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March 19, 2001 12:00 AM

State seizures

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    Some state officials are taking a Willie Sutton approach to solving budget problems. They're going "where the money is" - to the state pension funds.

    Using public pension funds in financing state budgets might have some appeal, if elected officials have responsibly funded their retirement obligations all along.

    Recently, elected officials in Virginia and North Carolina have cut or tried to cut contributions to their state retirement systems, possibly to use the money to help finance the states' budgets.

    Virginia state lawmakers included a measure to cut retroactively the state's contribution by about $200 million in the state budget bill. Although the budget wasn't approved, their effort likely will be revived. North Carolina Gov. Michael Easley suspended contributions for the rest of the fiscal year that ends June 30, hoping to obtain $151 million.

    In the case of North Carolina, a pension fund official noted the retirement plan is overfunded, so a moratorium on contributions might not hurt it financially. But how overfunded? Overfunded using what actuarial methods? Some methods might show the fund overfunded, while others might show it still underfunded.

    Officials who have responsibly funded a state's retirement plan and achieved a surplus in assets should consider taking a contribution holiday or using a portion of the surplus for spending. But at the same time, they ought to detail a plan for restoring that money, or at least maintaining what would be a healthy funding level.

    Short of adopting a specific restoration plan, this tapping of pension funding ought to be viewed with skepticism and rejected. In a rush to cut back on pension contributions to shore up state budgets, elected officials could quickly do great damage to the financial resources of the state retirement programs. That could jeopardize the pension income of thousands of participants and force taxpayers in the future to cover the liabilities with possible special tax increases.

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