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Wednesday, January 18, 2012

On the Governor’s Budget and Teacher Pensions

The Governor has released his budget for Fiscal Year 2013. There is no question that the state is in a tough spot and the Governor had to make some tough choices. He and the General Assembly have to figure out how to close a billion-dollar deficit in a $15 billion general fund budget. The Governor is proposing to close the gap through a combination of tax hikes and spending cuts, none of which will be popular. Many state and local governments have had to make similar adjustments over the last few years, including Montgomery County.

Nevertheless, one proposal of the Governor’s warrants concern: he would like to shift part of the responsibility of paying teacher pensions from the state to the counties. This would cause great harm to Montgomery County.

For several decades, the state has assumed the responsibility of providing for teacher pensions as a way to help the counties afford competitive salaries for teachers. This system has worked well for many years, and it is partly responsible for Maryland’s public schools being named first in the nation four years in a row.

However, a few things have changed over the last decade. In 2002, the state began underpaying its contributions to its pension fund by $100-200 million a year. As a result, the percentage of future pension liabilities the state could afford to pay dropped from 101% in Fiscal Year 2000 to 79% in 2008. Then, the stock market crash drove the state’s funding ratio down even further, to 64% in 2010. The state’s overpayments to mediocre investment advisors did not help. Much of the damage to the pension fund was self-inflicted.

Nevertheless, this past year the state continued its pattern, this time raising contributions from teachers to pay for benefits while simultaneously cutting its required contributions to the fund by $120 million.

Now the state wants the counties to fix the problems it caused by passing the buck for its mistakes. They want the counties to pick up a large part of the bill.

That’s wrong, plain and simple.

Under the Governor’s plan, the counties would have to pay half of the state’s teacher pension costs: a new mandate totaling $239 million. Montgomery County’s share of that liability will start at $41 million next year and will rise steeply thereafter. The county simply cannot afford this new permanent liability. If we have to pay it, other programs – including the schools – may have to take cuts If the state forces us to raise taxes to pay it, the county’s economy will suffer. Either way, Montgomery County residents will be unfairly punished for the state’s inability to deal with its problems.

The County Executive and the County Council are unified in opposing this plan. We are working with our state legislators to stop it. If you can add your voice to ours and weigh in with our state legislators, we have a chance to win.

I’ll be in touch as we learn more.

Hans Riemer

Council Member At-Large