Treasurer, Comptroller Urge Senators to Restore $100M Cut in Pension Funding

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Md. Treasurer Nancy Kopp at her 2011 swearing in with Gov. Martin O'Malley.

Md. Treasurer Nancy Kopp at her 2011 swearing in with Gov. Martin O’Malley. (Photo by Jay Baker, Executive Office of the Governor)

In unusual joint testimony, Maryland State Treasurer Nancy Kopp and Comptroller Peter Franchot, chair and vice-chair of the state pension board, pleaded with Senate budgeters not to permanently cut $100 million in state payments to the retirement system.

They said the cut proposed by Gov. Martin O’Malley had high long-term repercussions and undermined the state’s credibility with bond rating agencies by reneging on promises made in 2011 pension reforms.

Leaders of the Senate Budget and Taxation Committee asked the state two top financial officials where they would make up the $100 million O’Malley has used to balance the budget as the senators search for other potential ways to trim the $39 billion spending plan.

“Help me out,” said committee vice chair Nathaniel McFadden, D-Baltimore City, and say where to cut the rest of the budget.

“We find ourselves a week away from having to make a final decision,” said budget chair Ed Kasemeyer.

Revenue write down expected

The committee members had already been told to expect an official write-down of revenue estimates next week of $100 million to $200 million. They were also seeking to boost what they saw as an inadequate surplus of only $30 million O’Malley had left as a cushion for unexpected expenses that often average more than $100 million each year.

Comptroller Peter Franchot

Comptroller Peter Franchot

Kopp and Franchot, former delegates who served as appropriations subcommittee chairs in the House, declined to propose any cuts in other areas of the budget while advocating for a higher pension contribution.

“We think this was a wrong choice,” said Kopp, repeating comments she had made to other lawmakers.

Promises made in 2011

In 2011, the legislature passed major reforms of the pension system that raised employee contributions from 5% to 7% of salaries and reduced future benefits — moves strongly opposed by state employees and teachers. In exchange, the legislature promised to use $300 million of the savings to bolster future liabilities.

“While in the short term, [the governor's cut] does save money from the general fund,” Kopp said, in the long term, over 20 years, “it costs $1.75 billion to the employer — the taxpayers,” because the lost funding must ultimately be made up along with all the expected investment returns on the missing money.

“We would urge you to recognize the reforms and stick to them,” Kopp said.

Franchot said, “Backing away from our commitments undermines our credibility … in the eyes of the financial community.”

Other committee members asked about making the $100 million cut in pension contribution, just for fiscal 2015, rather than over the next 20 years.

In reports released last week, two New York rating agencies that reaffirmed Maryland’s triple-A rating for its March 5 bond sale noted that the legislature had already cut $100 million in this year’s budget, setting aside the money in case of federal budget cuts.

This would be the second year in a row that the state has not lived up to the promise made in 2011 pension reform.

In general, legislators cannot add money to the governor’s budget. But in this case, the $300 million extra contribution is written into law and the legislature must approve a change in the law to reduce it to $200 million as part of the Budget Reconciliation and Financing Act (BRFA, or burfa in State House parlance.)

By Len Lazarick
Len@MarylandReporter.com

Original story>

Legislative Staff Recommends Cutting Raises, Benefits of State Employees Just Ratified in Contract

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State employees last Wednesday ratified a new one-year contract that provided 2% raises, regular step increases, health premium holidays and other financial benefits they had been denied in the lean years of the Great Recession.

Two days later, the legislature’s budget staff recommended rolling back about half the negotiated increases, moves that took the largest state union by surprise, calling them “alarming” and “disturbing.”

“We find this budget analysis almost shocking,” Sue Esty, legislative affairs director for Council 3 of the American Federation of State, County and Municipal Employees, told the House Appropriations Committee Friday.

O’Malley Budget Secretary Eloise Foster urged the committee to reject the recommendations and live up to the collective bargaining agreement the administration had negotiated.

Maryland’s legislature is only allowed to cut the governor’s budget, so it is routine for its staff to focus on spending cuts.

Revenue write down

But according to several senators on the Senate Budget and Taxation Committee, Warren Deschenaux, the legislature’s chief budget analyst, has warned them that the official revenue estimates due next week are likely to see a write down of $100 million to $200 million. In particular, the sales tax revenues from December shopping were lower than projected.

