Legislative Report

Report 10-09
July 1, 2010

FEDERAL DELAY SINKS RETIREMENT FUNDING

The General Assembly approved the Appropriations Act of 2010 (Senate Bill 897) this week. The ratified bill does not contain any new funding for the Teachers’ and State Employees’ Retirement System (TSERS). In addition, the adopted budget establishes a list of prioritized budget reductions that will be activated if the U.S. Congress does not approve additional Medicaid assistance for the states. North Carolina would receive an additional $518 million if the Medicaid assistance is approved by Congress.

The budget conferees became increasingly concerned during the past two weeks that the U.S. Congress would not act on the additional Medicaid assistance, referred to as FMAP (Federal Medical Assistance Percentage), before the General Assembly adjourned this year. As a result, the conferees abandoned efforts to provide additional funding in a number of areas, including the requested additional funding for the Teachers and State Employees’ Retirement System (TSERS). The scaled back budget agreement that was approved this week gave top priority to the state’s public schools and university system.

The budget still includes the additional $160 million for TSERS in 2010-11 that was approved by the General Assembly last year. However, most of this amount ($139 million) is held in a contingency reserve pending a decision by the U.S. Congress on the additional FMAP funding. If the Congress does not approve the additional funding by January 1, 2011, the Governor is directed to implement extraordinary budget adjustments by taking monies from several sources that are listed in priority order. This list includes:

(1) Transfer from the Disaster Relief Reserve Fund	$ (30,000,000)
(2) Transfer of unclaimed lottery prize money and excess receipts	(35,000,000)
(3) Use of interest from all other funds	(50,000,000)
(4) Use of balance in General Fund Availability	(23,469,157)
(5) Reduction of Medicaid Provider rates	(26,618,975)
(6) Use of funds from the Savings Reserve Fund	(37,307,714)
(7) Reduction in Retirement System contributions	(139,000,000)
(8) One percent (1%) Management Flexibility Reduction	(177,500,000)
TOTAL	$ (518,895,846)

TREASURER COWELL RESPONDS

State Treasurer Janet Cowell issued a strong statement on Tuesday as the General Assembly met to adopt the budget. The statement is presented below in its entirety.

 “Underfunding the pension system by $310 million is a short-sighted and fiscally irresponsible way to balance the budget. Pension contributions function like credit card debt  in that they are contractual obligations with compounding interest. Left unpaid, the next bill gets bigger and harder to pay. Legislators are setting themselves up for a $1.2 billion pension bill in 2011 – a year in which the projected budget shortfall is $3 billion. It is my responsibility as Treasurer to sound the warning call that we are starting down a dangerous path. I urge legislators to uphold the 69 year tradition of meeting our pension obligations lest we go the way of too many credit card debtors who find themselves in a deep hole they cannot get out of.”

Legislative leaders responded by pointing out that the 2010-11 state budget still includes an employer contribution to TSERS of nearly $500 million. Further, the retirement fund will receive the additional $160 million if the Congress approves FMAP assistance, leaving a gap of only $181 million. Senate leaders stressed that TSERS still is funded at a 97% level and has sufficient resources to pay pension benefits to all current retirees and active employees.

NEXT STEPS

Approval of Federal FMAP assistance to the state now becomes critical to maintaining the funding of the Teachers’ and State Employees’ Retirement System. North Carolina is one of more that 40 states that need this Federal assistance to keep state budgets in balance.

Our Association will work closely with our partner organizations, the State Treasurer, and the North Carolina Congressional delegation to secure Federal assistance. This will be a difficult task given the mounting concern in the Congress that additional spending will produce an unmanageable Federal deficit.

We will keep our members informed of our efforts by continuing these weekly reports after the General Assembly adjourns. With the revised state budget now adopted, it appears that the legislature may adjourn as soon as next Friday.