In an editorial published January 19, the Washington Examiner claimed “Maryland counties need incentives to contain pension costs.” Maryland counties understandably disagree on the policy of this proposed cost shift, but in particular object to the assertions posed as facts to support the policy.
The Examiner writes:
O’Malley’s uncharacteristic acknowledgment that local school boards have no incentive to keep negotiated pension benefits “within the leaps and bounds of the perimeters of fiscal responsibility” because they don’t have to pay for them is correct. Requiring Maryland cities and counties to pay at least half of the benefits they so promiscuously promise educators is the governor’s belated attempt to provide that missing incentive.
We will skip the obviously errant comment about Maryland cities (municipal governments in Maryland have no funding or oversight responsibilities for public schools) and focus on the central argument raised: are county decisions the main cost drivers for state pension costs?
Rather than rely on the counties’ own analysis, consider the statements made by Governor O’Malley in defending the pension shift. There, we see an understandable and compelling case for the drivers of increased teacher pension costs:
Teachers’ retirement costs driven by :
Benefit Design/Employee Cost Sharing;
Investment performance; and
Growth in teacher salaries
From that starting point, consider the decision-makers involved at each level:
Benefit Design/Employee Cost Sharing – this is entirely a state decision, as these facets of the system are defined directly in state law by the General Assembly. When the State chose to greatly enhance the benefit structure in a recent election year (2006), the action was taken by the General Assembly and passed into law directly. A round of cost-saving reforms in 2011, too, was an act of the General Assembly. The structure of the pension system is a state function, county governments have no vote in any part of that process.
Investment performance – this, too, is a state decision. The State’s pension fund is invested under the oversight of a State-appointed Board and agency. The system’s ability to yield returns comparable to similar systems also resides strictly with state policymakers, not with counties.
Growth in teacher salaries – the most-discussed element of the costs is listed last, but what drives teacher salaries? County governments are not empowered by state law to even sit at the local negotiating table, that role falls to the local Boards of Education. However, the implied allegation that local largesse underlies these decisions is at best misleading. As the state has ramped up education funding each year (cutting local roads, police, and health departments to help find the funds to do so), there is no mystery where these funds eventually go. State policy– from a state sponsored “Teacher Salary Challenge” to the continuing intense focus on class size, recruitment, and retention– serves to funnel billions into the classroom in the form of educators’ salaries. To then suggest that it’s local decision-making that somehow has brought about a surprise in pension costs is an unreasonable stretch.
In each case, the cost drivers are understandable, but none of them actually reside in the hands of county elected officials, who are now asked to pay a huge and increasing share of their costs.
Governor O’Malley and the General Assembly face a deeply difficult fiscal situation, brought on by unprecedented economic struggles. This policy change and its resulting effects on both taxes and non-education services, should surely be debated by all parties involved. That debate should be informed by a well-reasoned understanding of the benefits and drawbacks of the cost shift.
The Examiner‘s uninformed comments about “the individual counties that negotiated retirement packages that are too generous” doesn’t do justice to the important policy debate.
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An abbreviated version of this response letter has been sent to the Examiner for publication in response to its recent editorial.