Governor Shumlin Goes to Washington…Again

by Angela Chagnon

Governor Shumlin canceled his weekly press conference Thursday to testify at the House Committee on Oversight and Reform at the Capitol in Washington, DC.

Congressman Elijah E. Cummings (D-Maryland) requested the Governor’s presence to “provide valuable insight as his state and the entire country continue to recover from the recent economic recession,” a letter from Cummings, quoted in a press release from the Governor’s office, reads.

The letter goes on to say:

“Governor Shumlin will also bring a perspective that is markedly different than that of the majority’s witness, Wisconsin Governor Scott Walker, allowing the Committee to obtain a wider and more balanced range of views on these issues.”

Shumlin’s office released the text of his testimony Thursday afternoon. Placing the blame of Vermont’s fiscal problems on the recession, the Governor said that Vermont is facing “significant budget shortfalls because our revenues are down and the need for government services is up.”

Citing the cost of healthcare and corrections as “the most significant cost driver in Vermont”, Shumlin also acknowledged that the state pension and retiree health care obligations for state employees were “on our list of long-term fiscal concerns.” He said that the state had taken steps to address the state employee benefit issues by not “undermining traditional defined benefit plans,” which he claimed are “far better” in terms of “retirement security” and “are more efficient than defined contribution plans.”

Shumlin used his soapbox to upbraid state governments for focusing on “division and blame” rather than “bringing people together to solve problems.”

Borrowing a page from Senator Bernie Sanders’ playbook, Shumlin declared, “I do not believe that those to blame for our current financial troubles are our law enforcement officers, firefighters, and other state employees whose services we take for granted.”

The Governor went to say that Vermont had “negotiated a 3 percent cut in salary for all state employees, and those at higher income levels have taken a 5 percent pay cut, for two years with no step or other increases”, along with raising the retirement age. Taking a swipe at Governor Scott Walker, Shumlin said this had been done “without circumventing the collective bargaining process that has strengthened the middle class in Vermont and America.”

Shumlin continues:

“Consider the changes to Vermont’s Teacher pension and retiree health plans that went into effect this past July. The state’s annual actuarially required pension contribution decreased by almost 25 percent right away. Long-term unfunded liabilities were reduced substantially. Several years ago, our state employees agreed to similar changes, with higher retirement ages and contribution levels. They have just agreed to another increase in their pension contribution rates starting in July.”

David Coates, a member of the Governor’s Council of Economic Advisors, has served on the Council for every Vermont Governor since Governor Kunin. He also held a position as managing partner of KPMG, a well-known auditing firm, of which he is now retired.

Asked to comment on Shumlin’s remarks concerning the pension and retirement fund, Coates replied, “I did review the Actuarial Reports and the savings appear closer to 23%.”

He continued:

“The estimated savings in the reduction of the unfunded liabilities are not as much as we anticipated when the Commission on the Design and Funding of Retirement and Retiree Health Benefits Plans for State Employees and Teachers (Retirement Commission) made their recommendations. The primary reason being not all of our recommendations were adopted in H.764.”

Tom Licata, an economist and founder of the Vermonters for Economic Health, brings up several issues regarding the Governor’s testimony. First, he disputes Governor Shumlin’s claim that the recession is the cause of Vermont’s fiscal troubles. Licata wrote in an e-mail to True North Reports:

“We are in a deep and prolonged “deleveraging” cycle, caused by decades of “leveraging” up on debt – with little investment-return on this debt to show for it – as much of our borrowed money was spent on transfer payments and consumer-consumption rather than fixed investment and necessary structural changes which would have lead to the kind of innovation and productivity required of an aging and outdated, 20th century economy.”

Licata also takes on Shumlin’s statement regarding healthcare and corrections being the “most significant cost driver in Vermont”:

“I find it humorous that he does not mention Vermont education spending, which is some five times greater than corrections’, and has grown similar if not more than Vermont’s correction budget even as student population has continually declined for over a decade.”

While the Governor feels that decreasing the state’s pension contribution by 25% is a “significant” savings, Licata believes that this number is minimal compared to what it could have been.

“[T]here is no mention of the fact that the state’s discount rate is 8% – 8.25% when figuring its unfunded liabilities. Almost all economists believe these rates are far too high and lower rates would lead to higher liabilities and greater annual contributions…thus crowding out other areas of state spending.”

Licata continues:

“Like Congressman Cummings, Gov. Shumlin sets up a “straw man” argument, declaring “I do not believe that those to blame for our current financial troubles are our law enforcement officers, firefighters, and other state employees….” He then implicitly chides Gov. Walker for not “put[ing] aside partisan differences, tone down heated rhetoric between labor and management, and work together….” Congressman Cummings explicitly blames Wall Street with no mention of the Federal Reserve Bank’s low interest rate policies, HUD’s home ownership goals for low income households and Fannie Mae and Freddie Mac’s securitization of subprime loans.

What Gov. Shumlin fails to mention is the fact that the Vermont legislature, he and the unions are essentially negotiating with themselves, as they are all of one political party and mind; a situation that Gov. Walker does not enjoy.”

Licata concluded by saying, “I find Gov. Shumlin’s testimony highly deceptive and not out of character.”