New Treasurer Can Help This State Act Boldly

Published Friday, August 10, 2007

By Richard Eckstrom

Last week, the state Legislature appointed Rep. Converse Chellis of Summerville to complete the term of our former state treasurer who recently resigned. At one time I was state treasurer, so I'm very familiar with the duties of that office.

Treasurer Chellis will assume an extremely competent, professional staff to handle the daily activities of his new office, important activities like investing public funds and servicing state debt. My advice would be for him to rely on his competent staff to handle many of these functions and to devote his own time to critical matters where the citizens of South Carolina are now grossly underserved.

I'm referring to work that needs to be done to fix the serious funding problems of the state retirement system. State officials have been willing to all but ignore these escalating problems for years. When I was elected state treasurer in 1994, I warned that the state retirement system was pitifully underfunded. In fact, at that time the retirement system was short-funded by 25 percent, amounting to a massive shortfall of over $3 billion. Since 1994, because of a series of awful management decisions, that shortfall has been allowed to balloon to about $10 billion! That's a disgrace.

Most elected officials have refused to reasonably address this financial calamity. Some are willing to pay lip service to it, but except for Gov. Mark Sanford, most have not had the political courage to work to eradicate this destructive financial cancer growing on our state.

In contrast, I hope that the new treasurer will have the political courage to work to address this mess. For too long, state leaders have ignored it, and by doing so they've forced us into an almost unmanageable predicament. Denying or refusing to address this difficulty won't make it go away. Doing that has only made it worse.

Frankly, by failing to act for as long as it has, the state may have forced itself into having to restructure the entire retirement plan. Doing so would require legislative action, but I hope that the new treasurer will encourage his hesitant former colleagues to act decisively without further delay.

Above all, as a new member of the Budget and Control Board, I hope that the new treasurer will refuse to commit a blunder routinely made by board members. Whether or not to grant annual COLAs (cost of living allowances) is a board decision. I ask the treasurer, as a fellow CPA, to not further weaken the retirement system by voting to grant additional benefit increases like COLAs until the retirement system's funding crisis is cured. The retirement system already is staggering under a crushing $10 billion load of promises that already have been made -- yet have never been paid for. The system must not be weakened any further.

There is something extremely cynical about promising benefit increases -- without funding those promised increases -- while fully aware that the retirement system already is unable to afford existing commitments. Regrettably, that has been done routinely in the past.

On a related matter, the state has promised public retirees $9 billion in future health insurance coverage and, once again, has not funded its promises. I hope that the new treasurer will encourage the Legislature to set up a fund immediately to begin paying down that $9 billion liability rather than let this situation deteriorate any further.

We must be realistic. The credit rating agencies are wondering how the state plans to pay for today's enormous unfunded retirement benefits. Elected officials have committed us to huge liabilities that are almost beyond comprehension. It is unlikely we will recover our AAA credit rating, which we lost a few years ago, until we honestly commit to a realistic workout plan for this dilemma.

If the Budget and Control Board and the Legislature fail to meet these obligations, South Carolina history would be justified in dealing very harshly with all elected state officials from our era. After all, many of them have created this gigantic mess for the taxpayers. If today's elected officials won't clean up after themselves, the good people of South Carolina would do well to find others who will.

Richard Eckstrom, a former certified public accountant from Greenville, is the comptroller general of South Carolina and one of the five members of the state Budget and Control Board. He served one term as state treasurer and was re-elected in 2006 as comptroller general.