This means the state will have even less money to spend than planned in Gov. Martin O’Malley’s $39 billion budget. He had provided a minuscule surplus of only $30 million, along with the continuation of other money-shifting gimmicks that have helped balance the budget in past years.

As part of that search for $150 million to $200 million in budget cuts, the Department of Legislative Services analysis recommended cutting in a half the proposed 2% cost-of-living increase, but beginning it six months earlier. This would lower base salaries in the following budget year.

DLS also recommended delaying step increases by three months, and eliminating two of four “holidays” for health insurance premiums.

The premium holidays, which increase net pay, were based on reductions in health care costs that employees had gained by use of wellness programs, higher co-pays for services and reduced utilization of hospital emergency rooms.

Already fighting pension cut

AFSCME and the teachers union were already fighting Gov. O’Malley’s  proposed permanent $100 million cut in funding for their pension systems. In 2011, an additional $300 million contribution had been promised based on the savings produced by pension reform legislation that increased salary contributions from 5% to 7% of pay and reduced future benefits.

“State employees are driving the savings for health insurance and pensions,” Esty said. “But instead of being plowed back into” reducing the liabilities for retirements and other post-employment benefits, particularly health insurance, “they are being used to balance the budget.”

The surplus in the health insurance fund is the “money that was saved by employee behavior,” and should be used to reduce their premiums, not to balance the general fund, Esty said.

The proposed cuts in the ratified contract were “terrible for morale,” Esty said. This is especially true for recently hired employees who were expecting regular raises, merit increments and a match of deferred compensation, but instead got none of those things as well as temporary pay cuts through unpaid furloughs. The chart below shows the history of pay hikes, increments and other compensation over the past decade.

February 25, 2014 at 7:25 am

By Len Lazarick

Len@MarylandReporter.com

Original Story>

Repealing Common Core Appeals to Scores of Parents

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Common Core world cloud overwhelmedTeachers  are exhausted and frustrated over the new Common Core curriculum, and their  union and school boards want to slow down implementation and improve it.

But scores of parents from across Maryland told legislators they want to junk  the whole thing altogether. They came to the House Ways & Means Committee  Wednesday to support Del. Michael Smigiel’s bill (HB76) totally repealing the new standards.

Their reasons ranged from the political to the pedagogic. They objected to  the new computerized tests being imposed and to the untested teaching methods.  They invoked the Constitution, copyright law, corporate conspiracies and common  sense.

Parents and grandparents told tales of frustrated children confused and  slipping behind as they tried to learn under the new standards.

Smigiel’s bill prohibits the State Board of Education, and county boards from  establishing curriculum and guidelines that include, or are based on, the Common  Core standards. The standards were developed by the National Governors  Association and state school superintendents, but are being pushed by the U.S.  Department of Education with Race to the Top funding.

Click here for a five-minute podcast summarizing the  hearing.

Slow down, Smigiel says

“We need to take a slow and informed approach before deciding to spend  hundreds of millions of dollars on a program that is untested,” said Smigiel,  R-Cecil.

Del. Michael Smigiel

Del. Michael Smigiel, taken from his Facebook page

“The claim is that there are 44 states out there that are currently adopting  this, but actually there is less than half of that now,” Smigiel told the  committee. Many of the states that formerly supported Common Core are now  backing off, he claimed, due to problems with the implementation of the new  standards.

These standards have not been tested and proven, Smigiel said. Those  supporting Common Core have ignored what the parents, teachers and unions  wanted.

He noted that the Common Core materials are copyrighted, so local school  boards are limited in how much they can change them to meet their own needs and  that  “stifles teacher creativity.”

He was also concerned about the data collection that follows the students for  life And it could cost about $100 million more, just for testing.

A legislative analyst said repeal of Common Core could be costly as well.

“The bill’s requirements will put the State out of compliance with the  federal Race to the Top grant and jeopardize up to $250 million in grant funds,”  said the bill’s fiscal note. “The bill’s requirements will also put the state out of  compliance with the federal Elementary and Secondary Education Act …  jeopardizing up to $280.9 million in federal Title I and other federal funds  until new assessments are developed .”

Parents testify about problems

Kimberlee Shaw and Kelly Thompson, members of Parental Awareness for Common Core, protest at Lawyer's Mall in Annapolis.

