It was supposed to be a trade-off, a system of shared pain for shared gain. In order to ensure a solvent state pension system, employees would pay more and get less; the state of Maryland, in turn, would take the savings those changes generated and reinvest them in the plan at the rate of $300 million a year. Handshakes all around, and cue the parade.
That was the deal approved by lawmakers in 2011, and the state was as good as its word — for one year.
Reinvestment in the pension system was reduced in 2013 and again this year, under the budget announced Wednesday by Gov. Martin O’Malley. Instead, some $172 million will go back into the operating budget for other programs.
That proposal may look small in comparison to the $39 billion budget. However, it was the single largest piece in a package of $9 billion in deferrals, canceled plans and actual cuts in expenditures.
It is true that the governor is faced with an unenviable task. He must submit a balanced budget, no deficits allowed, year after year. However, he is given a good deal of leeway in defining the balance. Like a game of Jenga, the trick is to find and remove those pieces that won’t reduce the whole tower to a jumble of blocks on the floor — at least, not during your turn.
In that sense, back-to-back backtracking on the promised level of pension-fund reinvestment was not a bad move. The repercussions are not immediate: Unlike some states, Maryland is sticking with its traditional defined-benefit pension plan, and, despite the system’s underfunded status, no one has missed a check. The state is even sticking with its goal of 80 percent solvency, considered a sustainable level; under this year’s budget proposal, the governor says, the state needs just one more year to get there.
Even so, it’s a troubling move. The fact that the system was underfunded was documented by the Baltimore-based Calvert Institute and the Maryland Public Policy Institute, of Rockville, as far back as 2008. By 2011, when the legislative deal was struck, solvency had fallen to just 64 percent.
Under the 2011 deal, the system should have returned to 80 percent solvency by 2023. With the reduced level of reinvestment by the state, the target date has slipped to 2025 — assuming the economy does not thwart the plan.
The state’s workers are holding up their end of the bargain with higher contribution rates, longer vesting periods and capped cost-of-living adjustments. No one gave them the option of reducing their compliance by a third.
A deal that only one side honors is not a deal at all. The state needs to get back on track or pension-fund solvency will always be a decade away.