An Open Letter to New State Treasurer

State of South Carolina

Office of Comptroller General

1200 Senate Street

305 Wade Hampton Office Building

Columbia, South Carolina 29201

August 1, 2007

Dear Mr. Treasurer:

I’m looking forward to your appointment. At one time I served in the office you’ll soon occupy, so I know precisely what you’ll be facing when you become the next State Treasurer.

You’ll assume a very competent, professional staff to handle the daily activities of the office, important activities like investing public funds and servicing state debt. My advice would be to lean on your competent staff to handle these functions and to devote your time to acute 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 under funding of the State retirement system. State officials have essentially ignored this growing problem for many years. When I was elected State Treasurer in 1994, I warned that the State retirement system was acutely under funded. In fact, in 1994 the retirement system was short-funded by twenty-five percent, which was a massive shortfall of over $3 billion.

Since 1994, through a series of terrible management decisions the shortfall has ballooned to nearly $10 billion! That’s alarming.

Many state leaders are unwilling to confront this financial disaster. Some are willing merely to talk about it, but very few have shown the political courage to confront the core problem and eliminate it.

In contrast, I hope that you’ll come into office with the political courage to eliminate this destructive financial cancer that’s now growing on our State. 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 problem won’t make it go away. Doing that has only made it worse.

Frankly, by failing to act for as long as it did the State may have forced itself into having to restructure the entire retirement plan. That would be the Legislature’s ultimate decision, but I hope that you’ll encourage the Legislature to act decisively.

Above all, as a new member of the Budget and Control Board I hope that you’ll refuse to make a mistake commonly made by Board members. Whether or not to grant annual COLAs is a Board decision. I plead with you not to further weaken the retirement system by voting to grant additional benefit increases like COLAs until the retirement system’s funding problems are cured. The retirement system is already staggering under a crushing load of unfunded promises and it can ill-afford to be weakened further.

There is something cynical about promising benefit increases -- without funding those promised increases -- while fully aware that the retirement system already is drowning in a sea of red ink.

On a related matter, the State has promised public retirees $9 billion in health care benefits and, once again, has not funded those promises. I hope you’ll encourage the Legislature to establish a trust fund immediately to begin liquidating that $9 billion liability.

The credit rating agencies are wondering how the State plans to pay for its unfunded retirement benefits. The recovery of our AAA credit rating is unlikely until we commit to a workout plan. You and I have a duty to all South Carolinians to provide strong financial leadership on these enormous challenges.

Again, I look forward to your appointment and to working with you on these difficult challenges. If we fail to meet this test, South Carolina history books would be justified in dealing very harshly with the elected state officials from our era.


Sincerely,

Richard Eckstrom

S.C. Comptroller General