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The Forgotten Debt

A few days ago, the North Carolina Legislature had to pass emergency legislation to bailout their state’s health insurance plan for employees and retirees. The cost to North Carolina taxpayers will approach $700 million over the next two years, an amount that is hauntingly familiar to South Carolinians who are familiar with our own budget crisis. “We don’t really know yet what caused the health plan to suffer the unprecedented losses,” said Rep. John Blust, R-Guilford, who wanted responsibility for overseeing the health plan taken away from the Legislature and given to the Governor.
We could face a similar problem with our state retirement system. At a recent meeting of South Carolina’s Budget and Control Board, Governor Sanford showed the other board members that the unfunded liability in our government’s retirement system has grown from $200 million to $24 billion over the last decade. The most recent numbers reveal that our state has less than $20 billion in assets to pay for $44 billion in promises that have been made. This gap has grown by 20% over just the past six months – partially because our retirement system’s investments lost nearly $10 billion in the past year. And the deficits will continue to get worse unless we make significant changes to our retirement plan.
Our retirement system for state and local employees, including teachers, is one of the most generous in the country; unfortunately, we are a relatively poor state and can’t afford the current system. And if South Carolinians have any doubt that an underfunded state benefit plan can turn into a crisis, we need only look to our neighbors in North Carolina.
Governor Sanford has suggested that if we take the $700 million dollar stimulus package then we should figure out a way to reduce the unfunded amounts owed to our state employees – including teachers. Unfortunately, the debate over taking the stimulus funds from Washington has turned into a litmus test of a politician’s support for public education. The debate has been reduced to either funding public education at their 2008 levels or terminating 4000 public school teachers. This simplified presentation of the problem has obscured another threat – the silent and very real threat that we cannot afford to fund the retirement system in the future.

Fortunately most voters understand the problem of government debt better than many elected officials. The crowd at the recent “Tea Party” in Greenville showed their disgust at ever increasing deficit spending by our government. Voters have an expectation that their elected representatives act in a prudent manner. Voters expect us to ask the hard questions such as “can we afford this?” And if we cannot afford to continue funding programs beyond our means, then voters expect us to make the hard decisions – either raise taxes or cut benefits.

As both a Legislator, the spouse of a public school teacher and a pension consultant who assists over 300 corporations with compliance issues regarding their qualified retirement plans, the status of our state government’s retirement system is of special interest to me. I cannot think of a better way to support teachers than making sure that the amounts that we have promised them for their retirement becomes a reality when they retire. That is only prudent.