Howard referred to the possibility of raising taxes to address the unfunded liability, and the lack of appetite for doing so, in testimony later Friday.

“For 30 years we can’t muster the courage to ask the wealthiest people to pay one cent more,” Howard said. He said failing to take that initiative, and risking a veto by Gov. Phil Scott, was “letting the governor off the hook.”STRUCTURE

Thursday, Fannon asked what problem would be solved by the proposed governance changes, which would include putting a new, larger commission in charge of all three pension funds.

”The board does not need correction. It is the actuaries we should be investigating,” Fannon said Thursday. “The board operated as it should have and as the law requires ... it turns out the Wall Street experts were not so expert. ... Fixing the board does nothing to examine and address the underlying problem.”

But State Rep. Michael McCarthy, D-Franklin 3-1, warned that the past performance of the pension indicates a need for change to serve those very employees.

”History says current governance structure has missed over and over again,” McCarthy said, leading to catch-up payments that are “spiking on all Vermonters unexpectedly.”

Pearce said the chair should not be the State Treasurer, or any other elected official, for the sake of keeping politics out of the process. “It should be an independent chair that’s appointed and has the skill set and is at the pleasure of the board,” she said.

At present the state’s three pension systems — for state employees, teachers, and municipal employees — each have their own governing board. They are all served by the Vermont Pension Investment Committee (VPIC), a seven-member committee that makes and manages investments for all three systems.

The proposal would replace VPIC with a 15-member Vermont Retirement Commission, a plan based on New Hampshire’s pension governance system.

Its makeup would include the Commissioner of Finance and Management (currently Adam Greshin); two gubernatorial appointees with investment, financial, or actuarial experience; three member trustees selected by their respective boards; three board-nominated employer representatives appointed by the State Treasurer; three board-nominated public representatives appointed by the Governor, each with relevant experience; and two non-voting legislative appointees, one each for the House and Senate, each with relevant experience.

Witnesses including Pearce and current VPIC chair Tom Golonka said a larger board would make it harder to reach consensus. And union leaders said the proposed membership learned too heavily in the direction of management and political appointees.

During Thursday’s hearting, committee member Samantha Lefebvre, R-Orange 1, and Vermont Business Roundtable member Mark Crow both raised the possibility of switching to a defined contribution plan, such as a 401(k), rather than the current defined benefit plan. That would shift responsibility and power to the stakeholders themselves, Lefebvre said.

Copeland Hanzas later said she does not believe defined contribution plans are good public policy for a pension system.

”They make sense for a business as a way of insulating the corporation from the cost of retirement for dedicated lifetime employees. However, the State of Vermont will pick up the cost of more retirees falling into poverty, so it’s in the best interest of our workers and the State for our public employees to have a reliable retirement benefit,” she said.Greg Sukiennik covers Vermont government and politics for New England Newspapers. Reach him at gsukiennik@reformer.com.

Greg Sukiennik covers Vermont government and politics for New England Newspapers. Reach him at gsukiennik@reformer.com.


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