March 13, 2015

House budget committee set to restore $250M for education aid, employee salaries

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Hogan frowning

By Len Lazarick

Len@MarylandReporter.com

The House Appropriations Committee on Friday afternoon is expected to find $250 million in Gov. Larry Hogan’s proposed $40 billion budget to fully fund education aid formulas and a state employee pay bump.

State employees already began receiving the 2% cost-of-living pay increase in January, and this will continue it through the year.

The committee will also restore some money to social and health programs, such as care for those with developmental disabilities.

To come up with the money, the committee is expected to change a pension funding formula, reducing contributions by $70 million next year and slowing repayments to a local income tax reserve fund that Hogan had temporarily tapped for $100 million.

Appropriations subcommittees have already come up with millions in adjustments here and there in other budget areas.

The committee’s changes only represent about a 1.5% increase in the $16.2 billion in general fund spending Hogan has proposed, and just 0.6% of the overall budget.

Other Hogan reductions in spending growth mandated by funding formulas will remain in place. For instance, state employees will still not be getting about $90 million in length-of-service increments.

Satisfying teachers, employees

The committee’s actions are designed to satisfy teachers and education advocates, as well as the state employee unions that negotiated the pay hike. In exchange for these gains, they must go along with the legislature’s permanent reneging on a pledge to contribute an added $300 million to their pension fund each year.

Lawmakers made this pledge in 2011 when they increased retirement contributions from 5% to 7% of salaries for teachers and state workers.

The legislature has never fully funded the extra pension payments.

The committee’s action will also undermine Hogan’s goal of getting future structural deficits under control by setting a new baseline for education funding and employee salaries.

The increases in spending for education and the base pay of state workers will need to be cooked into future budget projections.

However, the change in the pension funding formula saves $200 million to $300 million a year over the next five years, providing a cushion for spending growth. The change in pension funding to the full actuarial contribution only starts costing state taxpayers more money 10 years from now, ultimately $2.5 billion more in the long run.

What will Hogan or rating agencies do?

Other than negotiate for alternatives, it is not clear what if anything Hogan can do about the proposed changes, or whether the Senate will fully go along with the House action.

Many of the changes require adjustments to laws and formulas in the annual Budget Reconciliation and Financing Act, a companion to the budget that changes formulas, mandates and entitlements. Hogan could veto that bill, but that would unbalance the budget — requiring drastic budget action, or a special session of the legislature.

It is also not clear what the bond rating agencies will say about the reduction in pension contributions. They have advocated for full actuarial funding, but they have also consistently complained about Maryland’s past failures to fully fund promised pension contributions.

  • Vidi

    So in funding education for our children in 2016, the House has played with pension formulas that will mortgage the futures of these same children in the amount of $2.5 billion – ten years from now.

    • abby_adams

      Gotta pity future generations that’s for sure. Between MD’s state bond debt, pension obligations, the growing Fed debt & it’s no wonder this administration wants to import more uninformed voters.

  • joe

    Deja Vu all over again: It’s raid the “Transportation Trust Fund” time again at Maryland’s Democratically controlled Legislature!

    • Dale McNamee

      And, raise gas taxes and add a “Vehicle Mileage Tax” to “repair our ‘crumbling infrastructure’ ! ” /sarc

      • abby_adams

        And fund the Red & Purple lines.

        • Dale McNamee

          Very true,Abby !

          In previous posts, I’ve often said that those supporters of “mass transit” as well as those who stand to profit from the lines being built, pay for it themselves…

          And “mass transit” should be privatized… I bet some enterprising person can make a profit…

          Also, the “gas tax” should only be used on roads,bridges,etc.

          And many of the “raiders” were re-elected by the moronic, uninformed,uninvolved,voters… Yes, I;m blaming them completely !

          I didn’t read or watch a TV report on this outside of Maryland Reporter… Heard plenty about everything else… Orioles,Ravens, and other trivialities… Along with “weepy-eyed” reporting about teachers & school kids…

  • MD observer

    Quite simply the legislature is mismatching revenues and expenses. It wants $250 million of goodies to enable legislators to exploit taxpayers for the sake of their own re-elections. And so these legislators get the goodies by transferring bona-fide 2016 expenses to the future. This is unsound public policy. And its the sort of budgeting that can be illegal in the private sector.

  • Dale McNamee

    I have an idea ! In exchange for the 2 percent cost of living raise. Why not eliminate ALL non-essential personnel ?
    You know… All of those who don’t have to come in in bad weather types ?
    Private sector employees have to…

    As for the teachers… Governor Hogan actually increased the education budget !
    Perhaps the same thing can be done with the large pool of “Administration” personnel who add nothing to educating students…

    And, school construction projects can be cut or scaled back… Saving money…

    • abby_adams

      Of course they’ll talk about the kids getting short changed. That we don’t care about education, or decent roads & the environment. Never taking a serious look at administration bloat or the actual amount of taxpayer $$ that reach the kids sitting in the seats. No mention about the extra $ required for ESOL that drains funds. No mention about coming up with basic designs for schools that provide room for expansion without all the “bells & whistles” that don’t always live up to the hype & drive up costs. Personally we all would like to have our wish lists fulfilled but due to our budgets we have to make adjustments. Why can’t our state legislators do the same? ‘Cause it isn’t their money, it’s our money that they are spending!

  • abby_adams

    The state legislature is tone deaf. Didn’t they get the message? With state revenue collections predicted as flat, we’re still spending like there’s room for 40 more tax increases? Where there is a will, there is a way. Legislators don’t have the will to support short term funding cuts. More kicking the can down the road as expected. Too bad they refuse to see the forest for the trees.

  • mdtruth

    The budget committees have proven time and again that the now is far more important than the later. Hopefully no one is fooled by this.

    The only way this story ends is with pension benefits ratcheted back. Theoretically the stock market could bail us out, but you may as well bet on red. Think about it this way: An assumed average return of 7.5% means that there is a 50% chance it will be higher, a 50% chance it will be lower*.

    But then, for all we know that may be the idea. If pension reform is a foregone conclusion, why throw good money after bad and fund pensions we intend to cut?

    *Mathematically this is not actually true, since the median is lower than the average, but your odds of getting an above-average return are about the same as blackjack.

  • Observer

    Hahahahahaha. Really, their decision is to raid the already underfunded pension liabilities? Those same idiots serve on the SAC that said they were under funding it and seriously jeopardizing the state’s credit ratings. Hypocrites, yet not surprising.

  • Santino West

    Deport all illegal aliens out of Maryland and there will be more than enough money in the budget to restore the cuts to education.

  • bobcan653

    As a liberal democrat, and one who voted for Hogan, I am horrified that when we are FINALLY moving in the right direction regarding the unfunded pension liabilities, and the grossly overfunded educational black holes (most especially Balto City, and I worked there for many years and saw the unfathomable waste first hand), we reverse course and dig the hole deeper.

    Wasn’t this the message voters were sending – stop digging the hole and stop taxing us to death? Our legislators apparently cannot help themselves, and will take this state and our credit ratings into the toilet to satisfy education unions. What was the point in voting for Hogan? The result is evidently – no change.