Dangerous Trends

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• Dangerous Trends
• and the Need for Action

Presented by David R. Coates, Member Vermont
Business Roundtable
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• Just the Messenger

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Vermonts Debt Picture

• Outstanding General Obligation Debt
• 6/30/08 438,582,000
• 6/30/09 440,633,000
• 6/30/10 479,896,000
• Debt Service Payments (Interest Principal)
• 6/30/08 69,419,000
• 6/30/09 70,459,000
• 6/30/10 70,747,000
• New Debt Authorization by Fiscal Year
• 2007 45,000,000
• 2008 49,200,000
• 2009 64,650,000

Source Office of Vermont State Treasurer
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Other Debt Related Information
Net tax supported debt as percentage of gross
state domestic product
Vermont Highest 2009 1.75 MA
7.98 2010 1.73 MA 8.32 Net tax
supported debt per capita 2008 707 CT
4,859 2009 692 2010 772 Net tax
supported debt as percent of personal
income 2008 1.8 Hawaii 9.9 2009
1.8 2010 2.0 Net tax supported debt
service as percent of revenues Actual Guidelin
e 2009 5.5 6 2010 5.7
6 2020 4.3 6
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Other Debt Related Information
How is Vermonts Debt Rated? FITCH AAA MOODY
S AAA SP AA Highest in New England How is
Vermonts Debt Managed? Capital Debt
Affordability Advisory Committee Guidelines of
AAA Rated States Debt Per Capita Debt as a
Percent of Personal Income Level Principal
Payments (80 paid in 10 years) State Moral
Obligation Indebtedness Improved rating lowers
interest rate for other Vermont borrowers
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Department of Buildings Grounds (BGS) Estimated
Capital Costs for Fiscal Years 2010 - 2016
(Largest Items) Information Systems 150
M Health Laboratory 25 M State
Hospital 80 M State Buildings, Parks and
Colleges 200 M State Correctional
Expansion 100 M Pollution Control / Drinking
Water 100 M TOTAL 650 M
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• Retirement Plans
• Three Major Plans
• State Employees Vermont State Retirement
  System (VSRS)
• Teachers State Teachers Retirement System
  (STRS)
• Municipal Employees Retirement System (MERS)

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Pensions

• State Employees 6/30/09 6/30/08
• Active Members 8,095 8,442
• Covered Payroll 404,516,000 404,938,000
• Average Wage 49,971 47,967
• Employee Contribution 3.35 3.35
• Teachers 6/30/09 6/30/08
• Active Members 10,799 10,685
• Covered Payroll 561,588,000 535,807,000
• Average Wage 52,004 50,146
• Employee Contribution 3.54 3.54
• Employees hired after 7/1/08 pay 5.1

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Pensions

• Unfunded Liabilities as Determined by Actuary
• State Teachers Total
• 6/30/09 326.5 M 727.8 M 1,054.3 M
• 6/30/08 87.1 M 379.5 M 466.6 M
• Increase 239.4 M 348.3 M 587.7 M
• Annual Required Contributions (ARC) as Determined
  by Actuary
• State Teachers Total
• 6/30/10 39.7 M 60.6 M 100.3 M
• 6/30/11 41.6 M 63.5 M 105.1 M
• 6/30/12 43.5 M 66.5 M 110.0 M
• Percent Plans are Funded
• State Teachers
• 6/30/08 94.1 80.9
• 6/30/09 78.9 65.4

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Other Post Employment Benefits (OPEB)

• Unfunded Liabilities as Determined by Actuary
• State Teachers Total
• 6/30/09 775.0 M 872.2 M 1,647.2 M
• 6/30/08 751.0 M 863.6 M 1,614.6 M
• Increase 24.0 M 8.6 M 32.6 M
• State and Teachers are on pay as you go system
• ARC1 Pay As You Go
• Teachers 2011 62.1 M 19.9M
• 2020 98.1 M 38.3 M
• State 2011 61.0 M 28.0 M
• 2020 95.3 M 46.5 M
• 1 Annual Required Contributions as Determined by
  Actuary

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Combined Unfunded Liabilities for Pension and
OPEB
State Teachers Total Pension 326.5
M 727.8 M 1,054.3 M OPEB 775.0 M
872.2 M 1,647.2 M Totals 2009 1,101.5
M 1,600.0 M 2,701.5 M Totals 2008
838.1 M 1,243.1 M 2,081.2 M Increase
263.4 M 356.9 M 620.3 M 2009 Impact
based on Benefits Already Earned (Rounded) Per
Working Vermonter 4,000 5,000 9,000 Per
Capita 2,000 3,000 5,000
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Impact of H 764 (Changes to Teachers Pension and
OPEB)

• 6/30/09 Per Actuary Report Estimated Impact
• Pension 727.8 M 679.3 M
• OPEB 872.2 M 829.1 M
• Annual Required Contribution (Pension)
• As of 6/30/09 Valuation - 2011 63.5 M
• Revised Per H764 - 2011 48.2 M
• Savings for 2011 15.3 M
• Estimated Savings from 2011 2020 188.0 M
• OPEB ARC Pay As You Go
• As of 6/30/09 Valuation 62.1 M 19.9
• Revised Per H 764 - 2011 46.9 M
  19.9
• Savings for 2011 15.2 M

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Report of the Commission on the Design and
Funding of Retirement and Retiree Health Benefit
Plans for State Employees and Teachers (The
Retirement Commission)

• Key Findings
• These costs are growing much faster than state
  revenues
• States combined contribution for just pensions
  represented 5 of G.F. revenue in 2008. In 2011
  it is projected to be 7
• The Joint Fiscal Committees pension growth
  target is 3½ per year
• Investment returns will not get the state out of
  this problem
• The state has not been able to prefund for OPEB
• The Annual Required Contribution (ARC) has been
  increasing at an unsustainable pace, even before
  consideration of current economic events

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Report of the Commission on the Design and
Funding of Retirement and Retiree Health Benefit
Plans for State Employees and Teachers (The
Retirement Commission)
Key Recommendations

• Revise contribution rate for employees beginning
  in fiscal year 2011
• State workers from 5.10 to 5.83
• (Group F)
• Teachers from 3.40 to 5.47
• (Group C)
• Cap state share of annual pension contribution at
  3.5 - share in anything over/under
• Tiered medical premiums co-payment structure
• 40 - 10 years
• 60 - 20 years
• 80 - 30 years
• Provide ability to recapture the retiree health
  benefit
• Do not use pension obligation bonds to fund
  pension obligations

• No change to persons already retired or person
  within 5 years of retirement
• Do not replace defined benefit plan and
  transition to a defined contribution plan
• Fully fund ARC for pensions
• Implement a plan to fully fund OPEB obligations
• Revise normal and early retirement dates
• Raise normal retirement age to 65 from 62 (or
  rule of 90)
• Raise early retirement age from 55 to 58
• Lengthen salary compensation period use 5 years
  instead of 3 years
• Increase maximum benefit from 50 to 60 of final
  compensation

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• Other Thoughts and
• Observations

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