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Gov. Earl Ray Tomblin’s plan for solving a $5 billion, retiree-related shortfall passed the House of Delegates on Thursday, a measure supporters argue will improve West Virginia’s Wall Street credit rating and relieve county school systems of a crippling financial burden.
The state Senate, which unanimously approved the measure last week, must sign off on a minor change made by the House before its 83-17 vote. The roll call came after GOP delegates criticized the bill’s cost-cutting provisions and questioned its constitutionality.
The legislation would gradually close a funding gap between on-hand assets and the expected cost of retirement health benefits promised to public employees. Government employers nationwide began calculating the liability from these nonpension, other post-employment benefits, also known as OPEB, in the wake of a 2004 national accounting standard.
Tomblin’s plan commits $35 million annually from personal income tax revenue toward OPEB costs. Of that amount, $5 million would fund a new reserve for state employees hired after June 2010.
For those hires, the Public Employees Insurance Agency has decided to end the subsidies it provides to retirees to help them with their premiums. Thursday’s bill makes the premium subsidy halt part of state law. It stops short of adopting another agency decision, to limit the growth of existing subsidies to 3 percent annually.
Both decisions together cut the state’s estimated OPEB liability in half, from $10 billion. Agency officials project that without additional funding, the shortfall will close in 40 years. Tomblin’s bill would speed up that payoff, to 2037.
The majorities of both chambers are Democrats, as is Tomblin. Before Thursday’s vote, Del. Scott Varner told colleagues that concerns over the state’s debts prompted his first run for the Legislature in 1992. Urging support, the Marshall County Democrat said tackling this remaining quandary is one reason he isn’t seeking re-election this year.
During Varner’s tenure, West Virginia successfully privatized its costly workers’ compensation program. It also began following a stable, multidecade payment plan that will eliminate a teacher pension shortfall. Among other benefits, attacking these multibillion-dollar liabilities has helped improve the state’s Wall Street credit rating and allowed it to build one of the strongest emergency reserves among the states.
Varner said business leaders had already started contacting him to praise the OPEB game plan.
“This is truly a historic day for West Virginia. It’s the last of the unresolved debt issues,” Varner said. “After the passage of this bill, bond rating agencies will look at us in an even better light because we’ve addressed this issue.”
To close the funding gap by 2037, Tomblin’s bill also embraces a dozen cost-saving measures proposed by PEIA. They include increasing reliance on generic prescription drugs, and reducing excessive emergency room visits. GOP delegates tried without success to remove that language Wednesday. Before Thursday’s passage, House Minority Leader Tim Armstead lost a bid to allow a separate vote on the bill’s cost-cutting portion.
Del. Kelli Sobonya, R-Cabell, questioned why West Virginia should follow the 2004 national accounting standard. It was developed by a private, independent organization formed to help state and local governments improve their accounting and financial reporting. Because it is not a government agency, this organization cannot enforce its standard, Sobonya argued.
“What penalty do we face here in West Virginia if we just merely show on the books that there’s a liability?” Sobonya said before voting against the bill.
A spokeswoman with the Governmental Accounting Standards Board was not immediately available for comment Thursday. The 2004 standard does not require the funding of these liabilities. Before it was issued, government employers had followed a pay-as-you-go approach. At least three-fourths of the states continue to do so, said Ronald Snell, a senior fellow at the National Conference of State Legislatures.
But the standard has also helped state governments realize that they together have unfunded pension and OPEB shortfalls that top $1 trillion, according to a 2011 examination of state balance sheets by The Associated Press. West Virginia decided to go above and beyond the standard in 2006. It created a trust fund for this liability, and began billing government entities annual amounts for their employees’ share of the shortfall. Sobonya helped the House unanimously pass that law.
Thursday’s measure includes a major change to that 2006 law. This provision would have the state shoulder the portion of the shortfall from county teachers and school personnel funded through state dollars. The state school aid formula pays for at least 80 percent of these employees, but county boards of education have been billed for these as well as county-funded employees. Counties must list unpaid amounts as debts, potentially threatening their ability to issue construction bonds.
This provision in the bill shifts that liability without making it a state debt, and while keeping the state-funded teachers and personnel as county employees. Sobonya and other GOP delegates challenged its constitutionality before Thursday’s vote. They cited language that places tight limits on state-incurred debt.
“We have to decide, as a Legislature, are these debts of the state or the counties,” said Armstead, R-Kanawha. “I think that what we’ve tried to do is walk a fine line in both directions on this bill.”
House Finance Chair Harry Keith White, D-Mingo, referred to other debt-related language in the constitution to argue that the bill would pass a court’s scrutiny.
Cabell County’s school board was among the 49 of the 55 county school boards that unsuccessfully sued the state over the OPEB law. The shifting provision was among the lawsuit’s proposed solutions, Cabell Schools Superintendent William A Smith said Thursday.
“Speaking for the Board, we would support this legislation,” Smith said in an email.
Republican delegates sought Wednesday to have the affected school teachers and personnel declared state employees. Among other effects, that would bar teachers from serving in the Legislature. Del. Bill Anderson, R-Wood and an educator, cited that impact when he helped defeat the amendment.