CHARLESTON W.Va. -- Quote of the week: "The problem is, we're living too long. You can't work for 35 years, and then retire for 40 years." -- state Budget Office director Mike McKown.
McKown made headlines last week when he told legislators they will be looking at an $80 million shortfall in the upcoming 2013-14 state budget, and that the gap is expected to grow to $260 million the following budget year.
Shortly afterward, the West Virginia Center on Budget and Policy declared the budget woes self-inflicted, noting the elimination of the sales tax on food, and cuts in the corporate net and business franchise taxes amount to about $316 million a year in lost tax collections.
(That's not surprising, since the WVCBP is funded, in part, by labor unions whose members would not be well served if the Legislature closes the gaps by cutting state government jobs, or cutting back on state contracts.)
However, WVCBP missed a bigger contributor to the budget gap, the $390 million a year the state has to put into the Teachers' Retirement Fund under a 40-year plan to pay down a $5.5 billion unfunded liability created when governors and Legislatures in the 1970s and early 1980s failed to adequately fund the pension system.
McKown noted that the annual payment for the sins of the past eats up almost 10 percent of the state's general revenue budget each year.
"If we didn't have that, we could really do a lot of things with $390 million," he said.
And that 40-year plan was only made possible by the infusion of about $807 million in tobacco settlement funds in 2007. (Thank you, Darrell McGraw ...) Without that, if memory serves, the contribution under the old pay-as-you-go plan would be getting up in the range of a budget-busting $600 million a year by now.
While West Virginia has tried to act responsibly to adequately fund pensions for teachers and state employees, the same can't be said for other states and municipalities, McKown said.
Detroit is filing for bankruptcy, in part because of massive pension deficits for city employees, he noted. Chicago has a $19 billion unfunded liability for municipal pensions, while the state of Illinois has a $96 billion liability and will exhaust its teacher pension fund within five years. (He didn't mention it, but California is in the same pension mess.)
McKown said the Legislature needs to take heed of those numbers, since at some point, the federal government will probably have to step in with some way to pay those pension obligations.
"U.S. citizens will probably be bailing all these pension funds out," he said.