For the entirety of the previous decade a train wreck rolled toward South Carolina’s unemployment insurance system; and as it did, a few voices in the wilderness warned of impending disaster.
Their warnings, however, were ignored – and the train wrecked.
The results: The state went into hock to the federal government nearly $1 billion to pay unemployment benefits, and the state’s unemployment taxation system was reworked in ways that recently have hit some businesses hard.
Now, some observers say another, even bigger train – on the order of the theatrical thriller Unstoppable – is headed this way; and once more, the scenario of portents unheeded plays out.
This potential disaster in the making is unfunded liabilities in the state retirement system. Unfunded liabilities represent a shortfall between the value of the system’s current assets and the cost of benefits promised to future retirees.
Said former Gov. Mark Sanford of that gulf, “I think it’s a ticking time bomb that has yet to go off.”
Think of unfunded liabilities as a giant promissory note.
The amount of that commitment has been growing for years. But there is little agreement as to exactly how much the state retirement system’s unfunded liabilities total. The numbers are all over the map: $13 billion here, $53 billion there.
Still, all of the projections fall in line on this point: It’s billions with a “B.”
But it’s not just the benefits of future retirees at risk. If those obligations are not otherwise met, state taxpayers could be forced to shoulder the cost of them.
By some accounts that already is happening.
Each year state officials receive an actuarial report on the retirement system. The report evaluates its assets, liabilities and probable future outlays.
The latest report, for last fiscal year, recently arrived; and the news evidently was not good.
The report shows that the state’s (read: taxpayers’) share of retirement costs increased in 2009-10 by $88 million, according to S.C. Treasurer Curtis Loftis, who is a trustee of the retirement system by virtue of his office.
Loftis shared that news from the report, which the Cavanaugh Macdonald Consulting firm drafted, during a state Budget and Control Board meeting Tuesday morning in Columbia. He likewise sits on the five-member board ex officio.
But the other four members of the Budget and Control Board – Gov. Nikki Haley; Comptroller General Richard Eckstrom; Senate Finance Committee Chairman Hugh Leatherman, R-Florence; and House Ways and Means Chairman Dan Cooper, R-Anderson – did not want to get into the report.
Loftis moved to have the board receive it as information. He said now is the right time for the board to do so because the General Assembly is in session and could address the $88 million increase to taxpayers as a budget item. If not, Loftis warned, “It’ll be more next year.”
Haley, Eckstrom and Leatherman countered that they would rather wait and take a comprehensive approach to assessing and reforming the retirement system.
Haley said the undertaking involves, among other things, obtaining a second actuarial opinion. “We are not going to put our heads in the sand,” Haley said of dealing with the unfunded liabilities, adding that she will not burden taxpayers with those costs.
Leatherman said his Finance Committee and a subcommittee of it are working on plans to overhaul the retirement system. “I’m not looking for a Band Aid.”
Said Eckstrom, “I don’t think we want to rush this one.”
Loftis, sensing that his board colleagues were not going to back his request to receive the latest actuarial report as information, withdrew his motion. The board then proceeded to other business without accepting or discussing the report.
The treasurer was not happy about that.
“I’m disappointed,” Loftis told The Nerve after the meeting ended. He said he tried before it started to get the report added to the agenda, but was similarly defeated in that effort.
Loftis said the unfunded liabilities have been increasing every year. “And we have yet again kicked the can down the road.”
He is not the only state official to draw upon that analogy for the situation.
Indeed, S.C. Sen. Greg Ryberg recently looked to such a comparison in a symbolically rich occasion of political theater on the Senate floor.
It happened on March 2 when Ryberg, R-Aiken, carted three cans into the upper chamber, so known for reverence and deference. One of the canisters was something like Red Bull size; a second, about as big as a 24-ounce beer; the third, a 55-gallon drum.
Ryberg positioned the two small containers on the Senate podium and the large one beside it. He then addressed his colleagues in an extended senatorial custom known as a point of personal privilege.
Citing the latest actuarial report, Ryberg said, “The unfunded liabilities of the retirement system went from 30 years of unfunded liabilities to 37.6 years of unfunded liabilities.”
Again citing the report, he said the amount of the shortage sits at $13.3 billion.
But one wouldn’t know the system is in trouble from reading a letter from the actuary accompanying the report, Ryberg said. He quoted part of the letter: “In our opinion, South Carolina’s retirement system continues to operate on an actuarially sound basis.”
Ryberg went on to tell how he had seen billionaire investor Warren Buffett on television that morning proclaim that the most important thing state retirement systems need to do is find a friendly actuary.
“You see we’ve done that,” the senator said. “We’ve got a friendly actuary.”
Underscoring the point, Ryberg said of the report, “It doesn’t talk about fiscally sound. It says actuarially sound.”
And he identified who is in line to get the unfunded liabilities bill. “It’s all coming out of taxpayers’ pockets for us allowing the system to be where it is today.”
On that note, Ryberg then turned to his props.
“The reason I bring these cans in here is because we’ve kicked this can down the road for the last 10 years,” he said, pointing to them in order from smallest to largest, “and when we started, the can was about this size, and it grew to this size, and now it is this size.”
Reach Ward at (803) 254-4411 or eric@thenerve.org.