Q&A On The Proposed Pension Shift

As has been widely reported (including here), the Governor is proposing a shift of pension costs from the State to county governments, providing $239 million in fiscal relief to the State budget for FY 2013, and creating an equal fiscal responsibility on county governments. Given the importance of the issue, and the many confusing elements of the plan and its reporting, MACo hopes to clarify the proposal on the table and its effects on county governments.

Q: How much would the shift cost my county this year?

This essential question has been difficult to track, especially since the most frequently-referenced summary of the plan includes numerous complicated components. The clearest answer to this question lies in the Budget Reconciliation and Financing Act (BRFA) itself, where the list of county costs proposed for FY 2013 is spelled out county by county:

SECTION 19. AND BE IT FURTHER ENACTED, That, notwithstanding any 20 other provision of law, for fiscal year 2013 only, the local share of the total employer 21 contribution for teacher and librarian retirement shall be as follows:

Allegany 2,890,831
Anne Arundel 20,349,335
Baltimore City 21,893,869
Baltimore County 28,184,531
Calvert 4,874,186
Caroline 1,402,418
Carroll 7,019,651
Cecil 4,284,094
Charles 6,884,597
Dorchester 1,154,127
Frederick 10,281,577
Garrett 1,210,268
Harford 9,824,156
Howard 17,225,564
Kent 641,149
Montgomery 47,406,507
Prince George’s 34,062,796
Queen Anne’s 1,923,341
St. Mary’s 4,287,204
Somerset 836,461
Talbot 1,121,726
Washington 5,530,496
Wicomico 3,806,299
Worcester 2,222,012

Q: What About The Worksheeet Showing a Shift Of $202 million?

A widely distributed document (available here) shows the “Net Local Impact – FY 2013” of the Governor’s proposed budget plan. Many counties have focused on the column entitled “50/50 Retirement Split” and have concluded that this was the full amount of the pension shift. Not so.

The $202 million column, as explained in a footnote on the worksheet, is a “net” of two figures: the amount of pension costs shifted to the county, minus the amount of pension costs for certain federally-funded positions currently borne by the school boards, that are scheduled to be relieved by the plan. The net of these two moving parts — a $239 million shift to counties, and $37 million in relief to school boards, is lumped together in one column, despite the different actors in the two components.

Q: What About The Worksheet Saying That The Shift Is Offset?

The same worksheet also portrays the potential local effects of several other proposals, with county by county estimates, seeking to demonstrate that taken in total, the plan would ameliorate the costs of he first year burdens for many counties. While a political question lies ahead about the potential for each component to pass, all stakeholders would be wise to avoid assessing this package as inseparable. The elements are currently contained in one all-encompassing bill, but could be amended in any number of ways before the General Assembly takes final action, as the BRFA bill is usually a heavily altered document through budget deliberations. MACo’s previous coverage of the budget plan describes each component and its county effects.

Q: What About Future Years? Are Those Similarly Offset?

No argument has been made that the plan would fully, or even nearly, offset future year costs. The state’s pension contribution rate is surely on the rise, some tax-based offsets from the fiscal plan decline after the first year, and the remaining county gap would widen. According to Warren Deschenaux (speaking at MACo’s Legislative Committee on January 25) reasonable estimate for increasing costs of the pension shift alone is that it will rise from $239 million to roughly $300 million in the following year, FY 2014. A formal analysis of these future costs is expected soon, but not yet available.

Q: Is This Shift To County Budgets Or School Budgets?

To the county budget.

In recent years, pension shift proposals from the Senate (in 2010), a benefits commission (in 2011), and the Department of Legislative Services (variously) have all suggested that the cost burden of some pensions be shifted to local school board budgets. The Governor’s plan, however, shifts these costs to the county budget directly. The BRFA bill envisions a state invoice sent to each county, backed up by a withholding of county income taxes if not remitted.

Q: Is Social Security For Teachers Being Shifted Also?

No. Despite many reports and simplifications, the responsibility for teacher social security payments remains in local school budgets, where it has been since the last major cost shift in the early 1990s.

The confusion arises from the way the current proposal is being described as a “50/50 split.” Essentially, the Governor’s bill proposes to split evenly the total costs of both social security and pensions between the state government and the combined county and school board local share. For FY 2013, the calculation is shown by DLS in its Fiscal Briefing — where the new county pension share calculated at 3.825% of payroll would add with the schools’ continued payment of 7.65% for social security and medicaid to add to the same total contribution to pension costs remaining in the state budget.

This also means that as the state contribution rate rises in coming years (due to the underfunded state of the system, this is fully expected and essentially inevitable) the counties would bear half of every additional cost to the system.

Q: Does This Proposal Affect More Than Public Schools? What About Community Colleges and Libraries?

The proposed pension shift affects public schools, community colleges, and libraries the same way, but has been universally shortened to “teacher pensions” since the lion’s share of the funding at stake is connected to primary and secondary teachers. The numbers shown above include the fiscal effect of all three shifts combined.

Michael Sanderson

Executive Director Maryland Association of Counties

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