In 1986, political scientist R. Kent Weaver published a famous article entitled “The Politics of Blame Avoidance.” In it, he argued that politicians are more likely to seek to avoid blame for unpopular decisions than to claim credit for popular ones. If the debate over the cost shifting of teacher pensions in Maryland is any indication, Weaver was spot on: all the parties involved are pointing fingers at one another.

Governor O'Malley blames the counties for not considering the costs of pension benefits when negotiating teacher salaries: “if as contracts are negotiated — if you’re not covering much of the cost of pension benefits, you haven’t the incentive at the negotiating table to keep them within the leaps and bounds of the perimeters of fiscal responsibility.”

The counties blame local school boards and the state: “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... 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.”

The teachers' union doesn't blame anyone in particular (rather, it is more often the target of blame), but it certainly isn't happy with the proposed shift, which it claims will invariably lead to layoffs and increased class sizes.

There is of course plenty of blame to go around. The convoluted system of teacher pension funding that Maryland has used for decades is unusual in the rest of the country. Although teachers are employed by the county governments, it is the state government that makes the employer contribution for their pensions. The governor's proposed budget envisions shifting a portion of that contribution to be the responsibility of the county governments.

PERVERSE INCENTIVES

When someone else foots the bill for a product or service, analysts often complain about the “perverse incentives” that result. Governor O'Malley's somewhat self-serving argument is that counties have a perverse incentive to inflate teacher salaries beyond what is really affordable, since the counties do not currently have to pay any of the associated pension costs. Of course, counties do have to pay the increased costs associated with the salaries themselves, including payroll taxes.* It would be more accurate to say that counties currently do not fully internalize the cost of their payroll decisions. In theory, this could lead them to offer more in salary concessions to teachers than they otherwise would. Shifting a portion of the cost of pension funding to the counties party remedies this problem. Indeed, the comments of a few school board members already illustrate that the cost shift may have precisely the intended effect. In Montgomery County, one board member suggests, “In the long term, it appears virtually impossible that the new pension cost won’t seriously affect salaries and compensation;” and in Washington County, a board member warns, “It could impact dollars and cents-wise the amount you would be able to offer in salary increases, plain and simple.” Of course, holding salaries in check is precisely the point of the cost shift.

But the perverse incentive may also function in reverse: after all, it is not the counties that determine the level of pension benefits, but the state legislature. In theory, shifting part of the cost of teacher pensions to the counties will allow the General Assembly to increase pension benefits in the future without fully internalizing the cost of the decision. Practically speaking, this is unlikely to happen anytime soon; pension benefits were reformed just last year, and the system is in poor enough fiscal shape that anyone promising increased benefits will be heavily scrutinized; after all, the state is trying to reduce pension costs, not increase them. Still, the counties have a point: the entire premise of cost shifting is that we want to avoid a situation where the person who sets the level of benefits is not the same person who has to pay for them. Cost shifting while leaving benefit setting authority with the legislature does not really fix this problem.

TANSTAAFL

“There ain't no such thing as a free lunch,” the old saying goes. In spite of all the finger pointing and blame avoidance, at least one statement is accurate: this is a cost shift, not a cost reduction. Any money “saved” by the state has to be made up by the counties. The teachers' union has offered a nightmare scenario in which all of the cost shift will be paid for with layoffs, but realistically there is likely to be a combination of cost cutting—and revenue enhancing—measures put into place. There's no avoiding it: the cost shift will likely eventually lead to increased taxes, at least in some counties. And while hardly anyone likes higher taxes, if there are increases, they will at least have the benefit of being more closely connected to their intended purpose. If people understand that their property taxes are increasing in order to pay for pension benefits, they may demand more accountability from both their local boards of education when negotiating with unions, and from the General Assembly when it considers benefit increases.

* Interestingly, the current cost shift debate is essentially a repeat of what happened in 1992, when the General Assembly decided to shift Social Security costs to the counties, which, up until that point, had been paid almost entirely by the state.