GRUFF Position Paper (August 2021): Government retirees need to be aware that there is a movement afoot to cut our pensions as a result of the looming insolvency of the Government Employees Retirement System (GERS). The problem arises from the government’s monumental decades-long failure to make adequate employer contributions to GERS. Now, faced with its own financial crisis, it appears that the government has the audacity to suggest that retirees should bear the consequences of the government’s decades-long fiscal irresponsibility.
The government presumably will tell us that it has no choice but to cut accrued pension benefits. But that is simply not true. Accordingly, Government Retirees United for Fairness Inc. (GRUFF) urges all government retirees to let our senators and GERS officials know that we will not accept a cut to our hard-earned pension benefits.
As a starting point, please recall that just over a year ago, on May 13, 2020, the Board of GERS issued a letter to the Senate in which it requested an immediate cash infusion of $195 million or, alternatively, recommended a 42% reduction in all pension benefit payments. The inhumanity of that proposal was and is shocking, particularly when approximately 77% of retirees receive a pension benefit that is already below the minimum wage, and approximately 25% of those retirees are 80 years old or older. Just as troubling is the fact that this cut was suggested in a vacuum, with no bridge to an actual solution to GERS’ insolvency – just a proposal to slowly starve pensioners of their pensions. Of course, the cash infusion was not made by the government.
Against this backdrop, it was recently reported that in the week of April 12, a seven-member sub-committee of the Legislature, chaired by Senator Vialet, met with members of the GERS Board to discuss GERS’ insolvency. Senator Vialet spoke about “sav[ing] the system.” However, tellingly, Senator Frett-Gregory was quoted as saying, “The solutions are not easy solutions. We’re going to have to make some hard decisions, but at the end of the day our focus is . . . to ensure that we have some solvency going into the future.” These statements are inherently contradictory: either the system’s solvency is saved in its totality or it is not.
Clearly then, when Senator Vialet and others speak of “saving the system” they are not talking about saving pensions; they are talking about saving the system by cutting pensions. References to “hard decisions” and a goal of ensuring “some solvency” are a telltale of proposals for deep pension cuts on the horizon, perhaps along the lines of GERS’ May 13, 2020 proposal. This is completely unacceptable.
The first point to make here is that GERS is not a representative of, or a collective bargaining unit for, government retirees or the participants in the GERS pension plan. To the contrary, GERS is an instrumentality of the Government (3 V.I.C. § 715(a)), with no ability to bind the government retirees to any deal involving a modification of accrued pension benefits.
The second point to make here is that any legislation to implement such pension modification would likely be found to be unconstitutional. GRUFF submits that it would violate the U.S. Constitution if the VI Government tried to solve its own financial challenges by singling out one creditor group (i.e., the retirees) and seeking to break its contractual payment obligations to them (i.e., the obligation to fund our pensions). That is not permissible under the “Contracts Clause” of the U.S. Constitution, which was made applicable to the VI Government in 1954 by Section 3 of the Revised Organic Act.
GERS pays out more than $250 million in benefits per year. But the government has historically funded less than $100 million per year in employer contributions, or only about 40% of what GERS pays out. Thus, even after accounting for employee contributions, the government massively underfunds GERS every year. As a result, GERS is expected to completely run out of money in 2-3 years. Meanwhile, the government owes $2.4 billion to Wall Street bondholders and pays – in full and on time — approximately $140 million per year in debt payments to these Wall Street investors, or about one-and-a-half times as much as it pays to GERS annually. So: why aren’t bondholders being asked to shoulder their fair share and take a cut in their bond payments? It does not appear that there has been any attempt by the government to include bondholder debt reduction as a key component in restoring the solvency of USVI and, in turn, GERS. GRUFF submits that this is unacceptable and unconstitutional.
If the government truly wants to revitalize USVI, it must protect the income of its retirees, who buy goods and services and pay taxes in the territory — not impoverish (or further impoverish) those residents in favor of paying Wall Street investors who do not buy goods and services or pay taxes in USVI.
A comparison to Puerto Rico is instructive here. In 2017, Puerto Rico’s pension systems were essentially bankrupt (like GERS). Puerto Rico’s electric power authority was operating a fragile and antiquated generation and transmission system and needed a major overhaul, with no funding to do so (like WAPA). And Puerto Rico was laboring under a mountain of public bond debt (like USVI). While Puerto Rico’s restructuring is not complete, its current status is worth noting.
Puerto Rico has already cancelled approximately $5.6 billion of “COFINA” bond debt that was backed by sales tax revenues. In addition, Puerto Rico has proposed approximately a 60% reduction of its fixed annual total bond debt payments (in USVI, assuming annual bond debt payments of $140 million that would equate to a savings of approximately $84 million per year). In contrast to these cuts to bond debt, Puerto Rico proposes to preserve more than 96% of all accrued pension benefits, and approximately 74% of all retirees will experience no pension reductions.
Puerto Rico thus provides a vivid example of another path to restoring the financial health of USVI that is more effective and more equitable to the people of USVI. As such, any proposed “solution” to USVI’s financial problems that focuses primarily or solely on cutting pensions, and not at all on cutting its public bond debt, is clearly unreasonable and unnecessary.
The options for retirees are simple and stark: would we prefer (a) a restructuring process that will address USVI’s finances as a whole, restoring financial solvency to the territory, and minimizing pension cuts by including all creditors (including bondholders) in the financial solution, or (b) a process that seeks to resolve USVI’s financial crisis largely through drastic cuts to the accrued pension benefits of its retirees? The choice for retirees should be crystal clear. And for the Governor, the Legislature, and other public officials elected to protect the people of USVI, the choice should be equally clear: protect retirees and their pensions, not Wall Street investors.
In sum, GRUFF submits that retirees should not accept being singled out by the government and taking the fall for the government’s own continual fiscal irresponsibility, and we will not accept a pension cut under these circumstances.
Government Retirees United for Fairness Inc.