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Pension shift to cost Washington County millions

Offsets could reduce the actual expense to approximately $2,285,000 for the first year of the four-year phase-in

May 16, 2012|By JULIE E. GREENE | julieg@herald-mail.com

The Maryland General Assembly wrapped up a three-day special session Wednesday, approving a budget that will shift a portion of the state’s share of teacher pension costs to local jurisdictions over four years, including Washington County.

While county government and school officials are still working out the details of how much of the financial burden each will bear, the bill calls for Washington County to pay $3.1 million in teacher pension costs to the school system in the coming fiscal year, according to  Debra Murray, the county’s budget and finance director.

In turn, the school system will pay that amount to the state, Murray said.

As of Wednesday, Murray said she expected some financial offsets to reduce the actual expense from $3.1 million to approximately $2,285,000 for the first year of the four-year phase-in of pension costs.

Those offsets include an anticipated increase of $200,000 in income-tax revenue for the county, Murray said.

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Wayne Ridenour, president of the Washington County Board of Education, said it was too soon to say what, if any, money the school system would need to come up with to help pay the additional teacher pension costs.

There was a possibility the pension costs would have gone directly to the school system, but everyone was working to minimize the impact on the county and school system, Ridenour said.

None of the scenarios would be pleasant if the school system were to bear the full cost of the state’s share of teacher pension costs, he said.

The state bill, as written, requires the county to provide the pension funding to the school system, which then would pay the state for the pension costs, Murray said.

According to Murray, it will take the county four years to reach its full share of teacher pension costs, which would be:

  • 50 percent, or $3.1 million for the fiscal year starting July 1.
  • 65 percent, or $3.9 million the following year.
  • 85 percent, or $4.1 million the third year.
  • 100 percent, or $4.8 million the fourth year, which is the fiscal year that starts in 2015.

For the first four years, the county funds used to pay teacher pension costs will become a second annual “maintenance of effort” or annual payment the county makes to the school system, Murray said.

The original maintenance-of-effort requirement calls for counties to provide school systems with at least as much per-student funding as it did the previous year. That total goes up or down based on enrollment decreases or increases, Murray said.

After the first four years, when the county has fully absorbed its share of pension costs, the two maintenance-of-effort payments will be merged into one, but the county will still be paying the pension costs in addition to the per-student funding, Murray said.

Once the county has fully absorbed its share in the fourth year, it will get a credit for teachers who are federally funded so it is not paying pension costs for them, Murray said.

The deal worked out by state legislators only passes along pension costs for public school system employees, and not teacher pension participants who work at Hagerstown Community College or for Washington County Free Library, Murray said.

But Murray said she expects the state will eventually pass those pension costs to the county, as well.

Those two employee groups were included in the original pension plan at the start of the General Assembly’s regular session this year, she said.

County government and the school board had developed a contingency plan before the state legislature’s special session to address pension costs and are finalizing the details, Murray said.

Where the money would come from to pay the pension costs is being worked out based on the contingency plan, she said.

Murray said she does not expect the details of the contingency plan to become public before a public hearing Tuesday on the county’s proposed budget.

The Washington County Board of Commissioners is expected to discuss the contingency plan and where the money will come from during a June meeting. It would then vote in June to change the draft budget to accommodate the pension costs, she said.

Ridenour said the school board could discuss the pension costs at its June 5 meeting, and any changes to the school system’s budget would be debated publicly. He said he did not expect a special meeting to be called for the issue.

After four years, when the county has absorbed its share of the state pension costs, Murray said the amount the county pays for teacher pensions is expected to increase as wages increase and new personnel are hired in the school system.

Maintenance-of-effort spending already increases when student enrollment rises.

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