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GERS Reforms Criticized as a Debt Risk

Dec. 30, 2006 — While government officials have said that new reforms to the Government Employees Retirement System would help make the system more solvent, some community members and senators have continued to insist the proposal could negatively impact the territory.
While senators voted recently to send the reforms back to committee for consideration by the 27th Legislature, Gov. Charles W. Turnbull included the proposals in a massive 50-page bill that was submitted to the Senate less than a week before the scheduled swearing in of a new administration.
Turnbull's original GERS reform bill was submitted to the Legislature in July, and has subsequently generated much concern for local community organizations such as AARP V.I. and Advocates for the Preservation of the Retirement System (APRS). After hearing testimony from the two groups, senators amended the bill to eliminate certain provisions, such as a section that raises the cap on retirees' annuity payments from $65,000 to $85,000.
At the same time, a few changes were also tacked onto the bill, such as a proposal that would allow the government to float up to $600 million worth of pension-obligation bonds to pay down a portion of the system's unfunded liability. During a special legislative session held last Friday, some senators said approving the reforms and floating the bonds would add to the government's "indebtedness."
"At some point, we have to not continue to set up the indebtedness and obligation of this government by floating another $600 million in bonds," Sen. Usie R. Richards said during the meeting.
Over the past few days, the Source has received emails from residents protesting the obligation bond proposal, along with another section of the bill that lays out new pay raises for the governor, lieutenant governor and senators.
"The bill provided for up to $600 million to help offset the unfunded liability of GERS," writes Paul Devine, a St. John resident. "If the full $600 million is borrowed, it would cost the taxpayers almost $1.2 billion over the life of the loan."
During previous Senate hearings, top government officials have said that floating the bonds would not add to the territory's general-obligation debt, which has a set limit, but would rather reduce the government's revenues, as money from the General Fund will have to be appropriated to pay down the debt-service requirement.
The government will have to appropriate $30.1 million annually from the General Fund to pay off the debt-service requirement. The government would give an additional $9.9 million as a contribution to GERS.
Community groups have also protested another section of the GERS proposal, which sets up a new retirement program for senators. Attorney Elmo Adams, legal counsel to the government, has said that senators would have to pay into the system to receive the additional benefits. But information submitted by various local residents indicates that senators will get certain privileges not granted to other people in the program.
For example, section 814(c) of the bill states:
"For purposes of this chapter, service as a member of the Legislature during any part of a calendar year shall be deemed to be a year of credited service: provided that contributions are made for the full calendar year.”
This means that senators who will work only until Jan. 8 could claim an additional year of credited service if they continue to contribute to the system for the rest of the year. With the additional year of credited service, some senators will see an increase in annuity benefits when they retire.
Senators who have served for at least six years will also receive a percentage increase in their retirement benefits based on their years in office. According to the bill, senators who have served:
–1 to 6 years receive 3.5 percent per year served of their annual salary. (Senators serving less than six years may request that their contributions be refunded);
–7 to 12 years receive four percent per year served of their annual salary;
–13 to 20 years: receive 4.5 percent per year served of their annual salary; and
–20 or more years: five percent per year served of their annual salary.
According to Adams, senators' benefits would be capped at 100 percent of their average salary. He added that any senator wishing to take advantage of the increased benefit would have to pay for it.
This argument has not quieted residents, who have continued to call for senators to "be held accountable" for voting in favor of the bill during last Friday's session.
"I think the people of the Virgin Islands have had enough," Devine writes. "This latest event is the straw that broke the back of the fiscal monster the government has created. We need to repeal what the Legislature passed on Dec. 28, 2006, as a day that will live in infamy."
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