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Published on February 25th, 2014 | by Len Lazarick

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Legislative staff recommends cutting raises, benefits of state employees just ratified in contract

By Len Lazarick

Len@MarylandReporter.com

Budget highlights coverState employees last Wednesday ratified a new one-year contract that provided 2% raises, regular step increases, health premium holidays and other financial benefits they had been denied in the lean years of the Great Recession.

Two days later, the legislature’s budget staff recommended rolling back about half the negotiated increases, moves that took the largest state union by surprise, calling them “alarming” and “disturbing.”

“We find this budget analysis almost shocking,” Sue Esty, legislative affairs director for Council 3 of the American Federation of State, County and Municipal Employees, told the House Appropriations Committee Friday.

O’Malley Budget Secretary Eloise Foster urged the committee to reject the recommendations and live up to the collective bargaining agreement the administration had negotiated.

Maryland’s legislature is only allowed to cut the governor’s budget, so it is routine for its staff to focus on spending cuts.

Revenue write down

But according to several senators on the Senate Budget and Taxation Committee, Warren Deschenaux, the legislature’s chief budget analyst, has warned them that the official revenue estimates due next week are likely to see a write down of $100 million to $200 million. In particular, the sales tax revenues from December shopping were lower than projected.

This means the state will have even less money to spend than planned in Gov. Martin O’Malley’s $39 billion budget. He had provided a minuscule surplus of only $30 million, along with the continuation of other money-shifting gimmicks that have helped balance the budget in past years.

As part of that search for $150 million to $200 million in budget cuts, the Department of Legislative Services analysis recommended cutting in a half the proposed 2% cost-of-living increase, but beginning it six months earlier. This would lower base salaries in the following budget year.

DLS also recommended delaying step increases by three months, and eliminating two of four “holidays” for health insurance premiums.

The premium holidays, which increase net pay, were based on reductions in health care costs that employees had gained by use of wellness programs, higher co-pays for services and reduced utilization of hospital emergency rooms.

Already fighting pension cut

AFSCME and the teachers union were already fighting Gov. O’Malley’s  proposed permanent $100 million cut in funding for their pension systems. In 2011, an additional $300 million contribution had been promised based on the savings produced by pension reform legislation that increased salary contributions from 5% to 7% of pay and reduced future benefits.

“State employees are driving the savings for health insurance and pensions,” Esty said. “But instead of being plowed back into” reducing the liabilities for retirements and other post-employment benefits, particularly health insurance, “they are being used to balance the budget.”

The surplus in the health insurance fund is the “money that was saved by employee behavior,” and should be used to reduce their premiums, not to balance the general fund, Esty said.

The proposed cuts in the ratified contract were “terrible for morale,” Esty said. This is especially true for recently hired employees who were expecting regular raises, merit increments and a match of deferred compensation, but instead got none of those things as well as temporary pay cuts through unpaid furloughs. The chart below shows the history of pay hikes, increments and other compensation over the past decade.

chart salary increases, increments and other compensation

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  • md observer

    The state has a lot of debt on its GAAP balance sheet that must unwind over many years. That debt includes external borrowing (GO bonds) and internal borrowing (such as deferred pension contributions.) Unwinding this debt means the state will migrate from a stance of net cash inflows to net cash outflows on the budgetary basis.

    So (budgetary) revenue-expense mismatches cited in this article will get worse commensurate with unwinding the (accrual basis) debt.

    The unseen problem from this particular article is that the State competes over jobs with the Federal government because the skills are similar. The morale problem is real; the state risks losing good people to Federal employment. The state has mismanaged its human-capital for years and risks losing control. This topic never seems to get addressed as elections come and go.

  • Dick Johnson

    I will start my comments by quoting “We find this budget analysis almost shocking,”Sue Esty, legislative affairs director for Council 3 of the American Federation of State, County and Municipal Employees.
    In my opinion the state budget analysis are looking for funds to sustain the Maryland State Police Aviation Command (MSPAC) new 10 AW139 tactical/military helicopters. The AW139 tactical/military Helicopter capital cost has significantly increased and the tactical/military Helicopter Operational budget will INCREASE by approximately 38%. To operate and maintain the most expensive fleet of AW139 helicopters the MSPAC have to double its workforce. Taxpayers have had it with the State’s appearance of fraudulent (sole bids) procurement processes and State agencies waste and abuse of the Taxpayers hard-earned money (see Office of Legislative Audit Reports). AFSCME Council 3 the Teachers Union have a legitimate stands. I encourage AFSCME Council 3 to focus more on Helicopter Safety Management Systems-Risk Management before there is another MSPAC helicopter catastrophic event, focus on encouraging your membership to work more efficiently and cost effectively and distribute the Office of legislative Audit Reports to your membership.

    Read more: http://marylandreporter.com/2014/02/25/legislative-staff-recommends-cutting-raises-benefits-of-state-employees-just-ratified-in-contract/#ixzz2uLK9lBc4
    Under Creative Commons License: Attribution

  • jake mohorovic

    After 38 years as a State employee, now retired, this comes not as a surprise, but business as usual. Jake Mohorovic

  • Frustrated employee

    I live and work in Montgomery County and employees doing the same job for Washington D.C. government are offered 10-15k more more to start for the same position while I have seven years of experience and earn a lot less.
    Maryland is supposed to be one of the richest states in the country. What’s going on here? Years of frozen wages have left state of Maryland employees with stagnant and uncompteitive salaries it’s a real shame.
    At least pay competitive salaries and then cut increases don’t cut increases for already too low wages!

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