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State supports plan to cut county's pension debt

February 15, 1997

By JULIE E. GREENE

Staff Writer

State officials agreed this week to support a proposal that would cut the city of Hagerstown's $9.96 million pension debt by half.

Washington County's delegation to the Maryland General Assembly is having legislation drafted that would reduce the city's debt to $4.9 million and reduce pension debts for six other local governments, Del. John P. Donoghue said Friday.

Donoghue, D-Washington, said he didn't foresee any roadblocks in getting the legislation approved. State legislators from the other affected communities will be asked to co-sponsor the proposal, which is expected to be introduced next week.

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Mayor Steven T. Sager said he was "substantially relieved" to learn about the state's support to halve the city's pension debt. But, he cautioned: "We're not done yet."

Donoghue said that passage shouldn't be a problem with the support of the other affected communities as well as State Treasurer Richard N. Dixon and the Maryland State Retirement Agency.

In a letter to the retirement agency's executive director, Dixon stated that legislation passed last year created the pension debt problem. "I believe we should work as deliberately as possible to get this matter resolved immediately," the letter states.

The debt resulted from the retirement agency under-billing the city for its contribution to the state pension plan over several years.

City officials have been waiting word from state officials since a Jan. 23 meeting in Annapolis on whether the state would support the proposal to halve the city's debt.

State officials verified that the proposal would cost the state $7.7 million in a one-time bailout for the seven local governments most affected by the pension debt crisis. That amount includes paying the remaining $5.02 million of the city's debt.

The other six local governments in the state that the bill would bail out are the cities of Cumberland, Greenbelt, Hyattsville and Takoma Park, the Talbot County Board of Education and the Dorchester County Roads Board.

If the bill passes, Sager said, he and City Council members will need to discuss how to pay off the remaining $4.9 million debt.

Sager said he believes the city should issue a bond to pay off the debt rather than repay the state over 40 years at a 7.5 percent interest rate.

Through a bond, the city could receive an interest rate below 5 percent and pay off the debt in 15 to 25 years, saving a ton of money, Sager said.

City officials also could decide to pay off 10 percent to 20 percent of the debt immediately using reserve funds, which would result in significant savings, he said.

"The financial reserves are there for stability purposes, including for a rainy day,'' Sager said. "And I'd say this is raining."

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