GEORGIA — Former Franklin County Senator Carolyn Branagan wants Vermonters to understand the seriousness and potential impact of the long-term underfunding of the state's retirement system. It's the primary reason she chose to run for state treasurer.
Branagan, a Republican, is challenging incumbent Democrat Beth Pearce. She has few issues with Pearce's performance in office, and is instead focused on raising awareness of this issue and steps the state needs to take to address it.
The state of Vermont has a retirement fund which covers pensions and health care for three sets of workers: state employees, public school teachers, and municipal employees.
The municipal portion of the fund is fine, according to Branagan, but the rest is in trouble.
"The retirement fund is $4.5 billion in the hole," she said. "We've got to straighten it out in the next couple of years."
"The rest of us have a legal and moral obligation to make good on the promises we made," Branagan said. "We need to stop the bleeding so we can make good on our promises to these elderly people."
If the state doesn't address the problem, the state would have to either increase taxes to cover the fund or not provide retirees with the benefits owed to them and face lawsuits, Branagan explained.
Having served on the House Ways and Means Committee for 12 years, Branagan said, "we're pretty much taxed out."
By the end of the current fiscal year, that hole in the fund will be $1 billion deeper. Asked how that could happen, Branagan said Pearce, to her credit, brought the legislature an opportunity to restructure the fund, but the legislature refused to fully fund the restructuring.
The state's investments have also not paid out as expected, given the way COVID-19 damaged the economy, explained Branagan.
"The rest of this deficit took a long time to build up," she said.
Each year actuaries looking at how many people will be drawing on the fund in the future and make recommendations about the amount the state should place into the fund. From 1991 through about 2006, the state put in less than was needed each year.
"At the end of that time, it starts to really add up," Branagan said.
"The other way the fund makes money is through investments," she added, "and those haven't paid out the way they should."
When there are shortfalls in investment revenue, the treasurer's office looks to the General Fund for funds to make up the shortfall, but that takes money away from other needs, Branagan explained.
She is recommending the state take the following steps:
- Whenever the state adds new positions there should be a report so the treasurer's office can make adjustments to the expectations for the fund;
- If the legislature opts not to place the full recommended amount into the retirement fund, a written explanation about why should be required;
- The fund should be subjected to an annual stress test to see how it performs under certain conditions such as a war, natural disaster or pandemic;
- There should be a standardized process for choosing investments and the assumptions underlying them.
When costs to the fund increase, particularly health care costs which continue to rise faster than inflation, both the state and employees should share those costs, in Branagan's view.
"I'm not blaming Beth Pearce or anyone at the treasurer's office," said Branagan. "Legislators have ignored it."
Getting legislators to address the problem means convincing the people legislators represent — Vermont citizens — that this is a problem that needs addressing. Branagan sees that as something she could do well.
"One thing I'm really good at is communicating," said the retired educator. "I think if the Vermont public understands how close we are to going off the cliff here, I think they will demand legislators fix this."
"I don't want to be dramatic. I want to be real," Branagan said. "The problem is big enough it could impact every aspect of our Vermont life."
The state's previous plan was to put half of all budget surpluses toward the retirement fund deficit. "It's a drop in the bucket," Branagan said, as well as a source that may be hard to come by given the current economic outlook.
In addition to overseeing the retirement fund and advising legislators, the treasurer's office serves as the state's bank, provides financial education to residents and serves as a conduit for returning misplaced funds. "All of these functions are working well," Branagan said.
Having served in both the Vermont House and Senate — she left the General Assembly two years ago because of health concerns but is fine now — Branagan said that serving in the legislature isn't an easy job.
"You need to have people who can make a decision," she said. "People who are willing to do the homework. You've got to have someone who knows how to think and get things done."
"Whoever [Vermonters] vote for, they can speak to this issue because they'll have listened to two people how have studied it extensively, me and Beth," Branagan said.