State Pension Board Adopts New Actuarial Assumptions, Could Lower Teacher Pension Normal Costs

At the meeting of the State Pension Board yesterday, the Board adopted new actuarial assumptions that could lower the normal costs of the teacher pension plan and considered a new method of funding the administrative costs of the system.

Gabriel, Roeder Smith & Company, the State’s actuary, presented the results of the Maryland State Retirement and Pension System experience study and the State Pension Board voted unanimously (all members present) to adopt new actuarial assumptions. The new assumptions could lower the normal costs of the Teacher’s Pension System by $31M for FY 2016.

A decrease in normal costs in FY 2016 does not affect the county contribution towards normal costs for FY 2016. For FY 2016 and every year thereafter, county governments contribute a statutorily set amount towards the teacher pension normal costs. In FY 2017, county boards of education will begin to contribute towards the teacher pensions, too, providing the difference between actual teacher pension normal costs and the county government’s contribution as required by law. For more information on the predicted decreases, read the calculation from the State actuary here.

The actuary also noted that in its current valuation, the administrative expenses of the plan are assumed to be funded from investment returns. In actual practice, the State is making additional contributions for administrative expenses, and allowing participating governmental units to deduct their administrative fees. The actuary recommended that the Board align the valuation assumption with actual administrative practice. MACo anticipates this change leading to legislation that would remove the ability of participating governmental units to deduct administrative fees. Administrative fees for county participating governmental units in the State plan combined were about $1M in 2013. For more information, see our previous posts, Locals In State Pension System May Face New Costs, and Pension Administrative Fees Withdrawn.

MACo continues to work with the State Retirement Agency and county representatives on the State Pension Board on accounting for unfunded liability allocations under new GASB rules. MACo and MML are seeking accuracy in accounting for the unfunded liabilities of the municipal pool, which are less than those of the State Pension System as a whole. The State Board did not discuss the topic yesterday. For more information about this issue, see our previous post, MACo, MML Pursue Pension Liability Reporting Process

Governor Hogan Appoints Two New Members of State Board of Education

Governor Hogan has appointed two new members to the State Board of Education. As reported by the Maryland State Department of Education,

Chester E. Finn, Jr., Ed.D. of Montgomery County and Andy Smarick of Queen Anne’s County were appointed by Governor Larry Hogan to fill two seats on the 12-member board vacated by the departures of Charlene M. Dukes, Ed.D. and Donna Hill Staton, Esq., whose terms ended in 2014.

Andy Smarick spoke at the 2013 MACo Winter Conference on alternative education and charter schools. Both appointees have strong backgrounds in education policy and reform.

Dr. Finn is a Senior Fellow at Stanford University’s Hoover Institute, where he is Chairman of the K-12 Education Task Force. He also is president of the Thomas B. Fordham Institute, where his primary focus is reforming primary and secondary schooling. Dr. Finn has led Fordham since 1997 after many roles in education, academe and government, including professor of education and public policy at Vanderbilt University. He also served as an assistant secretary at the U.S. Department of Education and was legislative director for U.S. Senator Daniel Patrick Moynihan.

Mr. Smarick is a partner at Bellwether Education Partners, a national nonprofit dedicated to helping education organizations – in the public, private, and nonprofit sectors – become more effective in their work and achieve dramatic results for students. He served as a deputy assistant secretary at the U.S. Department of Education and an education aide at The White House Domestic Policy Council. Mr. Smarick also helped launch a college-preparatory charter school for under-served students in Annapolis and was a member of Gov. Robert Ehrlich’s Commission on Quality Education.

For more information, read the press release from the Maryland State Department of Education here, and our previous posts, Maryland’s Governor-elect Could Alter State Education Board Membership, and MACo Features Innovations in Education at Winter Conference.

Charles Budget Debate Hinging on School Funding

As is the case with many counties, Charles County faces budget challenges for the year ahead – with the level of school board support being the largest number on the table.

From an editorial in Southern Maryland Newspapers Online:

It’s been a tough start on the budget front for elected officials on both the Charles County commissioners’ board and the Charles County Board of Education. This is perhaps some of the most important work these officials will do this year. They are facing some tough decisions while cobbling together their financial plans, seeing a reduction of state monies and deficits in their budgets.

The school system has requested a 7.1 percent budget increase this fiscal year. Since state funding will be limited, the schools are requesting a $20.6 million increase for teacher and staff salary increases, health care costs and money to run the new St. Charles High School.

