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Tuesday, March 15, 2011

Maryland Ain't Wisconsin and O'Malley has not Betrayed State Workers

Imagine the scene: thousands of public employees taking to the streets, crowding the state capitol, denouncing changes to their benefits. Speakers took to stage and denounced the governor, "enough is enough" they said, "leave our pensions alone" and one employee for the Department of Social Services declared "I am in an abusive relationship, with the state..."

Is this a day in the life in Wisconsin? No, the scene I just described was of Annapolis, Maryland on March 14th. Thousands of state and county employees took to the streets to protest proposed changes to the state pension and retiree health plans, and many more came to denounce Governor Martin O'Malley's proposal to fund K-12 education at last year's level.

Maryland faces a $1.4 billion dollar budget shortfall this year and after calling a special session in 2007 and signing a significant tax increase into law, O'Malley vowed to balance the fiscal year 2012 budget without raising taxes again. During his tenure as governor, O'Malley has cumulatively cut nearly $7 billion from General Fund spending. Those cuts, coupled with tax increases, and federal aid allowed the state to balance its budget every year. But the federal aid is gone and a slow economy continues to hit tax revenue.

That said, O'Malley increased K-12 education funding by over $1 billion between FY 2007 and FY 2012 - increasing funding every year except for this year. For FY 2012 O'Malley has proposed holding funding at the FY 2011 level of $5.7 billion.

With regard to pensions and retiree health, O'Malley has publicly stated that he is committed to protecting the state's defined benefit retirement system. To that end, he proposed a series of reforms that would stabilize the pension and retiree health system - systems that currently have a combined unfunded liability of roughly $34 billion.

Under the O'Malley proposal:

Current retirees will see no change in their benefits.

For current employees and teacher, a one-time choice is offered for all service beginning in FY 2012:

  1. Continue to pay 5% of salary towards retirement, benefits earned prior to FY 2012 will be unchanged, but there will be a reduction to benefits earned for FY 2012 and beyond; or,
  2. Increase their contribution to retirement from 5% to 7% of pay and continue to earn benefits at the current level.
All employees hired in FY 2012 will be automatically required to to take the 7% contribution requirement. It will also take 10 years, instead of the current 5, to be vested and early retirement will increase from the current 55 to 60. Finally, retirement benefits will be calculated based on the employees highest five years of salary rather than the highest three years.

As for reforms to employee health benefits, the most significant change would be a gradual shift of employees from a state prescription drug benefit to the Medicare Part D drug benefit.

So to recap - O'Malley's proposal would achieve 80% funding of the state pension system by 2023 (the actuarially recommended level) and have no impact on current retirees and no impact on benefits already earned by active or former employees/teachers. Facing a $1.4 billion shortfall, O'Malley has maintained funding for K-12 education and introduced modest reforms to the pension system meant to protect it's long term health. And though state employees (myself included) have faced multiple furlough days, there have been no layoffs.

In Wisconsin, by means of comparison, the state faces a $136 million budget shortfall for FY 2011. The Legislative Fiscal Bureau estimates that "more than half" of the shortfall stems from a series of three tax cut measures signed into law by Governor Scott Walker after being passed in a special session of the legislature that he called. Governor Walker's budget includes a $900 million cut to K-12 education over two years, Walker has also proposed that state workers begin paying 5.8% of their salary into their pansions (up from zero) and that their contribution to their insurance premiums double from 6.2% to 12.6%. He recently signed legislation that strips from state workers their collective bargaining rights for health benefits, and limits their annual salary increases. He had threatened to layoff 1,500 state employees. To be sure, even after the increases in pension and premium contributions, Wisconsin public employees will contribute much less toward their benefits than most private sector employees and whereas Wisconsin public employees would still retain some collective bargaining rights Maryland public employees have very limited collective bargaining rights. Though some Maryland employees are represented by unions and have the right to bargain, there is no binding arbitration in the state and no right to strike.

But when comparing the real impact on workers, their wages, and their current rights the changes that have been proposed in Maryland pale in comparison to what is happening in Wisconsin. Governor O'Malley has proposed modest changes in an effort to protect the state pension system, protesting those changes seems misguided and counterproductive.