Governor McDonald has targetted 2 critical areas for huge cash infusions:  VRS and higher education.  The governor plans to pump over 2.2 Billion into the state pension plan.  He also intends to spend over $200 million over the next two years in higher education.  Both areas are quickly approaching critical mass of not being able to do what they are intended to do.

According to hamptonroads.com:

Gov. Bob McDonnell’s announcements this week that he intends to pour $2.2 billion into the state pension system and boost spending for higher education by $200 million over the next two years are remarkable in two respects.

First, each implicitly acknowledges what nearly everyone in Virginia has long known but pretended isn’t true: The state’s failure to keep up with its obligations has reached a tipping point.

That much has been clear on any number of issues, perhaps none more than on transportation, which McDonnell has begun addressing through debt and public-private partnerships that ensure costly tolls on primary routes in South Hampton Roads.

But a study released earlier this week by the Joint Legislative Audit and Review Commission underscored the bleak future of the Virginia Retirement System and the thousands of state workers counting on it.

The report explained the pension system’s condition as a consequence of multiple factors: the state’s pattern of contributing less each year than recommended, the economic downturn, increasing numbers of retirees and fewer workers taking their place. Analysts have calculated VRS is underfunded by nearly $20 billion.

Even factoring in Social Security payments, the JLARC study showed, most state retirees are barely able to count on 80 percent of their working pay, as financial planners recommend.

Making matters worse, the General Assembly has consistently ignored calculations by the Virginia Retirement System Board of Trustees. Lawmakers have made rosy assumptions that the fund would earn 8 percent on investments, while the board has recommended 7.5 percent. The actual 10-year return, through Sept. 30, was 5.8 percent.

It’s not just at the end of adulthood that the state has failed its citizens.

Tuition at Virginia’s public universities has more than doubled in the past decade, largely because the state’s contributions have dwindled. This year, the state allocated to public colleges and universities $245 million less than its own recommendations.

At public two-year colleges, tuition rose nearly 95 percent in the decade ending in 2009, while median household income rose just 6 percent, according to a report this year from the National Center for Public Policy and Higher Education.

If those schools are to have a substantial role in the governor’s vision of increasing the number of undergraduate degrees by 100,000 over 15 years, that tuition spiral will have to stop. Which means the state will have to pay up. McDonnell’s announcement represents a down-payment on that.

Second, it underscores that the funding proposals begin to make good on McDonnell’s pledge to set priorities for government spending. That makes where the money is going as important as where it’s not – and where it’s coming from.

The share of state funds devoted to VRS, education and Medicaid expenses has increased enormously in recent years, a trend projected to continue. The state’s expenses are expected to outpace projected revenue by $1 billion or more over the next two years.

McDonnell has noted in recent weeks that he’ll propose more funding for K-12 education – in and out of the classroom – when he unveils his biennial budget proposal Monday.

Some of that money will undoubtedly help school divisions deal with the added burden of higher contributions for teachers’ pensions, since nearly half of the $2.2 billion VRS contribution announced by McDonnell will come from localities.

Those cities and counties are already facing increasing expenses and declining property tax revenue. The loss of federal stimulus funds, in addition to the state’s transfer of obligations onto localities, will further strain municipal budgets.

Virginia state jobs barely keep up with the private sector now.  If Virginia state workers are asked to contribute more to their retirement program, then the state will be unable to attract and retain workers.  There is quite a quandary over what to do.  Good for Governor McDonnell to doggedly stay on this problem.  He acknowledges  Virginia’s promises to workers and realizes the importance of taking care of this set of employees.   Virginia has neglected transportation, higher education and its pension program for too long.  It’s time to pay the piper.