ANNAPOLIS – Budget analysts warned Maryland lawmakers on Wednesday that the state is facing a $1.6 billion hole in fiscal 2012 that cannot be plugged without a drastic cut in services.
“There are some serious financial issues to be addressed,” said Warren Deschenaux, director of policy analysis for the Maryland Department of Legislative Services.
Not only is the state in a major budget hole, but it’s also at its debt limit, and the rainy day fund needs $30 million to stay solvent.
Deschenaux warned that the cost of teacher pensions and state employees’ health benefits is outpacing general fund revenues — locking the state into years of growing deficits — at a meeting of the state-appointed commission studying pension reform.
General fund revenues are projected to grow by roughly 5 percent annually between fiscal 2012 and fiscal 2015, he noted. At the same time, the state’s teacher pension payments will grow 10 percent annually and its benefits contributions will grow 8 percent annually.
The state is responsible for paying all teacher pension costs and roughly 60 percent of state employees’ health benefits out of its general fund.
“This is a fair amount to swallow in a really very short amount of time,” said pension commissioner Barbara Hoffman. The commission is charged with presenting the General Assembly with preliminary recommendations for reforming the pension system — which is underfunded by roughly $33 billion — in mid-December.
Hoffman said she isn’t comfortable making drastic changes to the system after only a couple of meetings.
Commissioner George Roche bucked at her suggestion.
“These liabilities are enormous and they are worse than I thought they would be,” he said. “There’s got to be some structural reform. If we don’t do it, and want to just kick the can down the road, the crisis is going to be a lot worse.”
The combined $1.7 billion for all state employee fringe benefits and local teachers pension payments is roughly equivalent to the structural gap.
“If you eliminate every single fringe benefit and pension payment you would have a balanced budget, but you would probably have no employees left,” said Dylan Baker, senior policy analyst with the state Department of Legislative Services.
The Senate passed changes last year that would gradually shift teacher pension costs onto local governments, but the House shelved the proposal and instead appointed the pension commission.
Hoffman asked policy analyst Mark Collins why the state is expected to pay 100 percent of teacher pension and health benefits costs, when local boards of education have the bargaining power to change teachers’ contracts.
“Historically, we’ve done it for so long. …” Collins said, becoming visibly uncomfortable explaining one of the most contentious political debates in the General Assembly. “It’s just … it’s extremely difficult, politically.”
The commission’s last meeting before deliberations is on Monday.
