P.E.U.

Originally published in the Frederick News-Post

Economic & Fiscal Policy, Government Transparency

OP-EDS

AUGUST 4, 2010 E-MAIL THIS PRINTER FRIENDLY

Judging by the number of state employees and retirees of state government who showed up for a panel discussion on pensions Thursday in Hagerstown, they are scared about their financial future.

Hundreds nearly filled the theater at Hagerstown Community College to hear Delegate Andrew Serafini, R-Washington, Dean Kenderdine, executive director of the State Retirement and Pension System, and myself discuss the state of state benefits and options to keep them solvent in the future.

Except for Serafini and a handful of other elected officials, most shy away from the issue because it doesn't reflect well on state leadership. Witness the campaigns of Gov. Martin O'Malley and his Republican rival, Robert Ehrlich. Neither candidate talks about retirement and health benefits for state employees -- the ones underfunded by at least $30 billion as a result of "Poor investment performance, ever Expanding promises and Under payments." It's easy to remember the problems as the acronym for them is aptly P.E.U.

Without educating state employees and state taxpayers about the hard choices ahead, elected officials will have a nearly impossible task of reforming an unsustainable system, however.

If experience in Baltimore County can serve as an example, it takes years to negotiate changes with unions. County Executive Jim Smith, a Democrat, and his administration started to talk to its employee unions five or six years ago to solidify agreements this year on pensions and health care estimated to save $16 million in fiscal 2011 and $26 million per year in future years.

Many state retirees at the event wanted to know if their benefits could be altered. In Maryland, the answer is no. But current employees can likely expect changes to both their pensions and health care benefits. They should be part of the discussion as should state taxpayers footing the bill to come up with an equitable solution to what is nationally a $3 trillion hole, according to research by Northwestern University finance professor Joshua Rauh.

Sixteen states made changes this year to their pension systems, according to the National Conference of State Legislatures. They included increasing retirement ages, reducing benefits for new employees and shifting to hybrid plans that place some money in 401(k)s like those used by private- sector employees. Decreasing cost-of-living adjustments and increasing monthly contributions from state employees are two other changes enacted.

Maryland chose once again to punt the problem down the road past the election. Legislators created a commission to study the issue, but the full list of appointees has not been picked yet.

Without concrete negotiations with unions and taxpayer education it is almost certain legislators will pass "emergency" taxes next year like in 2007 to pay for problems of their own creation that could have been avoided with a little foresight and courage. To avoid that situation, legislators should follow Serafini's lead and hold town halls across the state to speak plainly about pensions and health care costs. Legislators must also start fully funding state pension and health care obligations so their true cost is known.

Waiting to address the issue only means an exponentially higher bill for taxpayers. As one Utah legislator told The Wall Street Journal last week, "Reality is not negotiable."

Marta Mossburg is a senior fellow at the Maryland Public Policy Institute. Contact her at mmossburg@mdpolicy.org.

P.E.U.

Originally published in the Frederick News-Post

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