Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, April 2, 1990 TAG: 9004020205
SECTION: EDITORIAL PAGE: A8 EDITION: METRO
SOURCE: WILLIAM B. HOPKINS
DATELINE: LENGTH: Medium
Section 11, Article X, of Virginia's Constitution states in part: "The General Assembly shall maintain a state employees retirement system to be administered in the best interest of the beneficiaries . . . "
Keeping in mind this constitutional mandate, the governor should have approved the proposed sale. His advisers should have pointed out that the $120 million to be obtained, when placed in good corporate bonds, will produce three times more revenue to the retirement fund than the $3.5 million in RF&P annual dividends.
Furthermore, because of the legislative strings attached, the RF&P stock has been the only one in the VSRS portfolio where the appreciation in value has not inured to the benefit of the retirees. Let's look at the most recent history of this investment.
In 1972, the General Assembly transferred ownership of its shares of RF&P stock to the Virginia Supplemental Retirement System at the price of $8,660,000, subject to the proviso that it could not be sold without permission of the Virginia General Assembly. The transfer was made as part of the state's contribution to the retirement fund.
At the time, the earnings on this stock made it a good deal for the retirees. However, in 1986 this stock was reappraised to $36,850,800, a $28,190,800 increase. By a back-and-forth transfer, the state received the $28,190,800 appreciation in value and used it to fund its mandated contribution to the retirement fund. In short, the beneficiaries of VSRS did not receive the appreciation in value on the RF&P stock as on all of the system's other stock investments.
In 1987, the stock was valued upward to $94,759,200 and again in 1988 to $98,268,800. On each occasion the state, rather than the retirement system, received the benefit of this stock's appreciation in value.
From 1987 forward the RF&P stock has been a poor investment for the retirement fund. Accordingly, Charles Walker, then chairman of VSRS, planned to do what should have been done, "sell the stock at the highest price possible."
This has not been an easy task because one company, CSX Corp., owns enough shares of voting common to give it voting control. Now that CSX has withdrawn, it will be unusual indeed if another company can be found to match its offer. Norfolk Southern Corp., the third largest stockholder and no friend of its major competitor, agreed to accept CSX's price. I can't imagine that it would make such a major business decision without acting in the best interest of Norfolk Southern.
Suggestions by the governor that certain legislative leaders might be guilty of conflict of interest were very unfortunate. There is no legal basis for these assertions. Certainly nothing good can come of making this kind of accusation. But by far the biggest loss to VSRS is the absence of Walker to guide its affairs in the future.
Walker has performed an outstanding service for all present and former state employees, including Virginia's teachers. The retirement-fund portfolio had an audited value of $1. 8 billion when he became chairman in 1981. It is now valued at about $11 billion. Virginia's retirement system is rated one of the best public retirement systems in the country, if not the best. On the basis of fiscal soundness there is none superior. I don't see how anyone could have done a better job than Walker.
Next time, the governor should make a thorough investigation of the facts before taking action. Let's hope the next time comes soon in disposing of the RF&P stock. The VSRS should not keep an investment that produces a poor return on capital.
by CNB