Editor’s note: This is the second of several articles from a legislative town hall meeting in Cullman last week.
Among the topics that arose at local legislators’ town hall meeting last week was the condition of the Retirement Systems of Alabama.
Still reeling from the economic downturn that affected market investments in 2008, RSA has been forced to turn to the Alabama Legislature for help in meeting its obligation to retirees across the state.
“RSA is hitting us for another $180 million to pay for all the retirees. That, to me, takes away money for our children,” said Ed Henry, a Republican state representative from Morgan County. His district includes a portion of Cullman County.
During the 2008 market crash, RSA investments lost an estimated $4.8 billion, followed by $2.3 billion in 2009. In 2010, investments by RSA gained a little more than $2.1 billion.
Before the difficulties set in, RSA investments had enjoyed a period of strong growth. During better times, the Legislature gave retirees a 4 percent cost-of-living increase.
The state’s cost for the system climbed from about $515 million in 2006 to $944 million in 2009, partly because of investment losses. During this period the number of retirees increased, and a change aimed at retaining veteran state employees was implemented, even as they gained additional retirement benefits. The DROP program, as it was dubbed, has since been eliminated.
Alabama House Speaker Mike Hubbard is among legislative leaders trying to work with RSA chief David Bronner in making the retirement system healthier.
State Sen. Paul Bussman, R-Cullman, said the RSA was financially even in 2004, but now poses a liability of more than $11 billion for the state.
“We got 0.53 percent on our money in three years. The median nationally is 3.96 percent. They’ve bought golf courses and newspapers and they talk about employing people in Alabama. But that’s our job, to set up incentives and create an environment that creates jobs,” Bussman said. “They need to be concerned about getting the best return on the investments.”
While the RSA will continue to be a challenge for lawmakers, Bussman said under Gov. Robert Bentley’s leadership and initiatives by lawmakers, about $1 billion has been saved by the state through elimination of duplicative services and other cost reductions.
“We have 196 agencies and departments in the state and 40 of those have duplication of services. There are 126 with at least some form of duplication,” Bussman said. “We are continuing to address that. We have all these department and agencies with separate computer systems and each one has its own contract for someone to service them.”
Bussman emphasized that his position is that tough decisions need to be made concerning the General Fund budget, noting that is why he opposed a constitutional amendment to allow lawmakers to borrow hundreds of millions of dollars over the next three years from the Alabama Trust Fund, which contains windfall money from oil explorations in the Gulf.
“In 2016, we’re potentially looking at a tough year, because that’s when that money goes away and we’ll have to begin paying it back. And as it stands, we don’t have a lot of room in the General Fund for anything,” Bussman said.
Concerning the state’s education budget, Bussman said the rolling reserve that was put in place by lawmakers is working well. He said the move preserves a portion of revenue and prevents schools from spending all of the money.
“It’s doing the job it was set up to do,” added Mac Buttram, Republican state representative from Cullman. “As it stands now, we’ll have money when its needed and we should be able to avoid the proration we’ve seen so many times in recent years.”
The 2013 legislative session gets under way Feb. 5 in Montgomery.
Editor’s note: The Cullman Times is owned by Community Newspaper Holdings Inc., a property owned by RSA.
David Palmer may be contacted at email@example.com or 256-734-2131, ext. 213.