Kimberlee Shaw and Kelly Thompson, members of Parental Awareness for Common Core, protest at Lawyer’s Mall in Annapolis

 

Clair Sumner of Annapolis, a kindergarten teacher and the mother of three  school-age children, said, “A lot of teachers are deathly afraid to speak out  against Common Core.” Sumner said the grades for her son were going down, and  the only change was the use of Common Core instruction.

CORRECTED 1:52 P.M. 2/7/2014 Jason Laird Leahr of  Frederick County focused on the outside funding to develop Common Core. “The  Gates Foundation has spent over 200 million dollars so far to push Common Core  on the states, unions, and para-school organizations,” Laird Leahr said.

He noted that the Common Core standards require computers, and there could be  a conflict of interest with the chairman of Microsoft.

Darren Wigfield from Frederick County, where he’s running for delegate, said  that Maryland schools test at the top, but Common Core does not provide such  high standards.  He wanted to know why “lowering our educational standards  in Maryland to that of the rest of the country would adequately prepare our  students to be competitive in this workforce.”

Cindy Rose of Knoxville in Frederick County was concerned about how Common  Core would impact those physically and developmentally delayed.

“Common Core disregards the learning abilities and differences in all grades…  mostly evident in special education and the English language learner classes,”  Rose said.  She noted that parents were left out of the decision-making  process, and that PTA organizations and teacher unions were paid to support  Common Core.

Common Core versus common sense  

Margaret Bibble talked about Common Core versus common sense. She wondered  why we would “commit millions of taxpayer dollars to implement something that  has not been tested or proven as effective.” She warned about taking the word of  “salespeople” for an unproven product because “making an informed decision,  based on evidence, is just common sense.”

Joy Hutter noted that Maryland adopted the standards in June of 2010, before  the standards were finished.

Carroll County Commissioner Richard Rothschild, known in Annapolis for his  conservative views, said, “we were fooled” about Common Core.

“I’ve actually witnessed parents crying” over Common Core problems with their  children, Rothschild said. “Teachers are furious and frustrated.”

“We have a serious morale problem, we have a drain on scarce resources,” the  commissioner said.

 

naacp seal

NAACP strongly opposes repeal

Even  those who oppose total repeal and favor the new standards, found problems with  how it was being introduced and want to slow down the process.

Eldridge James of the NAACP said that they want Common Core done properly and  timely, and not rushed.

Education consultant Barbara Dezmon, also representing the NAACP, said the  problem with the Common Core is its implementation.  She said that it was  vetted prior to being released, and that it is more rigorous than the existing  Maryland School Assessment.

Dezmon said the new PARCC testing being developed for Common Core was a  “vendors’ dream” with “businesses coming in like sharks, and I find it  reprehensible.”

She noted that testing can be done on some of the computers schools already  own, and new computers for testing can be used for other purposes as well.

Dezmon said that some of Maryland’s existing standards are in alignment with  Common Core and she sees it as “not as an intrusion, it was meant… as a guide…     [It is] not the feds taking over education.”

The Maryland State Education Association, representing 70,000 educators, also  opposes outright repeal and supports the new standards, but said Common Core  needs more time, money and resources to “get it right.”

State education department resists repeal

The most ardent opponent of repeal was Jack Smith, chief academic officer of  the Maryland State Department of Education. He insisted that curriculum  decisions will still be made locally and said removing the standards would be “a  tremendous detriment to moving schools ahead and providing an opportunity for  every single child.”

Smith said that he knows why people have concerns, but he is opposed to  repealing the standards and curriculum. The department is willing to talk with  people about implementation, and confronting what he called “the brutal  facts.”

Committee members were skeptical of some of the arguments for repeal.

“Most teachers I talk to agree that Common Core is the way to go,” Del. Jay  Walker, D-Prince George’s, told Smigiel. “They may have some problems with the  implementation.”

Del. Kathy Afzali, R-Frederick, said at the Frederick County school board,  “They’re telling me they’re ready to go.”

Read more:  http://marylandreporter.com/2014/02/07/repealing-common-core-appeals-to-scores-of-parents/#ixzz2swvYUwFC Under Creative Commons License: Attribution

State Treasurer Criticizes O’Malley’s Latest Pension Grab, By Barry Rascovar

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Md. Treasurer Nancy Kopp at her 2011 swearing in with Gov. Martin O'Malley.

