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State Treasurer: America’s Ratings Warning is "A Wake-Up Call For South
By Curtis Loftis, Jr.
web posted April 28, 2011
Last week’s decision by Standard and Poor’s to slap
a “negative” credit outlook on the federal government is a wake-up call
for policymakers in South Carolina.
This unprecedented action – and the credit downgrade that will
inevitably follow if Washington politicians fail to rein in deficit
spending – represents a clear and present economic danger to our
nation. Closer to home, it’s a stark reminder of the fundamental
choices facing state leaders who have been tasked with the stewardship
of your money.
Will we cap the growth of state spending and implement the reforms
necessary to get our fiscal house in order? Or will we follow the
example of Washington and continue to spend recklessly while making
promises we cannot keep?
While a balanced budget requirement affords South Carolinians some
protection against the rampant waste we see in Washington D.C., by no
means is our state government proceeding on sound financial footing. In
addition to spending record amounts of money in the state budget, our
unfunded liabilities are reaching dangerous levels. This combination
adds explosive power to a ticking time bomb – one that will gain even
more destructive force if we do not take steps now to correct the
The current unfunded actuarial accrued liability (UAAL) of our state
pension fund is $13.5 billion up from $11.9 billion just one year ago.
Meanwhile, the latest actuarial valuation would increase the fund’s
amortization period from 30 years to 37.6 years. Cleary, these numbers
are moving in the wrong direction.
Unless our state wants to end up like Washington, its leaders must take
immediate steps to relieve the strain on our retirement system.
Unfortunately, some of our leaders don’t even want to acknowledge that
the problem exists.
Recently, I attempted to introduce the latest actuarial report into the
public record and to recognize the pension fund deficit. But that
effort of transparency was rebuffed, effectively putting taxpayers on
the hook for all costs associated with its growing imbalance.
How much money are we talking about? In the upcoming fiscal year, the
report estimates that the employer (i.e. taxpayer) contribution to the
system must be increased by $88.9 million. That money will now have to
come directly from public funds – meaning it won’t be available for tax
relief or to pay for things like teachers, police officers or prison
How do we keep this from happening in the future?
Firstly, we must consider alternatives to our current “defined benefit”
system, including moving South Carolina towards a "defined
contribution" system. Under such a plan, retirement benefits would be
provided based on what employees actually pay into the system - in
addition to whatever investment return is generated by the state's fund
managers. Currently, our state operates on a "defined benefit" system,
which guarantees payouts without any thought as to whether the money is
there to fund them.
Secondly, for future employees, South Carolina must scrap its costly
twenty-eight year retirement plan and return to a thirty year standard.
Thirdly, we must close the Teacher and Employee Retention Incentive
(TERI) program to new participants as this well-intentioned program has
been a huge drain on our system.
Without prompt attention our system will continue to hemorrhage
billions of dollars…with the taxpayers of SC liable for these losses.
South Carolina cannot afford to follow the example of Washington. We
must unite the stakeholders…government employees, retires, and
taxpayers, in an honest effort to maintain our promises, and to do so
in a manner that is affordable. As the state’s treasurer, trustee of
the retirement system, and the custodian of the pension funds, it is my
responsibility to push for these reforms that will place our state on a
more responsible fiscal course and preserve our state’s AAA credit
Curtis Loftis is the Treasurer of South Carolina.
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