A proposal by Maryland Gov. Martin O’Malley to shift half the cost of teacher pensions to the counties has local officials across the state crying foul, while the Democratic governor and his allies in Annapolis say the setup is the only fair way to fill the state’s $1.1 billion budget gap for next fiscal year.
Below, The Washington Examiner explains what the proposed policy would mean for taxpayers.
What is the proposal?
State and local governments would split the cost of teachers’ pensions, currently covered by the state, and Social Security costs, currently paid for by the local jurisdictions.
Several proposed measures would offset the extra cost. For example, O’Malley anticipates that counties would raise $39.9 million from a proposed change requiring corporations to pay recordation taxes.
How much money is at play?
Teachers’ pensions cost $957 million statewide, while Social Security costs $479 million, adding up to just over $1.4 billion. An even split gives both the state and the counties $718 million in retirement costs. Since the counties already pay for Social Security, the added cost is $239 million for next year.
The governor’s staff estimates that once the measures to offset costs are in place, the counties will pay only $4.7 million total. However, local officials have expressed doubts that some of these
will pass the legislature. Others have questioned whether the measures are properly valued, said Warren Deschenaux, director of the state Department of Legislative Services.
Who sets the pensions?
The pension rates are determined by the state, but the salaries are set by local school boards.
Why do local governments dislike the proposal?
Local officials blame the state for managing the pension fund poorly and say the plan is O’Malley’s way of balancing the budget on the counties’ backs.
The pension fund is about 65 percent funded, meaning that 26 percent of the counties’ contribution will pay for teachers’ pensions next year. The rest will go toward filling an $11.4 billion shortfall.
The gap is the result of poor investment performance and the state contributing a small amount annually to the fund, said Steve Farber, Montgomery County Council staff director.
County officials also fear for the future, knowing that the pension costs will continue to escalate.
As an example, Farber pointed to Social Security, which the state used to pay. In 1992, the state shifted its $30 million Social Security costs to the counties. In the last 20 years, those costs have more than tripled.
What does this mean for taxes?
O’Malley proposes eliminating income tax deductions for people earning more than $100,000, effectively increasing income taxes for those residents at both state and local levels.
The increased costs to local governments could also necessitate sales and property tax increases down the road, Deschenaux said.
In Montgomery County, local officials have begun pointing to an energy tax increase that could raise $100 million in revenue if it is extended beyond its scheduled June expiration date.
