I did something right!?
This traditional expression means that even people who are ineffective or misguided occasionally do something right. I am speaking, of course, about the Republicans in the Maryland General Assembly who, after continuous complaining about the budget proposed by the Governor have finally come up with some proposals of their own.
Now most of their proposals are the usual political point-scoring. They want to eliminate crime-fighting grants, which disproportionately go to Baltimore City. Presumably they think there is no crime problem in Maryland’s largest and most important city.
They want to eliminate the state agency that enforces the prevailing wage law, a regular GOP target and the Critical Areas Commission which helps protect Maryland’s bays and waterways. Both of these consume relatively tiny amounts of money. There’s plenty more like that.
But a couple of their proposals should be considered in light of Maryland’s structural budget problem. One I’ve written about before. Let’s take a look.
In Maryland, the state pays all of the contributions to the retirement system for teachers and librarians, even though they are employed by the counties and the City of Baltimore. This is not a trivial expense. For the 2011 budget currently being considered it amounts to $900,872,000. That’s an increase of $97,301,000 (or more than 12%) from the current year. This is one of the fastest growing items in the budget.
Total pension obligations for teachers are based on their salaries and, of course, on their numbers. Neither of these are controlled by the state. Each local jurisdiction makes independent decisions on how many teachers to hire and how much to pay them. The state is left holding the bag for their decisions.
It simply doesn’t make sense for this to be an obligation of the state when the state has no control over the amount of the obligation. Now the Republicans propose dumping all of this on the local jurisdictions all at once which is obviously not feasible. But the Governor and the General Assembly could reasonably decide to shift this cost to the counties and the city over a period of time – say ten percent per year. That would allow local jurisdictions time to adjust to the new funding requirement.
Is this politically feasible? Many would say no given that the largest shares would go to Montgomery, Prince George’s and Baltimore counties and Baltimore City. After all, that’s where the votes are. But, on the other hand, if the state can’t solve it’s budget problem with cutting costs, the additional revenues are going to have to come from the jurisdictions with the money – Montgomery, Baltimore, Howard and Anne Arundel counties. It’s really just a question of how they end up paying, so maybe there’s hope.
The other proposal that merits consideration also has to do with pensions. Like many states, Maryland has promised more in pensions to state employees than it has the money to pay. According to a study by the Pew Center on the States, the shortfall in Maryland is almost $11 billion. The gap is growing, too. Besides the dozen or so bills in the General Assembly this year that would add pension eligibility for one group or another, the amount the state has been contributing is less than is required to keep up with its obligation.
In addition, the state has an unfunded liability of almost $15 billion for retiree health care costs and, with health care costs growing at a rate far in excess of the rate of inflation, this liability is growing rapidly.
It’s easy to see how this happens. Awarding new or increased retirement benefits gives an immediate good feeling to legislators and employees who are then inclined to vote to re-elect the legislators. The actual payment of the benefits is far off and will be someone else’s problem.
The Republicans propose immediately increasing the employees’ contribution to the pension fund from 5% of salaries to 7%. While I think this is necessary in the long run, I don’t agree with giving it immediate effect. The state workers have been hit hard recently with furloughs and pay freezes. But enacting it now, to be phased in over the next five years or so would be a good idea. The ultimate impact, however, will be only about $100 million a year, so more action, probably raising the retirement age or reducing benefits for new employees will ultimately be needed.
Other state are taking action. In 2008 and 2009 Kentucky, Nevada, New Jersey, Rhode Island, Texas and New York either reduced benefits or raised the retirement age for new employees. Eleven states took action to reduce retiree health benefit costs either by sharing costs with employees (as the Federal Government does) or increasing the vesting period for health benefits coverage. Maryland needs to give the blind squirrels their due and step up to the plate here before it’s too late. The alternative will not be pretty for either the state or its employees.
The Pew Report on State Pension Liabilities (a PDF file) can be found here .
[The squirrel in the photo is a Golden-Mantled Ground Squirrel and the photo was taken at Bryce Canyon, Utah]
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