Md. Treasurer Nancy Kopp at her 2011 swearing in with Gov. Martin O’Malley. (Photo by Jay Baker, Executive Office of the Governor)

It takes quite a bit for the quiet, diplomatic State Treasurer,  Nancy Kopp, to criticize her fellow Democrat, Gov. Martin O’Malley. But she  gently laid it on the line in opposing O’Malley’s $100 million budget cut for  state pension contributions.

“It’s a question of trust,” Kopp said, as reported last week by MarylandReporter.com.

Bond rating agencies will look askance at O’Malley’s effort to permanently reduce by $100 million a year the state’s commitment to funding future pensions. “It will be very difficult to defend” when the agencies question her, she told legislators.

What Kopp didn’t say, but others are filling in the blanks, is that  O’Malley’s action is a cold, calculated slap in the face of state workers.

He is reneging on an agreement he made with them just a few years  ago.The irony is that the very same “working families” O’Malley defends so  passionately are the ones hurt most by his callous action.

O’Malley walks away

Working-class state employees and teachers were asked in 2011 to  pay more into the pension fund and accept lower future benefits. Now they are  watching the governor walk away from his part of the deal.

Gov. Martin O'Malley was smiling as he presented the last of his eight budgets, with Budget Secretary Eloise Foster and Lt. Gov. Anthony Brown.

Gov. Martin O’Malley was smiling as he presented the last of his eight budgets, with Budget Secretary Eloise Foster and Lt. Gov. Anthony Brown. (Photo by MarylandReporter.com)

That will “be dimly viewed” by rating agencies, noted retirement  fund executive director Dean Kenderdine. For good reason.

What he and Kopp don’t know is how close Maryland could come to  losing its coveted Triple-A bond rating because of O’Malley’s pension-funding  duplicity.

The good news is that the General Assembly’s budget panels aren’t  likely to accept the governor’s high-handed action.

When cuts are made, it’s a near certainty lawmakers will see that  O’Malley’s pension grab is countermanded and that the next governor will be  required to commit an extra $300 million annually to close Maryland’s yawning  pension-fund gap.

From the governor’s perspective, taking another $100 million from  the state’s allocation to the retirement fund makes sense.

The move doesn’t endanger anyone’s immediate retirement benefits.  It helps O’Malley avoid cuts in other programs. It shrinks the state’s long-term  structural deficit. And it only delays by a year the retirement agency’s target  for reaching 80 percent of full funding.

O’Malley also knows that calculating pension and retirement  shortfalls is more an accounting shell game than a science.

Does the state really need on hand today 100 percent of the money  required to pay off all future retiree benefits  – 192,000 of them —  decades from now?

The laws of probability are prohibitive that Maryland, or any other  pension fund, will ever have to make a one-time, all-in payout.

Enough to pay current IOUs

Maryland’s $40 billion pension fund has more than enough money to  write current retirement checks.

A 2011 law set out a gradual schedule for raising the state’s  retirement accounts to 80 percent of full funding in a decade or so, and to  reach 100 percent in two decades.

That was a sensible approach — but not if O’Malley and his  gubernatorial successors override that law and continue to use the pension fund  as a grab bag whenever there’s a need for an extra $100 million or so elsewhere  in state government.

By Barry Rascovar

For MarylandReporter.com

Barry Rascovar’s other commentaries can be viewed at www.politicalmaryland.com

Read more:  http://marylandreporter.com/2014/02/09/barry-rascovar-omalleys-latest-pension-grab/#ixzz2swqIWxtL Under Creative Commons License: Attribution

Analysis: From The Back Corner, a Solid Speech That Was Mostly True

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From my usual corner at the back of the House of Delegates chamber, Martin O’Malley’s eighth and final State of the State address seemed one of his better efforts.

Think what you might of O’Malley’s accomplishments over the last seven years — the real subject of the whole speech — the gov is an effective communicator, except when he reaches too far for the lofty rhetoric of his beloved Irish poets.

This year, the guy who runs the governor’s teleprompter was relocated to my usual corner, so as I watched O’Malley deliver the address, I could also see it scrolling on the teleprompter screen. The speech was pretty good in the chamber, but it was even better watching it later on Maryland Public Television, though the governor’s gestures seemed a little overdone, too hot for the cool medium of the TV screen, but barely visible from the back of the room.

Both in the House and on TV, the applause of the delegates and senators was tepid as O’Malley led them to the mountaintop for a view of his good deeds as well as the future. They had heard much of it before.

