Manno's Proposal Addresses Budget and Pension Challenges

by: Mike Hersh

Fri Jan 22, 2010 at 01:04 PM EST

Here's the synopsis of HB 10: "Imposing a tax at a specified rate on income in excess of $1,000,000; requiring specified corporations to compute Maryland taxable income using a specified method; requiring that, subject to specified regulations, specified groups of corporations file a combined income tax return; establishing the Teacher Pension Sustainability and Solvency Trust Fund; altering the determination of the State's contribution for specified plans in the State Retirement and Pension System; applying the Act to tax years beginning after 2010; etc."

HB 10 Press Release (from Del. Roger Manno)

TEACHER AND EMPLOYEE PENSION SUSTAINABILITY AND SOLVENCY TRUST FUND (HB 10)

    * Protect County Budgets
    * Fix Maryland Pension Systems
    * Invest in World Class Schools

The ongoing recession has challenged Maryland's ability to sustain long-term investments in education, while meeting our pension obligations to public employees. This has sparked a debate in Annapolis as to whether the State should deleverage its pension obligations by requiring counties to assume a larger share, if not all of those liabilities. Doing so, however, could be disastrous to the already failing budgets of Maryland counties, and could require counties to significantly slash funding for vital services and education. For example, based FY2010 county contribution levels to the Teachers’ and Employees’ Pension Systems, under a full deleveraging scenario, each year Montgomery County would be liable for $159.6 million in pension obligations, Prince George’s would be liable for $121 million, Baltimore County would liable for $93.8 million, Baltimore City would be liable for $76.6 million, Anne Arundel County would be liable for $67.9 million, and Howard County would be liable for $55.2 million. (Source: Maryland State Retirement and Pension System)
 
In addition, since locally-funded county education systems are responsible for Maryland’s “First in the Nation” education ranking, requiring already overextended counties to pick up pension costs would directly result in diminished schools throughout the State. Clearly, a solution to the pension problem is needed.
 
Of the various public employee pension systems in Maryland, only the largest two (the “Employees’ and Teachers’ Pension Systems” and the “Employees’ and Teachers’ Retirement Systems”) are most volatile to the ebbs and flows of the economy because only those systems operate under the failed 2002 “Corridor Funding Method”, evading sound, actuarial methods in determining levels of pension contributions.
 
Maryland is the only State in the nation to employ such a method.
 
Under Corridor, contribution rates for the two largest systems are fixed from year to year as long as the funded status for each of these systems remains in a “corridor” of 90% to 110%. While Corridor was initially conceived to mitigate annual fluctuations in contribution rates, the fixing of rates at a level below “normal cost” levels has resulted in rates lower than those actuarially determined for (GASB No. 27) accounting purposes, and has ultimately resulted in Maryland’s two largest pension systems being severely underfunded. This has prompted the Maryland State Retirement and Pension System's Board of Trustees to recently state "the Board continues to be deeply concerned with the Corridor Funding Method", while the System's actuary continues to call for "a return to full actuarial funding at the earliest possible time". (See: Maryland State Retirement and Pension System, Comprehensive Annual Financial Report, 2009)
 
Implementing an alternative approach to Corridor is only half of the necessary fix, because without new revenue streams to adequately re-capitalize the System, Maryland will be unable to meet its future pension obligations.
 
That’s why I have recently introduced HB 10, the “Teacher and Employee Pension Sustainability and Solvency Trust Fund” (Trust Fund), funded solely through entirely new revenue streams: repealing the “sunset” of the expiring “Millionaire Tax” bracket; and implementing an annual corporate “combined reporting” assessment.
 
If implemented in the 2010 Session of the legislature, the Trust Fund will replace the Corridor Funding Method with a sound actuarial formula, and is projected to return Maryland’s largest pension systems to full solvency by 2017 or 2018. Importantly, Trust Fund revenues will insulate counties from having to assume future pension obligations.
 
Please help advocate for the Teacher and Employee Pension Sustainability and Solvency Trust Fund. Our counties and retirees cannot wait.