If North Carolina state lawmakers want to dismantle the state's defined benefit pension system for teachers and public employees, they should declare their intention and debate such changes in a public process, State Treasurer Dale Folwell said Tuesday.
The state legislature passed a provision in the fiscal 2024 budget that let UNC Health Care and East Carolina University Health create their own pension and health care plans.
UNC Health proceeded, and employees hired after the beginning of this year are now placed in a separate defined benefit plan. The East Carolina health system opted not to change,
The withdrawal could cost state employees and taxpayers billions of dollars in unfunded liabilities and taxes, the treasurer said.
If allowed to stand, the move could spark an exodus from other state agencies seeking similar withdrawals from state systems, thereby undermining their financial health and ability to pay future benefits, Folwell said.
"UNC Health Care had been married to the pension plan," he told The Bond Buyer. "Then they had something placed in last year's budget that says, starting last week, all new employees will no longer have the option of choosing between the pension system and the program they manage over there called the ORP, other retirement plan.
"In addition to that, once you're no longer connected to the pension system it means you're no longer connected to the health plan," Folwell said.
"So they are trying to get a divorce from the state pension system. They want to do that without paying the bills they have here at the pension system, which is nearly $500 million and nearly $1 billion of liabilities in the state health plan," he said. "It is a torpedo into one of the safest, most secure pension systems in the United States, if not the world."
He asked what the purpose of the move was.
"What problem are they trying to solve?" he asked. "The people who went to work at UNC Health Care had a choice between the pension system and the ORP — they have taken away that right from their state employees, so they can no longer choose. It's a serious concern."
The state budget passed in September. Gov. Roy Cooper, a Democrat, criticized many of its contents but allowed it to
The gerrymandered state legislature is controlled by three-fifths GOP supermajorities despite statewide elections that are highly competitive between Democrats and Republicans.
Republican Folwell has been state treasurer since 2017. He is running for the GOP nomination for governor to replace the termed-out Cooper.
While the fate of the system's tax-exempt status and credit ratings are unknown at this point, Folwell did say it was a worry for the future.
"The bond rating agencies have a very favorable opinion of North Carolina, especially since we're in the process of retiring 60% of our state debt over an eight-year period of time," he said. "But they also know from looking at the bankrupt Social Security system of the United States, you can't have a system where there are less people paying into the plan than are not."
The state has triple-A ratings across the board, in part because, in part because as Fitch Ratings noted in its June rating affirmation, "pension funding is among the strongest of the states, although funding levels declined with changes to actuarial assumptions in recent years."
Folwell said the employees who will remain in the plan may have to pay more if others are split off.
"What this means is that everyone else left at the table will be left paying the bill," he said. "This will impact the agencies that will be left in the pension plan because the employer contribution rate, the percentage of the payroll that has to come from their budget into the pension system every year, is going to be going up because of the actions of UNC Health Care. And it's also going to impact the state health plan on top of that."
In August, Folwell and the state Health Plan Board of Trustees approved no premium rate increase for members for the benefit year which began Jan. 1. This was the sixth year in a row there were no rate increases.
Separately, officials from Mecklenburg County and the Charlotte-Mecklenburg school system attended a Tuesday meeting of the Local Government Commission for an information session on an issue of $2.5 billion of general obligation bonds it wants to sell over the next five years.
Voters there
The district gave the LGC a detailed look at its plans for a multi-tranche multi-year GO deal.
According to the school district, 30 projects to alleviate overcrowding will be funded with proceeds from what would be the largest tax-exempt bond issue ever approved by the LGC, chaired by Folwell, which must sign off on most local bond sales in the state. The commission reviews if the amount that municipalities or authorities want to borrow is reasonable for the projects proposed and their ability to pay it back.
The work will include constructing school buildings and renovating and providing upgrades to other school facilities.
The Charlotte-Mecklenburg school system has 184 schools, with 86 at or exceeding 100% utilization and is currently using 120 portable classrooms. Its enrollment is the second largest in the state at 140,863 and it is the 17th largest school district in the nation. It's population is about 11 million people.
The district's capital improvement plan for fiscal 2024 through 2028 totals $3.99 billion, comprised of $2.5 billion for 30 school projects and $1.49 billion for 59-non-school projects.
The school projects will be funded entirely with proceeds from the GO sale while the non-school projects will be 50% funded on a pay-go basis and 50% with non-voted debt.
The county's bonds are rated triple-A by Moody's Investors Service, S&P Global Ratings and Fitch Ratings.
"As recently as December, we had rating agency monitoring calls with both Standard & Poor's and Moody's and discussed with them our current financial position as well as our plans for the future — and did include these bonds we are discussing today and both of them confirmed our triple-A bond rating in their updated reports they issued in December," said David Boyd, the county's CFO.
The first tranche of $300 million of GOs is expected to be sold in fiscal 2025 with three additional tranches issued over the next seven years.
A one cent tax increase is expected in 2025, 2028 and 2029 for a total of three cents per $1,000 of assessed property valuation for the school bonds.
The presentation was given only to provide updated information to the LGC. The commission is expected to vote on the school bond request at its next meeting in early February.
Additionally on Tuesday, the LGC approved almost $320 million in financing for local projects across the state.
The LGC approved a Holly Springs request to issue $100 million of GOs for parks and recreational facilities and greenway infrastructure projects. A tax increase of 5 cents per $1,000 of assessed property value is expected.
The commission also gave the green light to Fuquay-Varina's request to sell $85 million of revenue bonds for expansion of the Northern Harnett wastewater treatment plant and enlarging collection capacity of the Southern Oaks gravity sewer.
Huntersville got LGC approval to issue $58 million of revenue bonds to fix streets and non-motorized paths as well as for parks and recreation facilities. A tax increase of 3.5 cents per $1,000 of assessed value is expected for the transportation improvements and a tax hike of six-tenths of a cent for the parks and recreation projects.
Beech Mountain won approval for a sale of $15 million of GOs. Proceeds will go toward improving the water system, including building a reservoir and a pumping station. A tax increase of 11 cents per $1,000 of assessed property is expected.
The LGC approved Wendell's request to issue $50 million of GOs for a new park, greenway and recreational facilities and to pay for improvement work to streets, sidewalks, bridges and overpasses. A tax increase of about 7 cents per $1,000 of assessed property is expected.