Sitting behind the mostly Republican delegates, the response was as stony as the mountains of Western Maryland.

But enough of a theatrical review. What about the substance?

Mostly true

The speech as written was about 3,500 words, and delivered almost exactly as written. In the printed text and online, there were another 4,000 words in 88 notes that cited the background for the claims and assertions O’Malley made. Most of them appear to be mostly true.

For instance, he said: “We have built up our Rainy Day Fund to $800 million dollars,  and we have placed this year in our general reserve an operating surplus of $37 million dollars.”

True enough, but putting aside 5% of general fund revenue for a rainy day is required, even though the umbrella is never unfurled when it is fiscally pouring. The $37 million surplus is the lowest it’s been in years, and too small to cover unexpected expenses, legislative analysts say.

The biggest misrepresentation is one that O’Malley has repeated often: “We have cut spending by $9.1 billion,” a figure that has gradually escalated over his two terms.

If O’Malley would simply say he “cut the growth of spending,” the statement would be accurate.

For a while, O’Malley and his press secretaries would qualify the statement, but lately he has reverted to the flat-out statement that he cut spending despite the fact that his total budget over seven years has grown by $10 billion.

Reducing growth, not cutting spending

What O’Malley should tout is that he had to take deliberate action — “tough choices” he likes to say — to restrain spending that automatically increases because of funding formulas, legislative mandates or entitlements. Without reducing those formulas, mandates and entitlements, the budget would be unbalanced.

The state constitution requires the governor to submit a balanced budget. (Some think tanks, such as the Mercatus Center at George Mason University, maintain that Maryland’s budget isn’t really balanced because of accounting gimmicks.)

O’Malley has indeed cut programs and staffing in some agencies. He brags, as he did in Thursday’s speech, about eliminating 5,800 positions. Thousands were already vacant, but eliminating unfilled but funded positions can be considered a cut. Spending grew more slowly than it had over the last 40 years.

What O’Malley did grow was funding for public schools, state universities and colleges and health care. That’s also where jobs, salaries and benefits have grown — not the executive departments which O’Malley directly controls.

O’Malley capitalism

The newest elements of the speech came toward the end, first where O’Malley discusses economics, Henry Ford and capitalism.

“We’ve lost sight of how our economy works when it is working well. Prosperity doesn’t trickle down from the top. It never has. It’s built from the middle out — and from the middle up.”

Here the notes cite not Pope Francis’s critique of “trickle-down” economics — the remarks that caused Rush Limbaugh to call the pontiff a Marxist —  but Neera Tanden of the Center for American Progress.

O’Malley goes on: “Henry Ford understood that 100 years ago, when he doubled the pay of all his workers. His fellow capitalists thought he was crazy. But he understood that America worked best – and our economy worked best – if workers could afford to buy the products they were making.

“In other words, in a properly functioning capitalist economy, a thriving middle class is not a consequence of growth and prosperity — it is the source of growth and prosperity.”

O’Malley’s version of capitalism doesn’t come from the interaction of capital, labor and markets, the way it used to be taught in Economics 101, but from consumer spending by the middle class.

This section of the speech led into a long pitch for increasing the minimum wage.

 In conclusion

The speech concludes with ruffles and flourishes reminiscent of Martin Luther King and “I Have a Dream.”

With the subhead “The Future We See”, O’Malley said: “I believe, I believe, I believe in my heart that we are poised for a generation of greatness.” (Hear the strains of “Deep in my heart, I do believe”? Or evoking his mayoral slogan “Believe”? )

“I can see a day… a time … a year” O’Malley said repeatedly, when Maryland’s children lead not just the nation, but the world in achievement; when technology personalizes every classroom; when high school students graduate with a technical skills and a year’s worth of college credit; when the environment is safe and clean; when the green economy creates thousands of jobs; and finally “when not a single child in Maryland will die a violent death.”

Noble visions indeed. And then O’Malley added the curious line: “The only things worth doing are the things that might possibly break your heart.”

It turns out that that is a partial quote from an Irish writer named Colum McCann, not a snippet from a country music song.

We’ll get back to you when we understand what it means. It may break your heart, if not your wallet.

