Fiscal Analysts Discuss Effect of Teacher Pension Shift on MOE, Make Recommendation Regarding Federally Funded Teachers

In the budget analysis, Maryland State Department of Education (MSDE) – Aid to Education, the Department of Legislative Services (DLS) discusses the teacher pension shift to county governments and maintenance of effort (MOE).  Within this analysis, they also raise issues with eliminating the requirement that school systems pay the retirement costs of federally funded teachers and make a recommendation with respect to the three jurisdictions that did not meet MOE in FY 2013 and face a potential penalty.   From the analysis:

…the BRFA of 2012 relieves school systems of a current requirement to reimburse the State for the pension costs of federally funded positions, totaling $37.1 million in fiscal 2013. These funds would then be available to redirect to other eligible uses. The impact of these funds and the increase in direct aid to local school boards is shown by county in Appendix 3. Combined, the local school boards will receive an additional $150.3 million in fiscal 2013.

Also from the analysis...

As constructed in the BRFA of 2012, the shift in teachers and librarian retirement costs would not impact maintenance of effort (MOE), as the cost is moved directly to the counties, which would pay the State retirement system directly. However, if the BRFA provision was changed so that pension costs were shifted to the local school boards, which set teacher salaries, or if the counties were required to provide funds to support retirement costs funded through the school boards’ budgets, maintenance of effort requirements for the counties could be affected.

DLS asked MSDE to discuss the proposed pension shift and its effect on MOE, and offered a recommendation with respect to the federally funded teachers. Below is an excerpt from MSDE’s complete response:

MSDE should discuss the potential impact of shifting 50.0% of combined Social Security and pension costs of local school systems to the counties on MOE.

The proposal would require local governments to directly pay a portion of the retirement costs. While the Budget Reconciliation and Financing Act (BRFA) does not specifically address how Maintenance of Effort should be handled, MSDE infers from the proposed payment process that the county-paid funds would not be appropriated to the local school system operating budgets. Since the MOE statute refers to “highest local appropriation,” it appears that the funding would be outside of the MOE calculation. The amount paid annually by the county would be depend upon the funding structure and calculations noted in the BRFA.
In enacting Bridge to Excellence in 2002, Maryland took a strong stand to ensure that our students have adequate funding statewide. This establishes an inseparable interest in ensuring adequate local support to schools. MSDE is very concerned about the limited growth or – in many cases – retraction of local funding for schools. Remember that meeting MOE means that a county is fulfilling its legal funding requirement; it does not necessarily mean that the county is providing adequate local support for its schools. Maryland’s educational system is #1 in the nation; there is severe risk in allowing local support for schools to be retargeted for other purposes.

MSDE should also discuss how school boards, which set teachers’ salaries, would share any portion of the retirement costs with the State.

Local school boards are currently responsible for a share of retirement funding as it is being defined in the current proposal. The proposal before the General Assembly recognizes the contribution that is already being made at the local level. That is, the Social Security contributions for teachers are already being paid by local school systems. Therefore, under the current estimates, about 33% of the overall combined costs of retirement and Social Security are already borne by local school systems.
The current proposal, in splitting the combined (Retirement and Social Security) costs in half, would require county governments to pay some portion of the teacher retirement contributions. This would then establish that the three parties (the State, the local school system, and the county government) each share in the retirement cost. In the current FY 2013 budget as proposed, the State would pay a 50% share, the school system would pay a 33.3% share and the county government would pay a 16.7% share.

DLS recommends that consideration be given to whether the local school boards should continue to share in the cost of teachers’ retirement by continuing to support the costs associated with retirement for federally funded positions.

Under the existing funding system the State is paying 100% of the retirement contributions. Therefore, it makes sense that any retirement costs associated with a federally funded position should be reimbursed to the State. Under the new proposal, however, the question becomes less clear. With retirement shifting to a shared State and Local responsibility, would it be appropriate for the State to claim access to the 100% level of funding associated with these positions? These funds would no longer be paid by local school systems. However, given that most federal grants to school systems are restricted funding, the school systems will need to focus the savings toward allowable program costs. The statutory and regulatory restrictions associated with these federal funds would limit the opportunities for use of these funds.

DLS made the following recommendation regarding the three jurisdictions which did not meet MOE on FY 2012 and face a penalty in FY 2013.

DLS recommends budget bill language reducing the State share of the foundation appropriation in fiscal 2013 to reflect the fiscal 2012 MOE penalty for Anne Arundel (if the State board certifies that MOE is not met), Montgomery, and Queen Anne’s counties.

MSDE provided the following response:

MSDE concurs with the language with one suggested change: MSDE notes that there is legislation before the General Assembly that would waive these penalties. The Department suggests that the language be amended with a contingency to recognize this possibility.

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