Pension cost-shift plan might hit teacher salaries, some say

January 21, 2012|By JULIE E. GREENE |

In announcing a proposal to shift some teacher pension costs to local counties this past week, Maryland Gov. Martin O’Malley said local jurisdictions haven’t had enough incentive to control salaries because the state has borne the cost of teacher pensions.

If a pension pushdown does happen, some Washington County Board of Education members said it could affect salary issues in contract negotiations.

Other board members said it was too soon to say what impact a possible pension cost pushdown would have or they didn’t want to speculate because the school system is in negotiations with the teachers union on salary issues.

“It could impact dollars and cents-wise the amount you would be able to offer in salary increases, plain and simple,” said school board member Paul Bailey, who chairs the board’s Human Resources Committee.

Health insurance costs are going to continue to go up, too, Bailey said.

“That’s going to take another large divot out of any budget,” Bailey said.

O’Malley’s pension proposal, which includes having the state pick up some Social Security costs that local jurisdictions have borne, has a net effect of Washington County losing $2.46 million in the upcoming budget year. Locally, at least an estimated 2,300 of the pension participants are Washington County Public Schools employees, with about 200 from Hagerstown Community College and several from Washington County Free Library.

Denise Fry, president of the Washington County Teachers Association, said she could not accurately say how the proposed pension shift would affect negotiations until she “sees where this lands,” but the issue’s impact on current and future contract negotiations is “very real.”

If the legislature approves the pension proposal as is, it “will challenge everyone to look differently at how we move forward,” Fry said.

Now that O’Malley has released his proposed budget, legislative committees will review it and offer amendments.

While local jurisdictions negotiate salaries for teachers, the state has paid the governmental share of those pension costs. Employees also contribute to the pension plan.

The state’s costs for the teachers’ pension plan have more than doubled in the past five years, from $431 million in 2006 to $900 million in 2011, according to a slide show presentation of the governor’s budget proposals.

Teacher retirement costs are driven by the benefit design and employee cost-sharing arrangement, investment performance and growth in teacher salaries, according to the presentation.

Starting July 1, 2011, the state changed the formula for pension payouts to include the average salary a participant earned during the last five years of service rather than the last three years, said Michael Golden, spokesman for the Maryland State Retirement and Pension System. That change was an effort to bring down pension costs, he said.

Last fiscal year, the state’s pension costs for Washington County school system employees was $18.6 million, school system spokesman Richard Wright said. The school system paid $12 million in Social Security and Medicare taxes for its employees last fiscal year, Wright said.

Separately, the school system spent about $1.6 million last fiscal year for pensions for noninstructional personnel such as custodians and bus drivers, Wright said. The state did not contribute to those employees’ pensions, he said.

Educational funding

While there still are many unknowns regarding how the final state budget will turn out, school board Vice President Jacqueline Fischer said the pension proposal could affect contract negotiations if the school system ends up getting less funding overall from the state than it did for this fiscal year.

If the pension pushdown happens in the long run, it will have to be considered when the school system is negotiating pay raises, Fischer said.

School system officials hope to receive from the Maryland State Department of Education this week state budget figures that affect the school system because Superintendent Clayton Wilcox and staff are working on his proposed budget for the upcoming fiscal year, Wright said.

“Each year, it’s a crapshoot; you don’t know what’s coming,” School Board President Wayne Ridenour said of state educational funding.

Every year, school system officials have to look at what the system can afford with salaries and benefits, keeping in mind they want to be competitive, Ridenour said.

“What are areas we can streamline if interested in giving raises and so forth?” asked Ridenour, who said he will abstain from the teachers’ contract negotiations and vote because his wife is a teacher in the system.

The school system also is waiting to learn how much “maintenance of effort” funding it will receive for the fiscal year starting July 1. The maintenance of effort requirement calls for counties to provide school systems with at least as much per-student funding as the previous year.