We can probably expect the teachers union to encourage its members to attend the public hearing and address the commissioners directly about the school system’s budget. The cuts to the capital budget have proven to be unpopular with many members of the business community. It’s likely the commissioners will hear from some business leaders, too.

What is happening in Charles County is taking place in jurisdictions all over the state. That is to be expected. Maryland has a new governor at the helm who promised to make changes and cuts when he took office. Add to that an economy that has yet to recover fully, and they equal tough budget decisions.

Read the full editorial on the online site.

Read more on the Charles County budget from the county website.

Editorial Lauds Governor’s Decision to Fund Pensions

An editorial in the Washington Post describes the merits of Governor Hogan’s decision to withhold $68 million in education funding with a pledge to provide that funding to the State’s pension system instead. The piece defends the decision, stating that there are long-term negative budgetary consequences of altering the legislature’s pension funding plan.

The legislature may push back, but it will be on shaky policy grounds if it does. Just four years ago it agreed that the pension fund was a priority. Now, with a Republican governor, it has churlishly changed its mind, despite warnings from bond-rating firms in New York that the fund remains a weak point in state finances.

In picking a fight, the legislature would jeopardize the state’s long-term budgetary health.

For more information, read the whole editorial from the Post here.

Prince George’s Business Groups Offer Alternative Tax Proposal to Fund Education

A group of Prince George’s County business leaders have proposed increasing the county property tax by 8 cents instead of the 15 cents proposed by County Executive Baker in his FY 2016 budget. While supportive of increasing funds for education, the business leaders think an increase of 15 cents is to just way too much.

As reported by the Washington Post,

“By 2020, the County Executive’s proposal aspires to be a top-ten system…” the chamber said in a statement. “These are laudable goals that could be attained without such high tax increases.” The Chamber released its proposal on Monday.

Raising property taxes by 7.8 percent — or from $0.96 per $100 of assessed value to $1.03 per every $100 — would generate about $64 million in revenue for Prince George’s schools, the chamber calculated.

…“Even these [proposed tax hikes] are painful,” Harrington said, adding that his organization presented its plans to both the executive and legislative branches. “But we acknowledge the need to invest in our children.”

The 15 cent property tax increase proposed by the County Executive would yield $133 million for the county school system. While the County Executive has indicated a willingness to compromise, he also stated that less revenue “would not yield the desired transformation he seeks.”

Baker’s budget administrator, Thomas Himler, said the county executive has received but not yet reviewed the chamber’s proposal. He cautioned that any reduction in the proposed tax rate would “be scaling back the progress we think we can achieve … If it’s half, then we’ll only be able to do half as much.”

The County Council has not yet taken action on the proposed budget plan.  However, the Council must pass a balanced budget by June 1.

Additional information and previous coverage of County Executive Leggett’s  proposed FY 2016 budget can be found on the county’s website and Conduit Street.

Commission Will Study Whether Maryland Students Are Over-tested

A new commission will study whether Maryland students are over-tested, as reported by WBAL. The PARCC assessments that accompany the Common Core standards are currently being implemented in Maryland schools, amidst concerns about the amount of time spent on testing, and the cost of technology required to administer the tests online. As reported by WBAL,

The new state testing commission became official after Gov. Larry Hogan signed legislation to set up the group. Its members will include the governor or his designee, lawmakers, the state school superintendent, heads of several teacher unions and parents.

The Department of Legislative Services describes the duties of the Commission to Review Maryland’s Use of Assessments and Testing in Public Schools, stating

The commission must:

  • Survey and assess how much time is spent in each grade and in each local school system on administering local, State, and federally mandated assessments;
  • Review the purpose of all local, State, and federally mandated assessments administered by local school systems, whether summative or formative, and determine whether some assessments are duplicative or otherwise unnecessary;
  • Review and analyze the local school systems’ and MSDE’s interests in requiring assessments and attempt to develop a statewide approach to administering assessments;
  • Determine whether the current local and State schedules for administering assessments allot enough time between administering a formative assessment and receiving the results of the formative assessment to meaningfully inform instruction;
  • Survey and assess if the testing windows implemented by the local school systems and the State have any negative ancillary effects on instruction, materials and equipment use, and school calendars; and
  • Consider the implications for the State if changes were to be made to the Elementary and Secondary Education Act (ESEA) that would allow for more flexibility in administering assessments.

Watch WBAL’s coverage here.

For more information, find the bill information page here and read the analysis of the Department of Legislative Services here.

Queen Anne’s County Budget Hearing Focuses on Education

School funding was a major topic of discussion during a public hearing held by Queen Anne’s County Commissioners on the proposed FY 2016 budget.

