- SEANC leader paints unfunded liabilities fix as “not difficult”
- But massive liabilities have every NC family of four on the hook for $16k
- Fully funding these liabilities would consume nearly 1/5 of state budget
Robert Broome, executive director of the State Employees Association of North Carolina, rightly praised some of the fiscally prudent steps being taken by State Treasurer Dale Folwell in this opinion editorial published by the Raleigh News & Observer on Friday August 10 (We Don’t Need to Cut State Employee Benefits).
Significantly reducing fees in the pension plan and renegotiating provider contracts with the State Health Plan are unquestionably steps in the right direction.
Disappointingly, however, Broome glosses over the seriousness of North Carolina’s pension and retiree health benefit unfunded liabilities, claiming “Fixing the unfunded liability is not difficult.”
The state’s pension fund is facing a $7.9 billion unfunded liability – a figure that has climbed by $11 billion in 13 years and is likely significantly worse if more reasonable assumptions were used. Annual budget payments devoted to pension benefits come to nearly $1.5 billion, yet they are far from sufficient to cover the growing liability.
Unfunded state retiree health benefits now total nearly $33 billion (see pg. 202). Annual taxpayer appropriations to finance these retiree health benefits now exceed $950 million, and still fall far short of fully funding the liability.
All told, taxpayers are paying nearly $2.5 billion every year to pay state retiree pension and health benefits – more than 10 percent of the total General Fund budget – yet this amount comes nowhere close to keeping up with accruing liabilities.
Combined, these liabilities exceed $40 billion. With a population of about 10.3 million, that is a government-imposed burden of roughly $4,000 for every man, woman and child in North Carolina, or $16,000 for every family of four. And what’s worse, the burden is growing rapidly.
So, how does Broome propose to tackle this ticking time bomb of massive unfunded liabilities, in a way that is “not difficult”?
In addition to the cost savings already undertaken by Folwell, Broome casually mentions “full funding of the employer share of retirement costs” as rounding out that “not difficult” path of fixing the liability problem.
Broome is very sly in his wording while doing a great disservice to the reader in casually tossing in this phrase. In reality, the “employer share” of retirement costs is state budget appropriations paid with your tax dollars.
Moreover, Broome provides no figures on what “full funding” would actually look like. Spoiler alert: it’s not pretty.
According to the Office of the State Controller’s annual report, to fully fund state retiree health benefits alone would require $2.7 billion in taxpayer dollars every year, nearly three times the current annual allocation (see pg. 204).
Combine that with even the $1.5 billion for pension payments that are currently insufficient, and “fully funding” these obligations would cost taxpayers more than $4.2 billion per year—and that number would grow annually.
The $4.2 billion would be about 18 percent of the state’s current $23.9 billion General Fund budget. That amount would be more than the state’s share of its Medicaid program, or more than total state spending on the UNC System and Community Colleges combined.
To casually toss in “fully funding” of the liabilities as if it were “not difficult” reveals Broome’s intent to mislead the reader. To meet this stipulation would require either the largest tax increase perhaps in state history, or, for example, a cut in pay to all full-time classroom teachers of about 45 percent.
Broome also makes the claim that the unfunded pension liability is a matter of the fund being “deliberately underfunded” in previous years. Nonsense.
Promised pension benefits grew a whopping 80 percent from 2003 to 2016, far exceeding the state’s economic growth of 66 percent during that time. Simply put, the pension liabilities grew much faster than the state’s economy – and therefore taxpayers’ ability to fully fund them. North Carolina’s economy just couldn’t keep up with the ballooning liabilities.
In sum, Broome would basically have us kick the unfunded liability can further down the road. Folwell’s moves should rightly be lauded and are long overdue. However, they barely amount to a raindrop in the tsunami of unfunded liability being forced upon North Carolina taxpayers.
The casualness Broome displays about “fully funding” these liabilities through the budget exposes either his ignorance of the significant sacrifice required to make this happen, or a truly offensive dismissal of the financial burden it would impose upon hard-working North Carolina taxpayers.
True reform is needed now. Otherwise, taxpayers and current state employees will be forced to pay an even steeper price.
