We applaud Gov. Martin O’Malley for proposing furloughs for 67,000 state workers, including himself. The move would save about $34.4 million and help to balance the budget this year.
But furloughs are a temporary fix; the state faces a long-term budget hole thanks to lofty promises it cannot fulfill without slashing services or raising taxes — again. One of those promises is the State Employees’ and Teachers’ Retirement Enhancement Benefit Act of 2006. That law increased benefits for teachers who retire after 30 years to 54 percent of their salary each year from 42 percent.
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At the time the legislation passed, the fiscal effect was estimated to be about $127 million for 2009, increasing by 4 percent each year. A new study by consulting firm Mercer says that costs could be 10 percent higher — or about $140 million per year — based on more recent data.
Either way, that cost is only going to go up. Assuming the $140 million price tag this year, in 2014 the cost for the extra benefits will be $170 million for state taxpayers for a reform that does not help students.
As a 2006 joint report from the Abell Foundation and Maryland Public Policy Institute shows, the state’s former plan was not a deterrent to recruiting and retaining teachers — the main argument for increasing benefits. It found “There is no evidence that variation in defined benefit plans affect teachers’ turnover. Ironically, teachers have one of the most attractive defined benefit pension systems, yet teacher turnover remains very high, primarily due to high rates of turnover among young teachers.”
With the state facing a billion dollar budget hole next year, here is one way legislators could cut more than 10 percent from that deficit without affecting learning. Shifting at least a portion of the $600 million of overall teacher pension cost from state to counties makes sense too, as local jurisdictions set salaries, but state taxpayers pick up the entire tab.
What’s clear is that closing the $1 billion gap will take more than small fixes — although we heartily approve of line-by-line reductions in state agency budgets to ferret out waste as President-elect Barack Obama promises at the federal level. Legislators must make structural changes to benefit programs to prevent chronic budget shortfalls and more recessional intrusions into taxpayer pockets to pay for them.
