O'Malley proposes $240 million shift of teacher pension costs to counties

January 17, 2012|By Michael Dresser and Annie Linskey, The Baltimore Sun

Teachers, local elected officials, affluent Marylanders and health care providers are among those likely to be aggrieved Wednesday when Gov. Martin O'Malley releases his budget for next year.

As part of a plan to address Maryland's $1 billion budget shortfall, O'Malley will propose a groundbreaking shift of teacher pension costs from the state to local governments, legislative sources said Tuesday.

The governor's budget proposal, which must be approved by the General Assembly, also will include spending cuts to Medicaid as well as higher income taxes for the top 20 percent of Marylanders by phasing out exemptions and deductions, the sources said.

In addition, O'Malley will propose collecting sales taxes on some purchases from online retailers that don't impose the levy now and taxing cigars at the same higher rate as cigarettes.

Some details of the plan emerged after legislative leaders and others were briefed Tuesday.

The most significant change would be a sharing of the burden for paying the retirement costs of public school teachers between the state and local jurisdictions — the 23 counties and Baltimore City. Since the pension system's inception, those costs have been borne by taxpayers at the state level. Changing that system would put added pressure on the counties and city to raise taxes — or to hold down teacher salary costs.

The change is expected to save the state an estimated $240 million the first year by shifting costs to the counties — an amount that is expected to increase over time. The figure effectively comes from shifting half of pension costs for teachers to the counties but shifting half of teacher Social Security costs to the state. Currently, the state pays about $955 million a year to cover the full cost of teacher pensions, and it pays none of their Social Security costs.

The General Assembly will spend much of the next 21/2 months considering changes to the governor's plan, but Democratic leaders reacted positively Tuesday. House Speaker Michael E. Busch called the pension plan a "balanced proposal by the governor." Senate President Thomas V. Mike Miller said the governor "has made some very bold decisions."

But some county leaders were dismayed after being briefed by the governor late Tuesday afternoon.

Montgomery County Executive Isiah Leggett, a Democrat whose county is facing a budget shortfall of more than $100 million, called the teacher pension proposal a "non-starter."

"The shift is not acceptable," he said. "The mechanisms to soften the blow are, I think, insufficient. I'm not prepared to accept it."

Howard County Executive Ken Ulman noted that O'Malley didn't propose a transfer of teacher pension costs during his first five years as governor.

"I think he understands the impact is very difficult. I'm disappointed that there's going to be a proposal to shift the burden to counties because I don't think we're in any better position to be able to afford it than the state is," said Ulman, a Democrat.

Anne Arundel County Executive John Leopold, a Republican who was not briefed by O'Malley, derided the governor's plan to shift teacher pension costs to the counties, calling it a "heavy burden" that would make it "extremely challenging" to uphold Leopold's plan to eliminate furloughs for county employees in his next budget.

"Essentially the state is asking the counties to bail it out," said Leopold, who has furloughed county employees for the last two years. "They want to set the rules and pass the bill to the counties."

The Senate GOP caucus has long called for the pension burden to be moved to the counties, a point Sen. David Brinkley noted Tuesday. "I'm glad he's coming around to our plan," he said.

But a House Republican leader objected to the tax provisions in the package.

"We should really be focused on reducing our spending, and we should be focused on the economy, business and jobs. And from what I know so far this budget seems to be very contradictory to that," said Eastern Shore Del. Jeanne Haddaway-Riccio, the minority whip. "Obviously it is going to be a concern when you make changes that affect business and taxpayers."

If lawmakers were dismayed by some provisions, they were relieved by some things that are not in the plan. Despite O'Malley's musings last week about the advantages of a sales tax increase, he will make no such proposal, officials said. While some individuals' tax payments may go up, rates themselves will not be touched. Nor will the budget rely on transfers from the Transportation Trust Fund or an increase in the state property tax, sources said.

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