As reported by The Star Democrat,

Queen Anne’s County Superintendent of Schools Carol Williamson made a case for increased school funding above maintenance of effort. She said the board of education had two priorities in mind for its budget: compensate the employees and keep class sizes as low as possible while maintaining the instructional programs.

In order for the board to honor its commitment to its three-step contract program for employees, at the board’s projected funding level from the commissioners, it would need to reduce its teaching force by about 28 teaching positions, which in turn would increase class size, she said.

As previously reported on Conduit Street, the county’s proposed budget is $124.5 million and makes no changes to property or income tax rates.

 The current property tax rate is 0.8471 per $100 of assessed value. Because property assessments have decreased, the constant yield rate to produce the same amount of income would increase the property tax rate to 0.8516 per $100 of assessed value, but the commissioners are proposing to keep the rate at its current level. The loss in property tax revenue is more than made up by higher income tax revenues, commissioners noted.

School Board Vice President Beverly Kelley asked testified during the hearing.

“We ask you continue to provide funding for our capital requests and please allow us to prioritize these areas we feel are most urgent at the time,” Kelley said. “We believe that preparing our students for the future requires a clear understanding and acknowledgement of what they will face in their world and then we need to identify what is needed to meet their needs and, in turn, the county needs to meet their responsibility to adequately fund those needs.”

In response to the school board’s plea, Commissioner Jim Moran asked if they could provide a list of what they would rather see funded. The school board responded that they could.

Queen Anne’s County Commissioners plan to adopt the FY 2016 budget on May 26.

Governor to Fund Pension System, Not Education With Set Aside Funds

Governor Larry Hogan announced yesterday that he would not allocate the $68 million that the General Assembly set aside for education in the fiscal 2016 budget to fully fund the Geographic Cost of Education Index (GCEI). Instead, he stated that he would put the money in the State pension system to address its unfunded liability.

From the Governor’s press release,

“We have taken steps to grow education funding, but the state still faces $18.7 billion in unfunded pension liabilities, following $625 million in cuts to pension contributions in the last few years. To address this situation, I’ve decided not to follow the General Assembly’s recommendation to raid the pension fund,” said Governor Hogan. “Doing so would be shortsighted and irresponsible, and I was elected to end this very type of reckless budgeting and governing.”

General Assembly leaders, local officials, and education advocates expressed disappointment with his decision. As reported by the Baltimore Sun,

[Baltimore City Mayor Stephanie] Rawlings-Blake said she was “disheartened” by Hogan’s decision. Baltimore would have received $11.6 million.

The House speaker told reporters that Hogan’s decision was “disappointing.” Busch said the governor had overruled the will of the majority of the General Assembly, and in doing so alienated the three largest political jurisdictions in the state. Delegations from Baltimore City and Prince George’s and Montgomery counties — which would have seen a total of more than $49 million in additional funding — make up 45 percent of the legislature.

As reported by the Washington Post,

The decision is a particular setback for Prince George’s and Montgomery counties, which would have received $20 million and $17 million in extra money, respectively.

…Senate President Thomas V. Mike Miller Jr. (D-Calvert) called Hogan’s decision a “declaration of war on the children of the state of Maryland.”

Montgomery County Executive Isiah Leggett (D) expressed disappointment with the governor’s announcement. “This is a tremendous need for the county and for the state,” he said.

The Governor also announced during the press conference that he would let SB 183, a bill that would change the GCEI formula from discretionary to mandatory if full funding of GCEI was not provided for in the fiscal 2016 operating budget, take effect without his signature.

As reported by the Baltimore Sun,

He called the legislation an “unreasonable mandate,” but he said he knows the Democratic legislature would override his veto, and it was not worth putting the public through a “protracted fight.”

Several Key Bills in Limbo Awaiting Governor’s Final Action

Now that the Governor’s bill signings are behind us, there are still four pieces of  legislation that have yet to be resolved. These bills were not signed during the final wave of bill signings this week, and have not yet been vetoed by the Governor. Two such bills pertain to funding levels provided in the state budget. One bill, SB 183, would require the Governor to provide additional education funding to 13 jurisdiction in future years through the Geographic Cost of Education Index (GCEI). The Governor announced yesterday that he would let this bill become law automatically without his signature.

The other budget related bill is HB 72, the Budget Reconciliation and Financing Act (BRFA), which makes changes to numerous funding requirements to balance the state spending plan for FY 2016. The other two bills with county effect are HB 552, a bill that could increase health insurance costs for small businesses and small governments that self-insure; and SB 190, a bill that would require online travel companies to pay Maryland state sales taxes on hotel rooms booked online based on the retail rate of the room.

