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VRS funds focus of battle

Nearby states also have problems



The bears ranging Wall Street may have taken a bite out of the Virginia Retirement System, but that hasn't stopped Gov. Jim Gilmore and the General Assembly from hungrily eyeing the multibillion-dollar state pension fund as a source of cash for the no-car-tax plan and other pricey programs.

The dramatic slide in stock prices has erased at least $4.5 billion, or about 11 percent, from the total value of a retirement kitty that, at the markets' peak in March 2000, swelled to $40.6 billion. The losses are greater - 14 percent - when calculated from VRS' all-time high of $42 billion reached in August.

Despite the market retreat, stocks have been very good to the VRS. In the last five years alone, the VRS has seen average annual growth of 12.5 percent, well beyond the 8 percent required to cover its bills. The fund's value is still more than double the $16 billion it reported in 1994.

The expansion - not two decades ago, the fund had a mere $2 billion in assets may be a source of comfort to the 95,000 retired state and local govern- ment workers who monthly receive checks from the VRS and 297,000 active employees planning their retirements through the fund.

But even before the market downturn, which the VRS investment staff confidently expects to weather, troubling political developments rocked the fund system one of which is likely to be spotlighted today, when the assembly considers Gilmore's amendments to, and vetoes of, bills passed this winter.

One amendment in particular has piqued lawmakers' interests and is in peril: Gilmore, seizing an idea floated by the legislature in February, wants to shift $63.4 million intended for the VRS to pay for raises for public employees. But he needs the cash, in part, because of the rising cost of his signature initiative, car-tax relief.

When attempted by lawmakers, the maneuver generated little attention and quickly fell prey to the budget standoff. It was embraced last month by Gilmore and immediately became a lightning rod for criticism of his effort to cover a $421 million shortfall and preserve on-schedule, 70 percent car-tax refunds.

At issue: Whether the bookkeeping move, under which dollars flowing into the VRS are diverted elsewhere, violates a 1996 amendment to the Virginia Constitution that prohibits the use of retirement dollars for any purpose other than public worker pensions.

"Certainly your plan directly violates the spirit of this constitutional amendment, whether or not you feel that you have found a usable loophole," Dorothy B. Francisco, a retired public school teacher in Roanoke County, said in a March 19 letter to Gilmore.

"We implore you to reconsider and to leave the pension fund, which is lifeblood to thousands of Virginia's retirees, untouched."

VRS officials, some of whom owe their appointments to the fund's board of trustees to Gilmore, don't like the idea either. The current chairman, W. Forrest Matthews Jr. of Henrico, the county finance director who has known Gilmore for two decades, has said, in effect, that the governor's proposal may be unconstitutional.

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