By Len Lazarick

Maryland Reporter

Read more: http://marylandreporter.com/2014/01/24/analysis-from-the-back-corner-a-solid-speech-that-was-mostly-true/#ixzz2rLddubDQ
Under Creative Commons License: Attribution

Pension Cut Among O’Malley Tactics to Balance Budget, Top MD Analyst Says

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Picking apart Gov. Martin O’Malley’s proposed fiscal 2015 budget, the legislature’s chief fiscal analyst told lawmakers Monday that the administration relied on “familiar budget balancing strategies” to make the numbers work.

According to the fiscal briefing by chief analyst Warren Deschenaux, these tactics in O’Malley’s final spending plan included:

  •  leaving a fund balance cushion of only $30 million, far too small to cover unexpected spending, known as deficiencies. Deficiencies have averaged $145 million in recent years;
  •  shifting revenue from dedicated taxes for open space into the general fund pot;
  •   increasing bond debt to finance the open space programs supposed to be funded by those dedicated taxes;
  •   giving pay raises in mid year, which requires extra funding in the following budget to pay the full raise;
  •   providing no money to handle costly court judgments on bail representation and out-of-state taxes;
  •   tapping into reserves of the employee health benefit fund;
  •   cutting required pension payments by $100 million.

Concerned about pension cut

Some legislators at the joint hearing of House and Senate budget committees focused on O’Malley’s decision to cut $100 million from a $300 million pension payment mandated when state employees and teachers began contributing more of their salaries to retirement. Unions representing employees and teachers said last week that they were surprised by the cut and the move to make it permanent.

Del. Charles Barkley, D-Montgomery, said, “It seems to me we’re not living up to our part of the bargain.” The legislature promised to use the money from additional employee salary deductions required by a 2011 pension reform to help cure underfunding in the pension system.

“What do we say to our employees?” Barkley asked.

“There’s nothing in the budget that interferes with [pensions] being paid,” Deschenaux said. The true cost is just a one year deferral of 80% funding, from 2024 to 2025.

“By far the largest determining level [of pension funding] is the economy and investment return,” Deschenaux said. “$200 million is roughly the amount the employees were asked to put in” when their pension deductions went from 5% to 7% of salary.

Bond-rating agencies concerned

Barkley also argued that the bond rating agencies “were not real happy with what we were doing.” But Deschenaux disagreed, saying he participated in the conference calls with the rating agencies, and they did not raise that issue.

The three New York bond-rating agencies have praised Maryland’s pension reforms of 2011, but in most reports done before bond sales, they raise concerns about Maryland’s high pension liabilities.

Maryland has $40 billion in its pension fund, plenty to cover paying current retirees but only 65% of what’s needed to pay all future pension promises.

Del. Gail Bates, R-Howard, an accountant who has frequently introduced legislation to change Maryland’s pension system and its accounting, asked if the plan would reduce payments to the pension fund by $1 billion.

Deschenaux pointed to a chart in the briefing book (page 29) that shows the $100 million cut $600 million over 12 years, as other pension contributions must be increased to make up for lost investment earnings.

Unions will be lobbying to remove the permanent cut in pension funding, according a statement from the American Federation of State, County and Municipal Employees.

“AFSCME is reaching out the legislators now to eliminate the language which permanently reduces the investment into the pension fund and replace it with language which forbids it in the future.”

By Len Lazarick

Len@MarylandReporter.com

Original Story>

Analysis: Putting a Different Spin on $39 Billion State Budget

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Gov. Martin O’Malley unveiled a $39 billion budget Wednesday that grows spending by 5% with no new taxes or fee increases.

Screen shot 2014-01-17 at 11.34.16 AMO’Malley as usual rolled out the new budget with an elaborate PowerPoint presentation to reporters that put a positive spin on the budget numbers.

You can find the PowerPoint presentation online and watch the entire news conference online as well. (Unfortunately, you cannot hear the reporters’ questions, but only the governor’s answers.)

The budget has record spending on K-12 public schools ($6.1 billion) and health care ($8.9 billion), the largest share of the budget. In terms of the General Fund — the portion of the budget entirely funded by Maryland taxes without federal funds — 48 cents go to education, 25 cents go to health, 11 cents go to public safety (mostly prisons), and 16 cents are spent on the rest of the budget.

Here are some highlights that put a different spin on a budget of $39,224,000,000 and some preliminary fact-checking on claims made in the PowerPoint.

$9 billion in cuts? Really?

The governor emphasized “$9.1 billion in cumulative cuts to state spending.”