The Governor has until May 21 to determine whether he plans to formally veto these bills or let them take effect without his signature. Should the Governor veto any of this legislation, the General Assembly may override the Governor’s veto at the next regular or special session with a vote of three-fifths of the members of each house.  As mentioned above, the Governor announced yesterday that he would let SB 183 take effect without his signature. Continue to follow Conduit Street for the final outcome of the other pieces of legislation.

Each piece of legislation is further described below.

Geographic Cost of Education Index (GCEI)

SB 183 Education – Geographic Cost of Education – Requirement changes the GCEI formula from discretionary to mandatory, if full funding of GCEI is not provided for in the fiscal 2016 operating budget. GCEI is state aid provided to counties with higher costs of education. The bill takes effect July 1, 2015. The funding was previously discretionary and Governor Hogan’s proposed budget funded GCEI at 50%. SB 183 and the General Assembly budget plan funds GCEI at 100% ($136.2 million) in fiscal 2016. Most of the funding from GCEI is directed towards Baltimore City, Montgomery and Prince George’s counties. Read MACo’s letter requesting full funding for the GCEI formula here. The Governor announced yesterday that he would not fully fund GCEI in fiscal 2016 and that he would let SB 183 take effect without his signature.

Budget Reconciliation and Financing Act of 2015 (BRFA)

HB 72  Budget Reconciliation and Financing Act of 2015 (BRFA), accompanies the budget bill (HB 70) and makes numerous changes to statutory funding formulas and requirements to bring the budget into balance for fiscal 2016.  The funding formula changes to provide additional dollars for health departments, community colleges, local impact grants, disparity grants, and other programs are included in this bill.  HB 72 also includes language to repeal the corridor funding method for the State pension system and provides for a $75 million supplemental payment to the State pension system to address the unfunded liability instead of the formerly required $150 million.

Medical Stop-loss Insurance

HB 552 Health Insurance – Medical Stop-Loss Insurance – Small Employers, makes several changes to laws regulating the medical self-insurance market. In part, the bill increases the minimum attachment point for medical stop-loss insurance policies, creating potential cost increases for small businesses and small local governments who self-insure. MACo opposed the bill’s restriction of local options for county governments providing health insurance for their own employees. For more background, read our article, MACo, MML Request Veto of Bill Restricting Medical Insurance Market.

Imposition of Sales Tax on Hotel Rooms

SB 190 Sales and Use Tax – Taxable Price Accommodations, would require online travel companies to remit the state sales tax based on the retail price of a hotel room, not the wholesale rate the online travel companies pays to a hotel. MACo offered amendments to include local hotel taxes in the scope of the bill, but was unsuccessful. Now, some advocacy groups are urging a veto. Grover G. Norquist, President, Americans for Tax Reform, has sent a letter urging Governor Hogan to veto this legislation. For more background, read our article, Equitable Hotel Tax Passes, May A Veto Loom?

Carroll School Board Votes to Eliminate 56 Positions

To address a FY 2016 budget shortfall, the Carroll County Board of Education voted to eliminate 56 positions during a meeting held this week. Another cost cutting measure was to eliminate the ninth-grade sports program. However, members voted against that proposal.

As reported by the Carroll County Times,

Although the initial recommendations from CCPS Superintendent Stephen Guthrie included the elimination of the ninth-grade sports program, the board decided to keep the program. However, they might raise the annual fee by $5 for participants to fund the program in the future. All sports programs, including varsity, junior varsity and freshman programs, have a $100 annual fee per student, or a $140 total fee per family.

Cuts in the adopted budget include the elimination of 50 full-time equivalent teacher positions that will be empty once 75 teachers retire as part of a retirement incentive plan. There will also be a reduction of six full-time equivalent positions by combining crisis intervention counselor positions with dropout prevention specialist positions.

The reduction of 50 teacher positions will save the school system about $3 million.

Carroll County is allocating $169.5 million to the school board in its FY 2016 budget, $10.5 million more than the state requires through Maintenance of Effort. The school board is still hoping to receive additional state funds.

Although the board adopted the budget, Gov. Larry Hogan has yet to release the other half of Geographic Cost of Education Index funding, which allocates additional money for jurisdictions where the cost of providing education is more expensive. Carroll would gain about $1.2 million if the GCEI funding is released.

If these state funds are not released, the school board plans to use fund balance to make up any shortfall.