Sustainable pensions in Anne Arundel

Our view: County Executive John Leopold is right to tackle public worker retirement benefits before the situation reaches a crisis point — and unions would be wise to come to the table

November 29, 2010

Anne Arundel County Executive John Leopold is taking an important step in advocating for a move away from the defined benefit pension plans that governments offer most of their employees and toward a defined contribution plan — like the 401(k)s that most private sector employees get. In jurisdiction after jurisdiction, it is becoming clear that the benefits that have been promised to government workers are unaffordable and that it is fundamentally unhealthy for public sector workers to receive benefits that are so far out of line with what employees in other industries receive. Although the leaders in other local jurisdictions — notably, Baltimore City and Baltimore County — have taken steps in recent years to limit benefits for police and firefighters, Mr. Leopold is taking the issue to its logical conclusion. Leaders in other local governments — and at the state level, where unfunded retiree pensions and health benefits total some $30 billion — should follow his lead.

Mr. Leopold is only talking about trying to change the benefits for new hires, and unions have typically been more willing to accept changes on behalf of those who are not yet members. Still, Mr. Leopold will face a challenge in advancing his idea because his county doesn't face an immediate crisis, like the one that precipitated Baltimore Mayor Stephanie Rawlings-Blake's move this spring to limit benefits for police and firefighters, including requiring many of them to work more years before retirement. Because of underfunding in Baltimore's fire and police pension funds, the city faced an extra $165 million in payments this year if it hadn't made the changes. Arundel's pension is about 85 percent funded, which is better than many other jurisdictions and far better than the state.

But Anne Arundel is, nonetheless, a good starting place for more serious pension reform. Even more moderate increases in costs there — such as the share of teacher pensions that the state is increasingly likely to require local governments to fund — can be extremely difficult for Anne Arundel to cope with because of its strict tax cap. Many counties have versions of the homestead tax credit, which limits the amount of an increase in property value that can be considered in assessing property taxes. But thanks to a 1992 law, Anne Arundel goes much further, limiting the increase in total revenue the county can receive from property taxes to 4.5 percent or the growth in the Consumer Price Index, whichever is lower — and because of the lack of inflation in recent years, the CPI hasn't risen by more than 4.5 percent since 1990. That gives the county much less wiggle room than its neighbors.

The president of the Anne Arundel Fraternal Order of Police told The Sun's Nicole Fuller that Mr. Leopold needs to be careful about monkeying with the benefits for new hires because the county is already having trouble recruiting new employees. This is the same argument that has been made in each jurisdiction that has sought to limit benefits for public employees, and as more counties face up to the same problem, it becomes less and less true.

The unions in Anne Arundel have shown a willingness in recent years to negotiate on benefits concessions to avoid layoffs, and the police union's loss in a binding arbitration case about benefits cuts may make them more likely to come to the table with Mr. Leopold.

The unions also have to be mindful of actions a new County Council stocked with fiscal conservatives and a Republican majority could take to further limit their members' benefits. A veteran Democrat on the council, Jamie Benoit, campaigned on the issue of taking care of the county's long-term liabilities for employee health care, which are set in legislation, not through negotiations with the unions. And the council could weaken the law that sets the terms of the police and fire unions' right to binding arbitration. Right now, the council is required to accept whatever the arbitrator decides. But the legislature could change the law to adopt a system similar to the one in Baltimore County, where the executive is required to submit the arbitrator's findings — and any tax increases needed to pay for them — but the County Council is not required to accept them.

Mr. Leopold is taking the right approach by tackling the issue before there is a crisis and by seeking the collaboration of the unions in devising reforms. Both sides need to recognize the importance of taking action to make public employee retirement benefits sustainable in the long run, because Anne Arundel voters are not likely to look kindly on either the county's political leaders or unions if they suddenly face higher income tax rates to pay for pensions that are much more generous than anything they are likely to get in the private sector. Other local leaders should follow Mr. Leopold's lead.

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