Maryland’s elected and appointed officials throw out lots of money. They lease buildings to businesses that can’t pay their rent; they build and finance museums and resorts that can’t support themselves; and they push the wealthy and not-so-wealthy alike to states with less onerous tax burdens.
A hundred million here and there lost to these actions in a $32.3 billion budget may not seem like a lot. But Maryland will not be able to afford to lose this money nor finance its core government functions in coming years without reforming its entitlement system.
The 2009 “90 Day Report,” a review of the legislative session published by the Department of Legislative Services, shows that spending on benefits for state and local employees is skyrocketing.
The state budget includes health insurance payments of $869.6 million in 2010, a 17.4 percent increase over 2009. And $759.1 million is budgeted for teachers’ retirement in 2010, a 22.1 percent increase from the current fiscal year. A 2006 law making teachers’ retirement benefits more generous is one of the big reasons for the jump.
For comparison, in 2001, taxpayers contributed $366.3 million to teachers’ retirement, according to the “90 Day Report” following that year’s legislative session. The fact that taxpayers’ payments more than doubled over nine years does not tell the whole story, though.
Overall entitlement spending grew from 16.2 percent of the budget in 2001 to 20.8 percent for the upcoming fiscal year. So not only are taxpayers paying more to cushion the later years of state employees, whose salaries are on average higher than most Marylanders’, and dole out other mandated benefits throughout the state, but they are doing so at the expense of every other state function, including paving roads, hiring police officers and cleaning up the Chesapeake Bay. At that rate, entitlements will devour 40 percent of the budget before midcentury.
And the worst may be yet to come. According to the most recent annual report from the State Retirement and Pension System of Maryland, the fund lost $2.8 billion for the year ending June 30, 2008. That pushed its funding ratio to 78.62 percent from 80.36 percent. Market downturns over the past year likely mean another year of negative returns in fiscal 2009 ending this month.
A fixed formula dictating the amount teachers and other government employees contribute to their benefits also hurt the funding ratio, according to the report. Regular cost-of-living adjustments for state retirees also cannot help the bottom line. This year the COLA is 3.8 percent.
So as Maryland unemployment rose this year to its highest level in nearly 17 years and thousands lose jobs and benefits around the state, government retirees are allowed to live in a bubble of good times.
As the State Retirement and Pension System told beneficiaries in response to the market plunging, “As members of a ‘defined benefit’ plan, the State of Maryland has a legal obligation to pay your benefits as they come due.”
In governmentspeak, that means the rest of us who do not work for the government will have to pay for government retiree vacations, rounds of golf and tennis lessons by putting off our own retirements.
And since the vast majority of private-sector workers do not have defined benefit plans but instead must define their own benefits by how much they save and invest, taxpayers cannot expect regular COLA increases and run the real risk of running out of money in their twilight years.
This situation will not resolve itself on its own, especially because the size of government never shrinks. According to new U.S. Census Bureau figures, the number of state and local employees in Maryland grew about 20 percent from 1997 to 2007.
Moves to force local governments to finance their employee benefits would help to check their growth as jurisdictions could not keep pushing off their obligations to state taxpayers. But first state legislators must adopt a new “Fairness Doctrine” that requires them to analyze how current and potential entitlements impact taxpayers.
What exists now is a system whose benefits are disconnected from taxpayers’ ability to pay them. As the nation saw over the past year, what’s unsustainable can’t be sustained. The only question is how long legislators will ignore the inevitable.
Examiner columnist Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute.
