September 24, 2008
Local government leaders took notice this month when declining tax revenue projections left a $432 million hole in the state budget. Naturally, they're worried that Baltimore and the counties are going to be left to do much of the shoveling. And the most likely pile of money to be shoveled is the more than $600 million the state contributes toward teacher pensions.
Why? Not only is this a substantial sum, but it represents the wrong way to finance public education. The state doesn't set salaries, local governments do. But as salaries increase, teacher pensions grow proportionately, and that's a burden shouldered 100 percent by the state.
Worse, it's a formula that benefits the wealthy. Large, affluent jurisdictions have scores of high-salaried teachers with correspondingly higher pension costs. Montgomery County receives the most of any subdivision with more than $130 million in aid this year alone.
Ending this practice cold-turkey would be impractical. There's a national recession going on, and it's not as if local governments are sitting on big piles of money they could pour into the state pension plan.
The impact of an immediate $600 million cut in local aid would be disastrous for services and for property tax rates, the most likely source of money to make up the shortfall. Homeowners are suffering enough as it is.
But it is reasonable for Gov. Martin O'Malley to propose a freeze on the teacher pension payments at current levels beginning in fiscal 2010. That would save the state more than $100 million next year and more than $1 billion over the next decade.
The impact on local governments would still be significant but hardly a train wreck. Baltimore County, for instance, would likely lose in the neighborhood of $7 million. Surely, a county with a $2.58 billion budget can find the savings without too much discomfort.
This won't close the state budget's current shortfall. State agencies are going to have to roll back spending to accomplish much of that. And it would require the General Assembly to pass a law next year requiring Baltimore and the counties to pay all future increases in teacher pension costs beginning in July 2009. Otherwise, the pension system could wind up dangerously underfunded.
But capping Maryland's pension costs would be a big help in maintaining a balanced state budget in the long run - and with less dependence on gambling revenue. It's also reasonable to lean on local governments that have not been feeling the economic squeeze quite as much as the state, thanks, in large part, to rising real estate assessments.
The end result: no cuts to teacher pensions, no drop in education funding, but a policy that local governments share the burden of teacher pensions. That's not a "doomsday" scenario; it's a sensible approach to financing schools.
TEACHER PENSION COSTS
This is what a freeze on state contributions to teacher payments might cost Baltimore-area jurisdictions. Amounts are based on fiscal year 2009 increases.
Anne Arundel County $4.75 million
Baltimore $5.56 million
Baltimore County $6.88 million
Carroll County $1.74 million
Harford County $2.49 million
Howard County $3.83 million
Source: Maryland Department of Legislative Services
