A last-minute budget provision could ‘torpedo’ NC pensions and cost taxpayers | Opinion

Republican state legislative leaders boast that they’ve cut taxes dramatically while also building a bulging rainy day fund, realizing budget surpluses and keeping state borrowing to a minimum.

But those financial achievements are mostly the result of failing to maintain the state’s historic investments in education and help for the needy. In that, the Republican-controlled legislature has been reckless, not restrained.

Now comes another blatant trampling of the public interest – an undermining of the state public employees’ pensions and health plans. Under a provision of the state budget, new state employees of UNC Health Care and ECU Health became ineligible as of Jan. 1 for the state pension and health plan. Instead, they’ll enroll in plans offered by the two health care operations.

You don’t need to be a forensic accountant to detect that there’s something suspect in this deal. The health and pension plan change passed the state Senate unanimously, but went nowhere in the House. Then it popped up in the state budget and became law without amendment or debate.

Supposedly, this change will help UNC and ECU health plans attract employees with enhanced benefits. That’s yet to be seen. What it surely will do, in the word choice of state Treasurer Dale Folwell, is “torpedo” the current plans used by state employees.

Why? Because it will cut the number of new employees coming into the plans while leaving the cost of paying for health care and pensions to a smaller pool of public employees. State employees must be a participant in the state pension plan to be a participant in the State Health Plan.

Tim O’Connell, executive director of the North Carolina Retired Governmental Employees’ Association, described the change this way: “Someone ordered food, ate it and walked out on the tab. There is a bill due and it’s not going to be funded.”

And once one group of state employees is allowed to exit, other groups may follow.

This backdoor change shows what really drives this legislative majority. It’s not concerned with prudent management of state funds. Its priority is doing what benefits individual Republican lawmakers and powerful corporate interests.

Witness the state budget replete with pork projects for favored legislators, the puzzling and unpopular push for casinos backed by an army of lobbyists, the protecting of Duke Energy’s fossil fuel plans, the freeing of nonprofit Blue Cross of North Carolina to wheel and deal with mergers and acquisitions and the shredding of environmental rules at the behest of the home building industry.

This latest bow to special interests isn’t just an issue for state employees and retirees. Unless the legislature corrects this cost shift, taxpayers may have to spend more than $1 billion to cover the shortfall.

Folwell is frustrated that Senate leader Phil Berger and House Speaker Tim Moore gave a green light to the change without deferring to, or at least consulting with, those most affected.

“If Sen. Berger and Speaker Moore want to do away with the state pension plan, then they need to say it instead of torpedoing it with one torpedo at a time,” said Folwell, a Republican candidate for governor.

Folwell said in a news conference on Tuesday that the change was driven by those who will benefit from setting up and managing the alternative retirement and health plans.

“This was done in the middle of the night for the benefit of lobbyists and consultants whose names we really don’t know yet,” he said. “Somebody is laughing all the way to the bank at the expense of public employees.”

In addition to shifting costs to other state employees and taxpayers, this change will worsen a vacancy rate among state employees that’s now more than 20 percent. That, in turn, will further erode the quality of state services.

Pension and health care benefits attract applicants for state employment. Weakening the stability of those benefits weakens that attraction.

Dan Doonan, executive director of the National Institute on Retirement Security, said a few other states have allowed defections from public pension plans, but they’ve had to go back and make corrections through legislation, or spend more to cover the shortfalls that result.

In an article in Forbes magazine, Doonan said the change in North Carolina needs to be reconsidered before the damage from lost participants begins to be felt.

“North Carolina has been a national leader in pension fiscal responsibility,” he wrote. “The state can sustain that reputation by asking tough questions today about [UNC and ECU health care] and taking appropriate action in short order to protect state employees and taxpayers.”

Taking such action would represent a careful handling of state finances. But that, we’re seeing once more, is not really what this legislature is about.

This story was originally published January 9, 2024 at 1:15 PM.