If O’Malley has cut $9 billion over the last seven years, how come this proposed budget for fiscal 2015 is almost $10 billion higher than the first budget he proposed for fiscal 2008?

“A lot of these cuts were cuts to spending growth, but a lot of that growth we intended,” O’Malley finally said.

O’Malley did make cuts to many programs, and 5,800 positions were eliminated from the executive branch, although most were vacant. The budget largely grew in money sent to the counties for public schools, and to health providers to take care of low income residents. Higher education spending also grew, slowing tuition growth, but state universities now employ over 3,000 more people.

Eliminating the structural deficit

“Eliminating the structural deficit by FY 2017,” O’Malley claims.

The structural deficit is the difference between projected revenues and projected spending based on mandated formulas, entitlement programs such as Medicaid, salary increases and higher costs for gas, utilities and the like. The budget can’t be balanced unless mandated spending increases for programs such as education and health care are cut, but these are generally cuts in growth, not cuts in actual spending from year to year.

This is the last budget O’Malley will submit, so he can’t very well promise anything two years after he leaves office. The Department of Budget and Management will prepare much of next year’s budget for the next governor, but that governor will have the final say.

The legislature had thought the structural deficit was close to being cured in this year’s budget. But reduced revenues and unexpected costs dashed those hopes.

Pension funding cut

Before Maryland Reporter asked him about it, O’Malley did not mention that one of the chief ways he balanced this year’s budget and the next was by capping the annual reinvestment of pension reform savings achieved in 2011.

“You may recall the largest public employee march” to protest pension changes in 2011, O’Malley said. The rising costs of pensions “was not sustainable.”

When cuts to benefits and increases in employee contributions were passed in 2011, the state agreed to put an additional $300 million a year into the state pension system. That was cut to $200 million this year and now also in the proposed budget, allowing $172 million in “spending reductions” to be used for other programs.

As a result, the pension fund will take an additional year to reach 80% funding of all the pensions promised, pushing that target from 2024 to 2025.

“We believe that is prudent step to take,” O’Malley said.

Another $164 million in “spending reductions” was achieved through “favorable trends in employee & retiree health costs,” including more favorable contracts with insurers and better cost containment.

Diverting money from special funds

The proposed fiscal 2015 budget continues to be balanced by taking money out of “special funds” generated by “dedicated taxes” such as the real estate transfer tax. In next year’s budget, $69 million is being shifted from the transfer tax intended to fund open space and farmland preservation; this money will instead be put into the general fund to pay for other programs. That money will be “backfilled” with bonds.

That’s like a family taking money out of a special savings account for college to pay for everyday expenses, then financing tuition with a home equity loan.

Over the last five years, O’Malley has floated $1.4 billion in bonds to replace money taken out of special funds. All that money must be repaid over 15 years with interest.

Complies with affordability guidelines

O’Malley claimed: “Eight consecutive budgets in compliance with Spending Affordability Guidelines.”

This appears to be technically true, but the recommendations of the legislature’s Spending Affordability Committee have been a moving target, applying to different portions of the budget. In most years, the target was a percentage of growth in the budget; the last three years the target was a reduction in the structural deficit.

In December, the Spending Affordability Committee recommended 4% growth in the budget as defined by the committee (not the total funds budget) and a reduction in the structural deficit of $125 million. The governor said he met both goals, coming in at 3.73% growth and reducing the structural deficit by $174 million.

However, the total funds budget of $39.2 billion, which includes federal funds and special funds, grows by 5%.

By Len Lazarick

MarylandReporter.com

Original Story>

Senior Citizens In Charge at State House

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Thomas V. Mike Miller Jr. took the oath of office as president of the Maryland Senate for the 28th time Wednesday. “I love this position, I love this Senate,” he told the chamber.Screen Shot 2014-01-09 at 2.57.13 PM

He has sometimes referred to himself as “the poster boy” for term limits. Only one senator, Sen. Norman Stone, has served longer in the Senate than Miller, now 71. The other 45 senators have known no other president than Miller, the longest serving presiding legislative officer in the 50 states and the longest serving in Maryland by two decades.

Miller was reelected 43-1, with only Republican Bryan Simonaire in the negative. Democratic Sen. Jim Brochin of Baltimore County, sometimes the subject of Miller’s wrath, abstained.

