A state Senate panel decided Friday that Maryland should balance future budgets by shifting some teacher pension costs to local governments, a long-discussed change that caught education activists and county officials by surprise.
The move came as the Senate Budget and Taxation Committee put its final touches on alterations to Gov. Martin O'Malley's $13 billion general fund spending plan, trimming about $120 million and eliminating 500 government jobs.
The panel's reductions did not add up to the huge savings some on the committee hoped to achieve for the fiscal year that starts in July.
But lawmakers cleared a path for reduced spending in coming years by agreeing that Maryland's local education systems should begin paying some teacher pension costs starting in July 2011. The proportion would gradually increase after that.
The state government now pays the full cost of those pensions, which will be nearly $1 billion in the coming year. The cost shift, proposed by Sen. Richard S. Madaleno Jr., a Montgomery County Democrat, would save the state about $63 million in the first year, rising to $330 million two years later.
"I think this constitutes progress," Warren Deschenaux, the state's top fiscal analyst, told committee members after they approved the pension changes and other cuts.
The proposal - which awaits a vote of the full Senate possibly as soon as next week and would then go to the House of Delegates - drew an immediate outcry from some observers.
Bebe Verdery, education reform director with the American Civil Liberties Union of Maryland, said the proposal was "not vetted in any public hearing" and came as a shock.
"This sneaked up on almost everyone," said Michael Sanderson, executive director of the Maryland Association of Counties.
The vote of the full Senate on the budget plan would be a "referendum" on the pension shift idea, he said.
Several lawmakers have talked for years about changing the pension plan, with Democratic Senate President Thomas V. Mike Miller introducing a proposal each of the past two years. This year, Sen. David Brinkley, a Frederick County Republican, suggested a more drastic shift that would require counties to pay half of the cost. His idea was rejected.
The spending panel also agreed to cut 500 executive-branch positions from state government, which would save $12 million and was first proposed in a Republican alternative budget proposal.
The reduction can likely be achieved without layoffs; Deschenaux said there are more than 1,000 vacant positions.
Other cuts include a $10 million reduction to a fund meant to improve Chesapeake Bay water quality and a $6.2 million cut in stem cell research funds.
The committee chopped a vacant position from the Office of the State Prosecutor, the small state office that recently secured a guilty plea in a corruption case against Baltimore Mayor Sheila Dixon.
O'Malley spokesman Rick Abbruzzese said the governor will "continue to work with [the] General Assembly" but wants to protect his education and safety programs.
O'Malley presented a spending plan in January that closed a $2 billion revenue shortfall by reducing spending and making a series of one-time accounting maneuvers. Since then, the comptroller's office has said that tax revenues will come in $66 million less than first expected.
Analysts from the three major credit-rating agencies reviewed O'Malley's proposal before Maryland borrowed money recently and gave the state's debt an AAA rating - the highest possible. But the agencies warned that the top rating could be jeopardized if officials don't address huge projected revenue shortfalls. Legislative analysts say the gap between revenues and expenses could approach $2 billion soon if spending levels and tax collections continue on their current pace. By law, the state's budget must be balanced.
The Senate panel decided not to touch the way $140 million in roads funds are distributed to local governments. So, as O'Malley proposed, $130 million would go to Baltimore while the rest of the state would share about $10 million.
The committee kept in place reductions in transportation funds that counties have faced in recent years. "It looks like this means the locals are stuck at near-starvation levels forever," said Sanderson.