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Published on March 7th, 2014 | by Len Lazarick

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$300 million pension payment on chopping block to balance Md. budget

By Len Lazarick

Len@MarylandReporter.com

Budget highlights coverMuch or all of an annual $300 million extra payment into Maryland’s pension system is on the chopping block as Senate budgeters seek to balance Gov. Martin O’Malley’s $39 billion budget at a voting session Friday.

The governor had already used $100 million from the extra pension payment promised teachers and state employees in 2011, when their contributions into the retirement system were increased and future benefits were cut. Those actions are saving the state more than $300 million a year.

Sen. Ed Kasemeyer, chairman of the Budget and Taxation Committee, confirmed Thursday that at least $250 million will be taken from the pension payment after official revenue estimates were reduced Thursday by a combined total of $238 million for both the current fiscal year and next year’s proposed budget.

The reduced revenue estimate comes on top of more than $100 million in unexpected spending known as deficiencies not accounted for in O’Malley’s budget.

 $428 million in cuts needed

Warren Deschenaux, the legislature’s top fiscal analyst, told the committee it probably needed to come up with $428 million in spending cuts to balance the budgets in fiscal 2014 and 2015.

The $300 million extra pension contribution is the largest single pot of money available for cuts. Kasemeyer pointed out that any reductions there would not affect current programs or state services.

The extra pension payment is on top of $1.9 billion being put into the retirement system as required by actuaries, Kasemeyer noted. Officials emphasize that no one’s pension benefits in the $41 billion fund are in danger.

The system paid out about $3 billion in pension benefits in fiscal 2013, but investment earnings and contributions from the state, employees and teachers were more than twice that amount.

Sen. Edward Kasemeyer

Sen. Edward Kasemeyer

State Treasurer Nancy Kopp and Comptroller Peter Franchot, the chair and vice chair of the State Retirement and Pension System, both testified last week that the extra $300 million in pension payment should not be touched.

Told that the Senate committee plans to cut even more of the payment, Franchot said, “That would be an enormous mistake.”

O’Malley had also proposed to make his $100 million cut in the pension payment permanent. That would delay 80% funding of the pension system by at least a year, and cost $1.76 billion down the line, Kopp said. The state would eventually need to make up the lost payments and the expected investment returns on those payments.

Committee not planning on permanent cut

Kasemeyer said the committee was not planning to make the cut in pension payments permanent. “We need to come up with some plan to get back to where we’re supposed to be,” at the $300 million level, Kasemeyer said.

Franchot, a former House Appropriations subcommittee chair, has put himself at odds with legislative leaders trying to cut O’Malley’s budget. At a hearing last Friday, he told delegates from two committees that they ought to “tie a ribbon” on the budget and ship it back to O’Malley for cuts.

Appropriations subcommittee chair John Bohanan chided Franchot for suggesting an impossible move, and for not suggesting where else in the budget the legislators might cut.

Among the possibilities are cost-of-living pay increases and step increases negotiated by state employees.

Bad options or worse options

Sen. David Brinkley

Sen. David Brinkley

“We’re faced with bad options or worse options,” said Sean Johnson, legislative director for the Maryland State Education Association, the major teachers union. The union does not want to see payments into the pension systems reduced, especially not permanently, but it also does not want state aid to county school systems reduced.

Responding to Thursday’s write down of revenues, Senate Republican leader David Brinkley said in an email that the budget crunch was “self-inflicted by the General Assembly’s failure to constrain spending at the December meeting of the Spending Affordability Committee. The O’Malley-Brown Administration advocated for a spending affordability recommendation of 4% growth which was adopted by the committee.”

“The consequences of this latest revenue write-down could have been easily avoided if the O’Malley-Brown Administration had shown fiscal discipline in preparing the [fiscal 2015] budget instead of overspending hardworking Marylanders’ tax dollars.”

Budget didn’t have to grow as much

Sen. Roger Manno, a liberal Montgomery Democrat who serves on the budget committee, said in an interview Wednesday that the situation could have been avoided if O’Malley’s budget hadn’t grown so much.

“We don’t have to grow at 4%,” Manno said. “We could grow at 2%.”

“We’re doing fairly well as a state,” and his committee and the legislature have made “tough choices” in past years to raise taxes.

“We overestimated what revenues would be,” Manno said, but “those write-downs need not be as painful” if spending had been restrained.

“We need to make good on our prior commitments” on pension payments, he said, especially when the treasurer and comptroller plead for that “as the fiduciaries of this trust fund.”

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  • meplath@yahoo.com

    Any state employee who votes for democrats is a fool.

    • Dale McNamee

      Actually, any Maryland voter who votes for the Democrats is a fool…And from the look of things, Maryland is over run with fools who vote…

      • Barnadine_the_Pirate

        Kind of makes you wonder how it became the richest state in the nation without any oil, gas, or minerals to speak of.

        • Dale McNamee

          Maryland is supported by Federal largesse…The Federal Gov’t. is the largest employer,followed by the State, followed by municipal governments…
          We have 4 of the richest counties in the US here in Maryland…They are: Montgomery,Howard,Prince Georges, and Charles counties, home of most government employees…

    • Barnadine_the_Pirate

      Yeah, vote for the party that calls you a leech and wants to privatize your job! Good idea!

  • md observer

    I concur with Franchot, “return to sender” on O’Malley’s budget so he can make real cuts (in contrast to the cuts he gives himself credit for.) Cutting pension contributions because the market has been good has a treacherous flip side where taxes must be raised to pay retirees’ pension draws.

