Lynchburg-area school divisions brace for VRS-fueled budget gap

Lynchburg-area school divisions could face more than $11 million in added costs in 2012-13, based on Gov. Bob McDonnell’s proposal to increase required state and local school division payments to the Virginia Retirement System.

The expense has school officials from the area’s six divisions worried.

"We understand changes need to be made to the system, but it's just the impact of it all at once is just more than we can handle," said Steve Edwards, director of business and operations for Appomattox County Public Schools.

Bedford County School Board Chairman Dave Vaden said his division already is starting out this year’s budget process with a $2 million gap due to the end of federal stimulus funding. A required $2.8 million increase in payments to VRS would compound the problem.

"We could be $5 million in the hole. We're going to have to look at everything,” Vaden said, referring to potential cuts.

It's too early to speculate how much local money the county’s board of supervisors may be asked to contribute to make up shortfalls, he said.

Superintendents and school division leaders worry making additional cuts to division services to offset costs would decrease the quality of education they can provide.

In Lynchburg, the school board is set to ask City Council for $4.7 million, including $3.5 million for VRS increases. That leaves the board looking elsewhere for $1 million in projected health insurance costs and $350,000 in increased operating expense requests from division staff, while seeking ways to handle the loss of the $2.5 million in federal stimulus funds.

 “We've been cutting each year,” Lynchburg School Board member Regina Dolan-Sewell said. “It's hard for me even to imagine where is that even going to come from without impacting our classrooms.”

Projected increases in VRS contributions for other area divisions include: Appomattox County, $650,000; Amherst County, $1.2 million; Campbell County, $2.3 million; Nelson County, $609,000.

Local legislators, including Sen. Steve Newman, R-Lynchburg, said they face conflicting pressures as they ponder the issue.

“We are talking about what options we have, but clearly we have got to do what we need to do to protect VRS for the system,” Newman explained.  “I have talked to superintendents in Bedford and Campbell before I came down here, and I look forward to talking to others to understand the need."

State Sen. Tom Garrett, R-Louisa, whose 22nd District includes much of Lynchburg, said the Virginia Retirement System is not sustainable, a reality that is putting budgetary pressure on both state and local governments.

“While we need to find a solution that is sustainable in the future, we also have an obligation to our employees who have established careers in the existing retirement system,” he said. “I believe we must keep our promise to them, while building a bridge to a, as yet defined, new and sustainable system.”

(Staff writers Ray Reed and Justin Faulconer and the Richmond Times-Dispatch contributed.)

Why are local school divisions facing steep projected increases in payments to the Virginia Retirement System?

In his two-year budget blueprint released last month, Gov. Bob McDonnell proposed putting an additional $2.2 billion into the Virginia Retirement System to shore up state employee and teacher pensions. That plan would contribute $1.6 billion to teacher retirement funds, with local governments picking up $1 billion and the state government paying $600 million.

Why is the VRS funding boost necessary?

Last month, McDonnell called the additional contributions necessary to "reverse the downward spiral" of the funded status of retirement plans administered by VRS — projected to decline below 65 percent by next year — and ensure their long-term solvency. The system is recovering from steep investment losses in the recession, while the state consistently has contributed less to pensions than recommended by the VRS Board of Trustees and its actuary. McDonnell's proposal would restore about $264.5 million of the $620 million in state funds he and the Assembly deferred in 2010 to balance the current two-year budget without tax increases or significant layoffs.

Why would localities have to contribute $1 billion?

Teacher pensions are the joint responsibility of the state and localities, with local governments generally paying about two-thirds of the cost of contributions to retirement plans for teachers — who are local, not state, employees.

What happens next?

Two General Assembly committees — Appropriations in the House of Delegates and Finance in the Senate — are reviewing the governor's budget proposal. Other legislators are proposing their own budget amendments, and some of those could affect VRS contributions. In late February, the House and Senate will appoint conferees to resolve differences in their two budget plans. The full assembly must agree on a budget before adjourning — projected for March 10.

Could budget projections for school divisions change?

Yes. Virginia will update its revenue projections for the 2012-13 fiscal year in early February, after January's collections are tallied. The proposed budget always is adjusted to reflect those projections.

As the political budget season unfolds, the actions of state lawmakers and local governing bodies also will affect the projected budget gaps anticipated by area school divisions. Sometimes the differences from beginning of budget season to end can be dramatic. For example, at one point in 2010 the Lynchburg City Schools projected a FY 2011 budget gap of $17.8 million, or 21 percent of its operating budget, but ultimately that shrunk to about $8.7 million, or 10 percent. 

— Jessie Pounds, Ray Reed