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<<Previous Newsletter Next Newsletter>> January 29, 2010 In my last update, I included several brief points concerning the State operating budget for the 2010 session. The proposed budget includes $13.2 billion in general fund spending – which is essentially unchanged from last year. Due to a drop in overall revenue from last year, however, the budget also includes about $900 million in transfers from other funds, and an additional $389 million in anticipated Medicaid assistance from the federal government, which in the current political environment may not materialize. The State of Maryland did receive stimulus funding last year with a decidedly mixed result: it papered over our own budget shortfalls and bad fiscal decisions, while avoiding the layoff of several hundred State employees. In the end, however, these federal funds are being borrowed from future generations, who must deal with a mountain of increasing debt. It is increasingly unlikely that the Congress will appropriate funds for an additional stimulus bill, since the first one has had such limited results, especially in the area of job creation.
The Governor delivers his State of the State address next Tuesday, February 2, 2010 amid a period of great uncertainty regarding the fate of health care reform at the federal level, and how these reforms will impact the State. We’ll keep you informed. The Governor’s proposed capital budget also calls for $442 million in construction projects. The General Assembly will scrutinize these proposals carefully. While much of the capital budget pays for important and necessary school construction initiatives, new buildings on college campuses, and other similar projects, we will hopefully forego funding any local “bond bills” this year due to the weak budget picture. These bond bills are the state equivalent to federal “earmarks,” and they generally cost about $15 million. Often, these local bond bills pay for projects of questionable importance, and I’m hopeful that we will not be funding any of them this year. In my view, the Governor postponed several tough decisions in this year’s budget. Tax increases will not be supported during an election year, but I’m fearful that 2011 could bring about a big tax increase due to continued over-spending. Both the House Appropriations Committee and the Senate Budget & Taxation Committee are holding budget hearings, and will shortly be making budget decisions. You may recall that Maryland is unique among the states in that the legislature can only cut from the Governor’s budget proposal but cannot add funds to it. Upcoming Legislation and Announcements To date, I have introduced (or will shortly introduce) nine bills, dealing with such issues as sex offenders, drunk driving, workers compensation for deputy sheriffs, civil immunity for crime victims, and other issues. I have also introduced HB 310, which would require that in the event of a U.S. Senate vacancy in Maryland, the Governor would call a special election between 60 and 90 days after the absence occurs. Current Maryland law permits the Governor to appoint a qualified individual to the office until the next general election. The victory of Senator-elect Brown in the recent Massachusetts special election illustrates the importance of such special elections, as legislators achieve greater legitimacy if they are actually voted in by their fellow citizens. Also, I am working on a bill that would bring some significant reform to the pension plan for the Maryland legislators, including me. Our legislative pension plan, which is completely separate from the larger State employees pension system, is way too generous, and the benefits far exceed virtually any plan in the private sector. Most importantly, our plan’s benefits outstrip the plan available to state employees and public school teachers. This is not right, and in my view, it must be changed. Pensions, especially those benefiting elected officials, have certainly been in the news lately. Mayor Sheila Dixon’s $85,000 annual pension is outrageous, as is the lifetime pension payments for retiring Baltimore County Council members, who receive full annual pensions of $54,000 adjusted for inflation for life after serving just 20 years in an essentially part-time position! While the State legislative pension plan is not quite so generous, it is still pretty rich. For example, if you serve for 22 years and 3 months, your maximum annual pension benefit is two-thirds of the legislative salary currently in effect. So, while the current salary is $43,500, let’s assume that ten years from now in 2020, the salary is $55,000. A retired legislator who has served the requisite 22 years and 3 months would receive an annual pension benefit in 2020 of approx. $36,850, which would increase, by the way, every time current legislators receive a salary increase. A pension benefit of this size is way too large, and cannot be defended for a job that is essentially part-time in nature.
The reform I will propose for the legislative pension plan would convert this defined benefit plan to a defined contribution plan, where legislators would be encouraged to fund their own 401(k) plans with a modest match from the State. In the end, this approach would save the State significant dollars. (The exact savings are being calculated by our financial analysts in the legislative services department. Details to follow….hopefully in next week’s newsletter).
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Copyright 2009 * George Towle, Treasurer