  • ELAINE WILLIAMS

    Anyone for cutting LIFETIME payments to any and all career politicians? Doesn’t matter which party – these guys don’t know the meaning of crushing student debt or a lifetime of service getting paid what regular folks take home only to be told – ‘sorry even though we told you 30 years ago we’d fund your pension, we’re not!” WTF?

    • Xteacher

      This makes more sense than cutting hard-working state employees pensions. How can anyone justify a lifetime salary for politicians serving one or two terms? Teachers must work at least 30 years to receive a full pension in retirement. Shouldn’t politicians have the same retirement plan. …what they put into their retirement is what they will get out of it. This might help the problem of overspending in the state.

  • Scroogemcduck

    The Maryland Pension system has a $21 billion unfunded liability facing it. What is a few hundred million more? Kick the can down the road as usual.

  • joe

    Tick, Tick, Tick that’s O’Malley’s debt time bomb left in Annapolis, timed to detonate after this governor leaves office!

    Regardless who is elected as governor or to the legislature in November 2014 Maryland taxpayers will see increases in taxes and fees in the coming years. The financial mess left by Democratic Governor Martin O’Malley, who recklessly overspent each of his eight years in office has created structural deficits and he then continuously balanced the state’s budget by depleting various state funds set
    aside for other economic purposes.

    • abby_adams

      Hey, don’t let the one party legislature off the hook on this deal. They’ve gone along with O’Malley, Miller & Busch down the tax grab path for years. During his “reign” we’ve been assured time after time that each tax, fee or toll increase would “solve” out budget problems. Never happened did it? Yet the sheeple majority just kept going along. Never questioning only sitting like bobbleheads as the budget has increased year, after year, after year. If we thought Glendenning’s reign created problems, or as the Dems would pin greater deficit issues on Ehrlich, I believe “we aint seen nothing yet”!

      • joe

        Agreed! But, the sheeple voters will reelect the same Democrats to the legislature in November 2014.

        • Barnadine_the_Pirate

          Man, nothing is more persuasive or does more to elevate rational discourse than calling people who disagree with you “sheeple.” Works every time, doesn’t it? Really serves to make people reconsider their positions, amiright?

    • Barnadine_the_Pirate

      Here’s a fun game. Figure out which governor — Bob Ehrlich or Martin O’Malley — presided over larger spending increases during his time in office.
      Time’s up! How did you do? If you guessed Martin O’Malley, you’d be incredibly, incredibly wrong!

  • Strugglingformerstateemployee

    It’s time to rally against O’Malley, heaven help us if he gets elected as President!

    • joe

      Amen!

    • abby_adams

      Sorry but it’s a few years too late to rally against Martin. He won. Maryland taxpayers lost. Now he’s onto bigger & better things. The mess that he leaves us won’t be mentioned in the liberal MSM. They’ll only promote his “excellent” record on social issues, gun control & his band. Not to mention scores of broken promises, high taxation, prison corruption, the failed MD rollout of Obamacare or his driving MD taxpayers into future debt by floating bonds to cover for “robbing Peter to pay Paul” method of making his budget “balance”. He’s a Democrat & can do no wrong.

  • Vidi

    Dipping into the pension fund is unconscionable. We clearly see the smoke and mirrors game being played on what the governor hopes are gullible taxpayers. Here’s an idea: instead of paying a Wall Street firm $278 million as we did last year to manage the pension fund that did worse than similarly managed funds in other states, let’s take the $278 million which I presume will be paid again this year and pour it back into the pension fund. Warren Buffet, with somewhat more experience than our legislators, recommends that 90% of each pension fund should be invested in S&P 500 Index Funds. Does Maryland do that? No. We are, of course, far wiser!!!

    • abby_adams

      O’Malley & the Dems don’t hope on gulible taxpayers. They’ve built their whole party line on promising select jurisdictions that they will receive everything promised & then some. But where are the media outlets, other than MD Reporter & to a lesser extent the local “rags” exposing this economic mess? The low info voter will remain low info until it affects his/her bottom line & the goodie giveaway stops. Maybe then, they’ll wake up & take a good look before supporting a candidate based on party line rather than experience & record.

  • Pam Wills

    Here is a thought…stop the dept of housings move to pg county…the outrageous rents the sate now has to pay and the funds to finance the permanent loan to the developer, will more than balance the budget if this expenditure is remove.

    • abby_adams

      There are favors to repay. Unfortunately we didn’t make the promise & we won’t see any benefit from O’Malley’s pay off for PG County Dems support. There are hundreds of so called “cuts” claimed by the Gov & the legislature, yet they aren’t real reductions in spending just not increased spending. It has little to do with what benefit ALL taxpayers in MD. Only those in Montgomery, PG, Howard & Baltimore counties along with Balto City can continue to demand & receive the attention from Annapolis. As for the rest of the state? Just shut up & pay or leave!

  • John

    Just another LOAD of empty promises made at election time. Did anyone really believe that Maryland would keep the promise to pay their share of the pension costs? The teachers have their share take each payday. AND then see money peeled off the top to support the general fund. Now the state will turn and run with the pension hole growing bigger and deeper. Keep bragging you have the number one schools system in the country. While you’re at it, tell everyone how we have the number 50 pension for those who are getting the number 1 status for you. I’ve said it before and I’ll say it again, it’s time for a clean sweep at every level of government. Out with the old and in with the new.

    • abby_adams

      You omitted a few caveats in that “#1″ claim. It’s “we’re #1 in educational spending” not in student outcome. Translation, we spend a bunch of money & in reality out getting the education they need or deserve given the $$ we pay.

  • Chuck

    Legalize, Tax, and Regulate – there’s an extra $150 million for you, in addition to $100 million in savings from enforcement.

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