By Megan Poinski
Splitting the local contribution of teacher pension and Social Security costs between state and county governments, as proposed by Gov. Martin O’Malley, would devastate county budgets, county officials told members of the Senate Budget Committee on Wednesday.
“I appreciate the situation you are in, but this process and what we are looking at today is unacceptable,” said Montgomery County Executive Isiah Leggett.
The Budget Reconciliation and Financing Act, known by its acronym of BRFA (burfa), is an annual bill that changes laws and mandates in law to implement each year’s budget. In this year’s BRFA, Gov. Martin O’Malley is proposing to partially fill a $1 billion budget gap by dividing the employer’s share of pension costs for public school teachers between the state and counties. Currently, the state covers 100% of the employer’s share.
According to the bill’s fiscal and policy note, splitting the pension costs will save the state $239 million.
Leggett said that with the economic slowdown and falling property values, the county has been hit hard financially over the last several years. To keep pace, employees were laid off and department budgets were trimmed.
They struggled to keep pace with required maintenance of effort funding for the public school system – providing the same per-pupil amount each year as the year before – but could not. The county is at its maximum taxation level.
And now, he said, as things are starting to look up financially, the state is proposing hitting the county with a new $48 million bill.
“There needs to be some adjustment,” Leggett said. “Those amendments are simply too harmful.”
Several other county officials echoed Leggett’s plea. Most county governments throughout the state have gone on record opposing the proposed shift.
Reasons to shift pensions
In her testimony, Budget and Management Secretary T. Eloise Foster said that the state’s pension costs have doubled between 2007 and 2011. The state had to fix the system – which was done through comprehensive reforms last year.
Now that the system is in better shape, the administration is passing along some of the costs, Foster said. She explained that counties should not have to make drastic changes in order to afford paying for the new cost. The BRFA includes other measures that increase revenues to counties.
The proposal provides $244.5 million in relief, Foster said.
County officials have replied that those proposed relief measures, which are mostly changes in the way that state taxes are assessed, do not add up to what they need.
Maryland Association of Counties Executive Director Michael Sanderson said that in analyzing state budgets during the fiscal crisis, funding for education, subsidies, entitlements and agencies have stayed the same or increased. Funding to counties has dropped on all counts. And, Sanderson said, counties have nothing to do with why pension costs are increasing.
“Why are those dollars more than they were years ago?” Sanderson asked. “Is it really a function of local raises counties gave a few years ago?”
Howard County Budget Administrator Ray Wacks said that moving responsibility for the pensions to local governments, especially right now, is not sustainable. Counties make much of their money through property taxes, which have recently been stagnant.
“The real paradigm shift is property tax only grows 1 or 2% per year. Pension costs grow a lot faster,” Wacks said.
No county control
One of the biggest complaints from the county officials is that they have no control over teacher salaries – and therefore how much they would need to pay for pensions. Salaries are determined by county boards of education, which have historically aimed to offer competitive salaries to attract and retain high quality teachers, officials said.
Howard County Council Chairwoman Mary Kay Sigaty said that they have been trying to maintain both vital public services and education costs in their budget. The proposed pension shift puts this careful planning in “serious jeopardy,” she said.
“We’d be simply presented the bill, and we’d have to pay it,” she said.
Sen. Richard Madaleno, D-Montgomery, said that when trying to put together a state budget, the General Assembly is actually in the same position as local governments would be with the pension shift.
“We don’t control the major drivers of cost and benefits, or of salaries,” Madaleno said. “We are in a similar position trying to figure this out and trying to make a decision one way or another.”
Sen. David Brinkley, R-Frederick, said that the state’s financial situation coupled with the promises originally given to employees by the pension system puts the General Assembly in a “tough box.” He said that he’s often advocated sharing pension costs between the state and local governments, but is open to better suggestions. However, he said, something to bring the state cost down must be done.
“If this doesn’t happen, than the promise has to be broken and these benefits have to be rescinded,” Brinkley said.