Budget talks unraveling over pension issue
Differences between the House and Senate versions of the governor's pension overhaul led to a breakdown in budget talks Friday afternoon, a development that will likely mean lawmakers will miss the deadline for passing the spending plan.
"Everybody's taking a deep breath and stepping back," said House Speaker Michael E. Busch in an interview Friday afternoon. "It is time of year when people work really hard. A good night's sleep and a little reflection will let everyone re-group and come back Monday. We have some significant issues we need to address."
Conferees from the House and Senate were supposed to meet at 3 p.m. in Annapolis to hash through several dozen remaining differences between the spending plans passed by each chamber. Instead Senators
and Delegates* were told to stay in their offices, but wait by their phones. As the day wore on they were told to go home, a planned Saturday session was canceled.
The setback will almost certainly mean the state budget will not pass again in each chamber by Monday's deadline. The target date is frequently missed, though the development keeps the budget on the front burner while a stack of other legislative issues linger.
At issue are a handful of changes aimed at shoring up the state's overburdened pension plan, including a new idea that surfaced in an area that had already won approval in the House and Senate: The formula by which pension payments are calculated for new employees.
A proposed change costs little in the immediate future, but in the long term the plan adds up: After five years it would add $20 million to general fund costs. In twenty years the figure would balloon to $400 million.
"Where do we get the other 400 million?" Miller said on the Senate floor Friday morning. "Do we impose that on existing teachers? Do we make their contributions higher?"
"You want to negotiate? Fine," Miller said. "But come up with the money you are taking away from what the House and the Senate have previously agreed on."
Busch said that the budget panel should take a "holistic" look at pension reform and stressed that there are wide differences between the House and Senate plan in other areas. "The House is looking at the pension reform issue as the total impact that it has," Busch said. "There are significant differences between the House and the Senate bill."
"What we are really doing is looking at the overall impact ... we want to be fair and equitable to all state employees, whether they be current employees or future employees," Busch said.
But most of those issues had been clearly identified.
The new facet to emerge Friday was a proposal that would let newly hired workers calculate the size of their pension check by multiplying their years of service by 1.8. (A teacher who worked for 10 years would receive pension checks equaling 18 percent of their pay through this plan -- 10 X 1.8 = 18 ... therefore ... teacher receives 18% of final pay.)
It is favored by the 71,000 member Maryland State Education Association which trucked thousands of supporters to Annapolis several weeks ago to protest cuts in education and pensions.
The governor had proposed lowering that multiplier to 1.5 for new employees (our example teacher would have a pension check equaling 15 percent of her final pay.) The Senate and the House both passed plans using 1.5, and there was no floor discussion in either chamber about keeping the 1.8 figure for new hires.
The change has little immediate budget impact, but the cost balloons as the new employees work and retire.
Sen. Richard Madaleno, a Montgomery County Democrat who is on the conference committee, said he is "confused" by why the multiplier has emerged as an issue since there was no discussion about it during the floor debate.
He also said he is "concerned" that it will re-open other issues that are considered settled. "Clearly this is a chance to take a lot of things that were off the table and put them on the table," Madaleno said.
Other significant differences remain between the House and Senate plans:
The House guaranteed a one percent annual cost-of-living increase for retirees. It could be bumped to three percent if the pension fund meets its 7.75 percent goal for annual investment returns.
The senate plan is stingier: Retirees get no COLA unless the 7.75 investment returns materialize.
Retirement ages differ too.
The House agreed with O'Malley's proposal to require new employees work for 30 years before receiving a benefit regardless of their age (or retire at 65 with 10 years on the job.)
The Senate adopted a Rule of 92, which means pension can only be collected when the worker's age plus years of service equal 92. (A teacher who left the job at 52 after working for 30 years would wait until she was 62 before receiving benefits. ... 62 + 30 = 92)
The prescription drug plans also differ: The House plan caps retiree prescription drug costs at $1,000 ($1,500 with spouse); the Senate plan caps the costs at $2,000 ($3,000 with spouse) and increases those ceilings with inflation.
* Delegates showed up to the conference, but their Senate colleagues were not there.