Commentary by Barry Rascovar, for MarylandReporter.com
The legislature’s fiscal leaders, in a truly bizarre move, are considering reneging — once again — on a commitment to state workers and the public by pulling the plug on supplemental state contributions to Maryland’s severely underfunded pension program.
It would save $71 million this year, $179 million next year and $233 million the third year. But, over a 25-year span this action would cost taxpayers a staggering $2.5 billion.
This suggestion from the legislature’s own analysts didn’t come out of the blue. The Department of Legislative Services was told by Democratic leaders in the legislature to find mounds of money that could be cut from the budget for later redistribution to their priorities — education and health care.
‘Déjà vu’
The result is an incredible prostitution of DLS’ fiscal stewardship. It is as though these analysts and legislative leaders learned nothing from the pension debacle of the past decade.
If approved, this proposal would be, as Yogi Berra once said, “Deja vu all over again.”
Solving a short-term budget problem would seriously threaten the state’s long-term fiscal viability — and its triple-AA bond rating.
Legislators would be gambling that a booming stock market continues over the next decade without letup. This would easily erase the need for supplemental pension payments by the state to help close a whopping $19 billion unfunded liability.
But what if economic good times fade? What if — as is almost inevitable — the stock market suffers setbacks during that time?
Irresponsible plan
Unfunded liabilities in the state worker and teacher pension accounts would soar, just as they did during the recent Great Recession.
It is a foolish and fiscally irresponsible proposal that never should have been presented to the legislature. It could make a bad situation worse and set off alarm bells at bond-rating agencies.
Interestingly, the Hogan administration considered this proposal and rejected it — even though it would have helped close a $1 billion budget gap.
David Brinkley, Hogan’s budget chief, said the decision was made to honor the state’s commitment to its employees.
In 2011, lawmakers approved reforms that raised employee payments to the pension system, reduced benefits for new workers and committed the state to increasing its annual payments.
Reneging on that agreement would be a terribly crass and unwise step, a slap in the face to state workers and public school teachers. They still must ante up additional paycheck dollars to fortify the pension system.
Moral obligation
Why should state legislators walk away from their end of the bargain?
“What duty do we have to employees,” said Del. Tony McConkey of Anne Arundel County. “What moral obligation do we have”?
“A promise made is a promise kept,” noted Del. Mike McKay of Allegheny County.
Indeed.
Short-sighted illogic got Maryland into deep trouble the first time. Will lawmakers be foolish enough to go down that road again?
Glendening started it
Back in the early 2000s, Gov. Parris Glendening intentionally underfunded state payments to the pension program so he could increase education aid. The legislature not only went along but came up with a flawed accounting gimmick to justify lower payments.
Known as the “corridor funding method,” this scam lets the state cut its pension allocations when times are good and stock market returns are strong.
But when the recession hit in the late-2000s that corridor became a dead end. The state’s pension liabilities skyrocketed. Tough, painful reforms had to be instituted.
Eventually, the state pension board agreed to phase out the corridor funding method that had caused all the trouble.
Walking Away
Now, DLS is proposing that Maryland repeat its actions of the early 2000s, but without calling it “corridor funding.” The state would walk away from its pledge to state workers and teachers and stop its supplemental payments.
Sure, there would be short-term benefits, enabling legislators to allocate more money for other priorities. Over the next 11 years, the state would save $2 billion that could be spread around to worthy programs.
But here’s the catch: In the subsequent 14 years, the state would have to shell out a staggering $4.5 billion in extra payments to make the pension fund whole.
Even worse, that calculation doesn’t consider what happens to the pension fund in the next two or three recessions. After all, economic downturns are inevitable and an integral part of the economic cycle.
Nightmare on State Circle
What a nightmare this could turn into.
As Brinkley told the House Appropriations Committee on Friday, if the pension fund’s earnings performance turns south over the next 10 years, “this will be a disastrous decision.”
The legislature’s fiscal leaders, especially Del. Maggie McIntosh of Baltimore and Sen. Ed Kasemeyer of Howard County, need to think hard about the dire consequences that could ensue by taking such a dangerous step.
They should remember what writer-philosopher George Santayana said:
“Those who cannot remember the past are condemned to repeat it.
You can read Barry Rascovar’s blogs at www.politicalmaryland.com. He can be reached at www.brascovar@hotmail.com