Dear friend,

With about a week to go before the scheduled adjournment of the 2012 regular session of the General Assembly, there is little satisfaction in knowing we have failed to complete the primary work of the session, pass a budget, and have underachieved in other ways as well. I have used this space in past weeks to outline some of what I thought were shortcomings with the process this year. Specifically, I pointed out deficiencies in the budgetary process and the end product last week. On the first day of the session, the Republicans did not possess a majority, they did not have the votes to pass a budget, elect judges, or pass constitutional amendments. Nevertheless, they used the Lieutenant Governor to control organization of the Senate and the flow of legislation. That process resulted in a rigid social focus which detracted us from the real work of rebuilding the economy and putting people to work. And, the budget it produced underfunds K-12 education and health care, shortchanges localities, and has a number of other deficiencies. So where do we go from here?

We begin by understanding that historically there has been a difference between the Senate and the House of Delegates. When all 20 Democrats voted against the budget this year, some people claimed the action irresponsible and unprecedented. In fact, four years ago when there were 21 Democrats and 19 Republicans, all the Republicans voted against the budget. That was not seen as unprecedented or obstructionist. Those 19 people, I would suggest, had reasons for voting against the budget, just as members of our caucus did this time. In past years, whether Democrats had the majority or Republicans had the majority, we were able to work in a collegial way to get things done in the Senate of Virginia. The process completely broke down this year and, until some semblance of a working relationship is restored, we will continue to have difficulties.

While I remain hopeful that we will reach a compromise by March 10, the fiscal year does not end until June 30. In two recent years, 2004 and 2006, a budget was not achieved until the spring of the year. In fact, in 2006 the budget was not adopted until June 28. While I would prefer the Senate and House agree to a budget before the scheduled adjournment, a delay is not unprecedented, and there is no need to panic. I am confident we will be able to approve a budget before the end of the fiscal year.

One of the more important issues that this year's General Assembly has tried to deal with is the long-term solvency of the Virginia Retirement System (VRS). The retirement accounts for all public employees show about a $24 billion unfunded liability. How did that occur? Some will argue that Virginia has underfunded the system. In fact, historically, contributions to the retirement system constitute less than two percent of the annual state budget, while the average among other states is over three percent. Yet, retirement systems are coming up short nationwide. Our system's unfunded liability was created through a combination of factors, including Virginia's underfunding of retirement, the General Assembly's and Governor's reluctance to fund the retirement system at the level proposed by the Board of Trustees, and the recent economic slump. Downturns in the market have reduced the holdings of VRS and other retirement systems around the country. This year the General Assembly has considered a number of measures to try to right the ship over the long haul.

When the session began, we were met with the Governor's proposal to infuse approximately $2.2 billion in funding in the retirement system over the biennium. The bulk of new funding for education, under the Governor's proposal, was to go into the retirement system. So while claiming education funding increased, the Governor failed to address the cost of inflation for the Standards of Quality funding for K-12 education. He also proposed that localities increase funding for the retirement system, which was viewed by many as an unfunded mandate. But it was clear that no matter the shortcomings in the Governor's budget, we would address VRS in some way during the 2012 session.

In addition to investing more dollars into VRS, the Governor initiated legislation to reform the VRS system. He recommended an optional hybrid program be developed for state employees and reduced the multiplier for retirement benefits of new employees. For current employees, the proposal increased the number of years from three to five for calculation of final retirement benefits, reduced cost of living adjustments, and required an additional one percent employee contribution. The House and Senate have adopted different approaches, incorporating some features of the Governor's original proposal.

The Senate rejected the provisions to reduce employee benefits and created a mandatory hybrid program for state and local employees. The Senate's plan requires an employee contribution of four percent to the defined benefit plan and one percent to the defined contribution plan. The employee may also make voluntary contributions up to four percent, which will be matched by the state up to 3.5 percent. If an employee does not make these contributions voluntarily, the employee contribution will automatically begin increasing in 2017, unless the employee opts out. The Senate also required the five percent employee contribution be applied to teachers and local employees hired before July 1, 2010. The locality would have to offset the contribution with corresponding pay increases, as we did in recent years with state employees.

The House proposed an optional defined contribution plan that applies only to state employees. The House also reduced the multiplier for new employees and made the five percent contribution for existing teachers and local employees optional for localities. The House incorporated the Governor's suggestion to reduce cost of living adjustments and change the average final compensation calculation to five years. Those actions will reduce retirement benefits for our retirees.

While I initially supported the hybrid plan, I became concerned that it would have a long term deleterious effect on recruiting quality workers. As I've said on this page before, the retirement system must not only be there for those people currently in government service, but should incent talented people to work for the state. Because I was not convinced the hybrid approach would do that, I voted against the bill. Nevertheless, we have to find a solution to protect the long term solvency of the retirement system. All of the legislation is heading to a conference committee, in which a small group of Delegates and Senators will work towards a compromise. I look forward to reviewing the end product.

It is an honor to serve you in the Senate of Virginia. If I can be of service to you, or if you would like to share your thoughts or ask a question, or if you would like to visit Richmond and see the legislature at work, please contact me or Tracy Eppard, my legislative aide, at district25@senate.virginia.gov or (804) 698-7525.

Best,

Creigh

(Electronic mail, March 2, 2012)