Commentary: Bond Sale Is The Responsible Way
To Address Pension Debt

The Register Herald, May 22, 2005

By Bob Kiss

When interest rates drop, it often makes good sense for an individual to refinance a major loan, such as a home loan, in order to lower payments or to shorten the life of the loan. It is a very practical move and can save a person thousands of dollars.

If the state is able to "refinance" its pension debt, taxpayers would save up to $1.5 billion.

It is very important that on June 25, voters approve an amendment to the West Virginia Constitution to allow that refinancing to take place. I only hope that some of the misconceptions that have been stated in some news reports and columns don't prevent it.

By selling bonds against our pension debt, the state would not be taking on any additional debt. We already owe more than $5 billion in pension payouts. We are currently 10 years into a 40-year plan to pay that off, a plan which increases our payment by $20 million each year. If we sell that debt to bondholders, we are guaranteeing a level payment plan.

I cannot speak for Moody's or other investor services, but the general reaction from discussions which we have had with these financial experts has been that if the state does not incur new debt, and has in place a mechanism to responsibly compensate for the state's "sins of the past" in failing to make adequate payments into the pension systems, this bond sale should not have a negative effect on the state's credit rating and may in fact have a beneficial effect. So not only would we be saving as much as $1.5 billion in debt payments through the refinancing, we could make it easier for the state to finance other projects, such as new roads or infrastructure.

This is not about borrowing money. The state already owes this money in future pension benefits.

The difference is that in the 1990s, the Legislature, realizing that for the past few decades legislatures and administrations had been increasing salaries and benefits without paying enough into the pension systems to cover them, put in place several safeguards to ensure the problem will not get worse. And this year, we created law that essentially will "tear up the credit card" if any future Legislature or administration attempts to incur irresponsible debt.

What will happen if this amendment is not adopted? In the next few years, the Legislature will be forced to find some other way to help pay off the pension debt. The state cannot continue to pour so much into the system. This year, the payment is $320 million, about 10 percent of the entire general revenue budget. By the end of the 40 years, in 2034, the required payment will be $724.7 million.

The Legislature and the past three administrations have done a laudable job of responsibly paying into the pension system, but the strain on the state budget is becoming too great. Without the refinancing bond sale, the Legislature will have to either increase taxes or drastically cut from other areas of the budget. Keep in mind, some of our most important services, such as public education and higher education, consume more than 60 percent of the general revenue budget, and it is those areas that are bound to suffer dramatically as a result of such cuts.

It should be noted that any commissions or investor fees resulting from the bond transaction are capped by recently adopted legislation. In addition, before the bond sale can take place, the Legislature must approve an additional resolution. So if the fees or commissions arranged by the administration still appear to be exceeding the cap, the Legislature would have the ability to reject the issuance of the bonds.

The Legislature and several successive administrations, Republican and Democrat, believe that this is the best alternative in a world of difficult choices. The proposed bond sale is the responsible way to address the problem of West Virginia's pension debt.

Please get out and vote on June 25, and punch "yes" in favor of the constitutional amendment.

Bob Kiss is Speaker of the West Virginia House of Delegates.