February 10, 2010

Taxes proposed to pay for pension shortfall

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By Andy Rosen
Andy@MarylandReporter.com

A bill that would attempt to bring the state’s employee pension fund into balance is getting plaudits for its aim, but was panned Tuesday for its plan to pay the cost using two controversial tax proposals.

Del. Roger Manno, D-Montgomery, presented a proposal to the House Appropriations Committee, which would use an extension of the state tax surcharge for incomes above $1 million and a controversial corporate tax proposal known as combined reporting.

Manno said at the hearing that he realized that the tax proposals would be unpopular, but he thought he should suggest something to deal with the state’s mounting pension liability.

“I’m sure there are better solutions out there,” he said. “But my goal is to illuminate the problem.”

The state has been falling further and further behind in its obligations to retired workers, teachers, lawmakers and police. At the end of last fiscal year, it stood at $28.6 million, or about 65 percent funded. The 6.25 percent millionaire’s tax has been on the books since 2008, and is scheduled to expire at the end of this year.

Del. Wendell Beitzel, R-Western Maryland, said he thought the bill put too much of a burden on businesses. Firms would effectively be paying for more generous benefits than they provide to their own employees, he said.

Nobody spoke in favor of the bill at the hearing, other than Del. Manno. However, barely anybody made a comment about it without first complimenting the delegate for his goal of getting the state caught up on pensions.

The bill would also change the way the state calculates its annual pension contributions, eliminating a model that has allowed the state to fall significantly behind. It was almost fully-funded a decade ago, and even the state pension system’s board of trustees opposes the the way contributions are calculated now.

The state’s business advocacy groups testified against Manno’s bill, complaining that the income tax rate is already too high.

Ron Wineholt, vice president of government affairs for the Maryland Chamber of Commerce, said he couldn’t support any of the plans for paying the pension system back.

“What I will say is, right problem, wrong solution,” he said.

The combined reporting measure has been under study by Comptroller Peter Franchot’s office since 2008, and his staff is expected to give a final report next year on whether the measure would help or hurt the state’s coffers.

Essentially, combined reporting would have the state more closely tie corporate taxes to the amount of income a company makes in Maryland, rather than the location of its physical facilities.