Failed reactors, budget-busting pension plan could have been anticipated, prevented
South Carolinians are rightly upset by the fiasco at the V.C. Summer nuclear plant in Fairfield County.
When South Carolina Electric & Gas and Santee Cooper halted construction on two nuclear reactors this summer, they left consumers on the hook for billions of dollars spent to date, but also for potentially billions more.
Customers across the state are indignant. They want and deserve answers.
Yet another disaster that will cost much more than V.C. Summer has been playing out in full view for years. In this calamity, it’s not just SCE&G and Santee Cooper customers on the hook, but all South Carolinians. I write of our grossly underfunded state pension plan.
Now some of you may be thinking, “Didn’t we just solve that problem?” After all, we’ve been told that the Legislature stabilized the pension system this spring when it passed H.3726, touted as the “Public Employees’ Pension-Reform Bill.”
I don’t want to be a Grinch, but H.3726 didn’t mend our troubled pension plan — unless your idea of “stabilization” is raising taxes to manufacture a superficial and short-lived remedy.
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H.3726 did little more than convert an unseen pension debt into an official levy on South Carolinians.
Conservative estimates show that South Carolina’s pension plan is underfunded by at least $24 billion. Other assessments have shown the shortfall to be $40 billion or more.
The plan approved by the Legislature is for taxpayers to pick up most of the additional cost of sustaining our system. State agencies, cities, counties and school systems that employ state workers, all supported by taxpayers, are forking over more money.
This is what some would have you believe passes for a solution.
By 2022, that amount will be an additional $827 million or more in taxpayer dollars — every year. For a long, long time.
Even if the pension system is underfunded by “just” $24 billion, it would take more than a quarter century of taxpayers chipping in nearly a billion dollars every year to get it fully funded. And that’s provided the pension system doesn’t accrue more liabilities than already anticipated.
Significantly, H.3726 puts an additional financial strain on cities, small towns, public universities and hospitals. Local officials may have to eliminate teachers, first responders and other essential positions and services, or raise taxes — or all of the above — to get revenue to prop up the plan.
This is what some would have you believe passes for a solution.
Years of intentional underfunding, bad investment decisions and unrealistic actuarial assumptions created a perfect storm of fiscal heartache.
South Carolina didn’t get into this predicament overnight, and it didn’t happen by chance. Years of intentional underfunding, bad investment decisions and unrealistic actuarial assumptions created a perfect storm of fiscal heartache.
And given the faulty mechanisms inherent in the “revised” pension plan, such as the unrealistic rate of return, officials appear intent on foisting the problem onto the next generation rather than fixing it.
Without a major overhaul, we could be paying an additional $827 million or more every year in perpetuity.
Consider this simple point: H.3726 lowered the pension plan’s assumed rate of return from 7.5 percent to 7.25 percent. However, over the past 10 years, the S.C. Retirement System investment plan has shown an annualized return of just 4.34 percent. It’s irresponsible to estimate future returns at nearly 3 percentage points more than that of the past decade.
Both calamities went unnoticed until it was too late, and now it’s the little guy and gal who are left to pick up the tab.
We as a state need to take a cold, hard look at our pension plan — its projected rate of return, how long plan participants pay in and whether the current defined-benefits system is feasible going forward — and make some difficult choices.
Unfortunately, the epic failures of V.C. Summer and the state’s pension plan happen all too often in South Carolina. Per usual, both calamities went unnoticed until it was too late, and now it’s the little guy and gal who are left to pick up the tab.
Unless we initiate a culture of reform and begin holding accountable those responsible for the pain inflicted on taxpayers, it’s unlikely these debacles will end anytime soon.
Mr. Loftis is the state treasurer; contact him at treasurer@sto.sc.gov.
This story was originally published December 14, 2017 at 10:35 AM with the headline "Failed reactors, budget-busting pension plan could have been anticipated, prevented."