Pension Issue Will Not Bring New Taxes

The Register-Herald, June 6, 2005

Editor's note: This is the second of a two-part series explaining why both business and labor say the proposed pension bond should be approved in the June 25 election.

CHARLESTON -- One wrong notion about the proposed $5.5 billion pension bond issue is that, if passed, the state is going to fish deeper into the wallets of West Virginia's taxpayers. In reality, defeat of the question on the special June 25 election ballot might ultimately lead to higher taxes to make ends meet, or a drastic cut in services.

David Haney, executive director of the West Virginia Education Association, puts the issue into simple layman's terms. "What we're doing is moving from a variable mortgage rate on our homes to a fixed rate," he says. "We're refinancing our home like a lot of people did."

Back in 1994, when the Legislature adopted an amortization schedule in a move to cover the unfunded liability in pension plans for teachers, judges and state troopers, the idea was to retire the debt in 40 years. Trouble is, that plan requires a bigger payment each year. "The state's payment this year is about $350 million, and that's like 11 percent of our state budget," Haney said. And the annual payment under the existing plan climbs right into 2034, when it soars to a whopping $724 million, or more than 22 percent of this year's budget.

Gov. Joe Manchin is asking voters to approve a fresh plan that obligates the state to a fixed, $350 million payment over the next 30 years.

"In fact, it will save the state at least $1.5 billion over the next 30 years," Haney said. "That is an absolutely enormous amount of money."

In today's numbers, the savings translates into about half of this year's total state spending. "We're basically paying a variable rate now," he said. "The way I describe it (bond issue) is not much different than paying off the mortgage on a home with a fixed rate of interest."

Haney says one misconception among some voters is that the proposal is saddled with a tax increase.

"It's not a new debt," he said. "It's an old debt West Virginia already owes. We're not adding any new debt. We're already paying it. It doesn't increase taxes. We're already paying $350 million a year. We're just keeping it at $350 million. It's not adding something new. As a matter of fact, it saves money."

If the issue fails at the ballot box, Haney doubts the Legislature would ever default on its payment in the current plan.

Yet, once the payment begins to rise substantially, and the squeeze gets more inured, push definitely will come to shove. "The Legislature will have to cut the budget or take some other action to raise revenues," Haney said.

Already, the pension obligation is wielding an effect on the budget and services government provides, he noted. "Every new dime the state has received over the past several years has either gone to pay pension obligations or to health care costs or other things in the state," he said.

"I don't care what it is. Services provided by state government are being hampered by the fact we have this debt. All new revenue sources over the past several years, and foreseeable ones for the future, are going to end up paying this debt, rather than to enhance our state to promote jobs, promote our economy."

Obviously, with teachers' pensions part of the mix, the WVEA has a major stake in the outcome of the election. Which explains why the state's largest teachers union is spending so much time flooding the households of its 17,000 members with information packets.

Additionally, Haney noted, the group has produced a 5-minute informational video to be shared with families, friends and community leaders.

Haney said taxpayers not only will not be facing new taxes under the proposed bond but will have a built-in protection against incurring any new liability. Benefit changes for retirees can only be granted if the Legislature provides a means of amortizing it within a six-year window and must identify the source of revenue.

"Another important thing to know is that when the resolution passed in the Legislature, there was overwhelming support on both sides of the aisle -- Republicans and Democrats," Haney said.

Haney pointed to a wide array of groups in support, many of which normally aren't on the same side of the table -- the WVEA, AARP, the West Virginia Bankers Association, state Chamber of Commerce, the United Mine Workers of America and even a former Republican governor, Cecil Underwood.

"Obviously, those kinds of divergent groups who normally do not agree with one another supporting this issue indicates to me very strongly that it's in the best interest of our state," he added.