When asked last week if the pension proposal would count against maintenance of effort, O’Malley said, “That’s still very much a work in progress.”

On Friday, lawmakers held a hearing in Annapolis to discuss how the pension proposal could affect the maintenance of effort law, The Associated Press reported.

Lawmakers are questioning whether money spent by counties to take on half of teacher pension costs would apply to their maintenance of effort.

State analysts said that under O’Malley’s current proposal, the extra expense in teacher pensions would not apply to county maintenance of effort requirements. But they said lawmakers could adjust that as they work on the governor’s budget, The Associated Press reported.

Early in the process

Board member Justin Hartings said a proposed pension pushdown is one more thing to be considered during negotiations, but that it was too early to know because the proposal could change. Its impact depends on whether pension costs come to the county, the school board or some hybrid, as well as whether the costs arrive in one year or gradually, he said.

As proposed, the 50-50 split of pension and Social Security costs between the state and counties starts with the coming fiscal year.

“Some form of some pension pushdown is going to come. Until we know what that form is, I think it’s impossible to know how it’s going to affect negotiations,” Hartings said.

Last week, school board member W. Edward Forrest said he didn’t think it was practical for the school board to ask the county to provide an additional $2 million to cover school system employees’ pension costs.

Both pension and health care costs will affect contract negotiations, Forrest said.

“Management and the union are going to have to have realistic expectations about what can be offered and what we can do to have a good package for employees,” Forrest said.

Both sides should not be overzealous, but be practical in finding a solution that provides a good package for employees and is something the county and school system can afford, he said.

“My priority is to protect jobs. In my mind, I would rather have a smaller package if it means keeping people employed,” Forrest said.

If the school system were to lay off employees, there aren’t many alternatives for employment, as some other school systems have laid off workers, he said.

Inequity among counties

School board member Karen Harshman said she’s concerned about the pension proposal, which could greatly affect negotiations.

Harshman said she would prefer the state institute a ceiling on how much it contributes to teacher pension costs. Set a salary, and above that mark, the county has to pay the pension costs, she said.

Then, local jurisdictions would know they’re responsible for pension costs associated with higher salaries, she said.

Harshman has mentioned Montgomery County as a school district with much higher salaries.

In the governor’s pension proposal, the net effect has Montgomery County coming out $18 million ahead, while Washington County ends up with a $2.46 million net loss, the second highest net loss after Baltimore County’s $2.86 million.

O’Malley’s proposal would have the counties and the state split the cost of Social Security payments, which local jurisdictions make, and pension contributions, which the state pays.

The governor also proposed several moves that would provide “fiscal relief” to local governments, including capping income tax deductions and reducing exemptions for the state’s highest earners.

School board member Donna Brightman said the proposed tax changes for the state’s highest earners isn’t going to help Washington County as much as it would help counties with a greater number of wealthier residents, such as Montgomery County.

“Washington County certainly cannot compete on that level of wealth, so we’re going to get very little help to offset the pension shift,” said Brightman, referring to the share of income taxes that go to taxpayers’ home counties.

“(Those are) the subtle issues I’m hoping the (Washington County state) delegation is aware of and working on because Washington County is going to take a huge hit in this,” Brightman said.

Brightman said she was uncomfortable speculating about the pension proposal’s impact on collective bargaining, which the school system currently is engaged in, but that negotiations still could be affected by the state proposal.

“If the bill for the pension comes to the county, that’s a totally different long-term scenario than if it comes to the Board of Education because we basically have jurisdiction over collective bargaining for our employees,” she said.

“If we have the bill to pay, that it’s our decision how to spend our budget,” Brightman explained.

“If the county has to pick up the bill, then there may be a different approach to how budgeting is done,” she said.

As of last April, personnel costs accounted for more than 85 percent of the school system’s general fund budget, according to Herald-Mail archives.

“When you start running out of money, your choices are very serious and somewhat limited,” Brightman said.

Staff writer Andrew Schotz and The Associated Press contributed to this story.

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