Vermont’s Pension Solution: Civility

By: - March 16, 2011 12:00 am

Photo courtesy of VSEA
Bob Hooper (left), president of the Vermont State Employees Association, developed a close working relationship with Governor Peter Shumlin (right).

Vermont’s public pension problems differ very little from those in Wisconsin, New Jersey or Maine: The state fell behind on its payments to cover the cost of retirement benefits. Market losses during the recession widened the gap. Vermont’s workers are aging, so retirement costs are going up.

Yet you don’t see the governor criticizing public employees, in contrast to those in Wisconsin, New Jersey, Maine and other states. No members have walked out of the Vermont Legislature, which is considering legislation to require an increase in public employee pension contributions. Union-covered state employees are not protesting in Montpelier.
Instead, Vermont’s state leaders have avoided the acrimony in other states by taking a more civil approach to its public pension crisis: sitting down and working out differences with its unions. State workers have had to promise a lot of sacrifices — pay cuts, layoffs, higher contributions to their pension plan and additional years before they can retire. The tradeoff is that they have made their pension system more secure while helping to trim Vermont’s budget shortfall.
On his first day in office, Governor Peter Shumlin invited union leaders to his office to talk about Vermont’s financial challenges. “In my experience, you get more with maple syrup than vinegar,” Shumlin said in an interview with Stateline . “I’m puzzled by the approach taken by some of my colleagues who prefer confrontation to common sense.” 
 Whether the Vermont way can be exported to states currently involved in contentious fights with their public employees is an open question. But the state does offer an alternative approach that has produced success.
In the past 14 months, Vermont state employees voted to accept a two-year, 3 percent pay cut, the first in the state’s history that has happened. The state’s teachers agreed to a plan requiring them to work three additional years before retiring and contribute 1.6 percent more of their pay towards their pension. The state’s other large union, which represents most public workers outside of education, voted to increase pension contributions by 1.3 percent over the next five years; the governor and legislative leaders say they will approve it.
The state is reaping significant savings from the public pension cuts. Vermont’s budget shortfall of about $150 million will shrink $15 million in the current fiscal year from the teacher retirement reforms, $2 million from the pay cut and $5 million from the higher state employee contributions. Teachers keep their defined benefit plan, with larger retirement checks. Other state workers retain current pension benefits, although their checks do not go up.
Unionized employees get the satisfaction of knowing that they are easing the state’s financial troubles, which in turn strengthens Vermont’s ability to keep up with its public pension contributions. That sense of self-sacrifice might not be as easy to engender in a larger state, but it matters in the nation’s second-least populous state. The unions “have a sense of the challenges their friends and neighbors who are paying their salaries are facing,” former Governor James Douglas, a Republican, said in an interview.
Town meeting tradition

Although Douglas launched the austerity measures by cutting his own salary 5 percent two years ago, he angered union leaders by proposing deeper pay and benefit cuts than they wanted. He recognized he was a lightning rod, moved aside and allowed then-state Treasurer Jeb Spaulding and legislative leaders to negotiate with Vermont officials of the National Education Association. 
The first breakthrough was the 2010 accord requiring teachers to work additional years and pay higher retirement contributions but giving them a larger pension and expanded health benefits for retirees and spouses. At the same time, unionized state employees outside education voted to cut their pay 3 percent for two years beginning last July 1.
Heading into 2011, Shumlin, who succeeded Douglas, said he would budget $5 million in savings from state employee retirement plans in the spending blueprint for the fiscal year that starts July 1. Members of the 7,500-member Vermont State Employees Union, meeting among themselves before talking to legislators, voted to contribute an additional 1.3 percent of their pay towards their pension plan, up from the current 5.1 percent.
The union president, Bob Hooper, says the union is willing “to help the state with its budget problem” providing that the increase is in effect for five years or until the pension system reaches full funding, whichever comes first. Shumlin and legislative leaders say they will accept the union’s offer and approve legislation enacting it into law. “Our objective was to retain our benefits level and the easiest way to do that was to make an increased contribution,” Hooper explains.
The willingness of unions to help solve Vermont’s financial problems stems in part from the fact that union officials are members of the state retirement board. In that way, unions have access to the financial data of public pension plans showing the long term challenges.
Something else is happening, though. University of Vermont business professor Michael Gurdon calls it the “town meeting syndrome.” Dating back to the late 1700s, Vermont residents traditionally have come together each year to discuss issues of their community and state; the so-called town meeting day now is the first Tuesday in March. The familiarity fosters an atmosphere of mutual respect.
“Vermonters are accustomed to addressing issues in a civil fashion and through a lot of tough debates,” says Douglas, now an executive in residence at Middlebury College. “Our tradition to do it in a civil way may be partly our size. You know you are going to run into your adversary at the supermarket, the dump or your kid’s basketball game. So there’s a sense we can’t have the hostility you see in other places.”
More pointedly, Gurdon says, in small school districts parents get to know the local teachers, who are not highly paid. At the same time, he says, teachers “are well aware of the travails of their town neighbors and their property taxing limitations. Thus, there is some moderation in collective bargaining and even a willingness to share the sacrifice.” 

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.