In the House of Delegates across the hall, Michael E. Busch, who turned 67 last Saturday, took the oath of office for the 12th time, also the longest serving in Maryland history. His two teenage daughters were present, and he told reporters later that the younger one probably couldn’t remember a time when he wasn’t speaker.Screen Shot 2014-01-09 at 2.58.11 PM

Very brief Republican revolt

There was a short lived Republican revolt over the speakership this year, a blip of a disruption in the opening-day protocol of good cheer. They briefly nominated Del. Nic Kipke of Anne Arundel County, their new minority leader who will turn 35 later this month. Kipke was seven years old when Busch was first elected to the House.

“As the minority party in the Maryland House of Delegates, we look for the opportunity to vote for something rather than against it,” said Del. LeRoy Myers of Washington County. “While we deeply respect Speaker Busch, we hold a very different view on the policies that are best for the citizens of the state of Maryland. To that end, we feel it is time to nominate a member of the House who best represents the views of the minority party.”

Myers, who in 2002 defeated the House speaker who preceded Busch, Caspar Taylor, is leaving the House to run for Washington County commissioner, so he will escape any future punishment. The GOP revolt lasted for just a few minutes, and was defeated in a resounding voice vote.

It is expected that as many as 50 of the 141 members in the House of Delegates will not be returning next year, most of them voluntarily as they seek other offices or are retiring. That would be the highest number in two decades.

12

According to figures compiled by the Department of Legislative Services (page 12), that size of legislative turnover was more typical of the 1970s, but less so in recent decades. Before Miller and Busch, the presiding officers typically served one or two terms — four to eight years.

Their long-term reign has calcified leadership, leading to a senior ceiling in the legislature. With no turnover in the top jobs, which appoint all the other posts, there has been little change below them.

Anyone in their 30s joining the General Assembly will find a body run by people old enough to be their parents, or even grandparents.

The senior ceiling 

Here’s a rundown of the legislative leadership, with their current ages and length of service.

  • Source: Dept. of Legislative Services
    •     Senate President Mike Miller, 71, 28 years as president, the longest serving presiding officer of a legislature in the United States and in Maryland history, 38 years in the Senate.
    •      House Speaker Michael Busch, 67, 12 years as speaker, longest service as speaker in Maryland history, 28 years in the House of Delegates.

    •       Del. Sheila Hixson, 80, 20 years as chairman of the House Ways & Means Committee, 39 years in the House.

    •       Del. Joe Vallario, 76, 20 years as chairman of the House Judiciary Committee, 40 years in the House.

    •     Del. Norm Conway, 71, 12 years as chairman of the House Appropriations Committee, 28 years in the House;

    •    Del. Jim Proctor, 77, Appropriations vice chair, 24 years in the House

    •      Del. Maggie McIntosh, 66, 12 years as chair of the House Environmental Matters Committee, 22 years in the House;

    •     Del. Dereck Davis, 46, 12 years as chairman of the House Economic Matters Committee, 20 years in the House.

    •       Del. Peter Hammen, 47, 10 years as chairman of the House Health and Government Operations Committee, 20 years in the House;

    •       Sen. Ed Kasemeyer, 68, three years as chair of the Budget and Taxation Committee, 24 years in the Senate;

    •        Sen. Nathaniel McFadden, 67, President Pro Tem and vice chair of Budget and Taxation, 20 years in the Senate.

    •       Sen. Thomas Mac Middleton, 68, 12 years as chair of Finance Committee, 20 years in the Senate

    •       Sen. John Astle, 70, 12 years as vice chair of Finance, 20 years in the Senate, 12 in the House;

    •       Sen. Brian Frosh, 67, 12 years as chairman of Judicial Proceedings Committee, 20 years in the Senate, (running for attorney general)

    •      Sen. Joan Carter Conway, 62, 8 years as chair of the Senate Education, Health and Environmental Affairs Committee, 18 years in the Senate

    •  Sen. Roy Dyson, 65, 12 years as vice chair of the Senate Education, Health and Environmental Affairs Committee, 20 years in the Senate, 6 years in the House of Delegates, 10 years in the U.S. House of Representatives.

(Full disclosure for AARP: Editor and publisher Len Lazarick is 65, and has been in his current position four years. Since he began covering the legislature on and off since 1976, he has worked for six different employers.)

By Len Lazarick

Len@MarylandReporter.com

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O’Malley’s Final Budget Choices Will Be Revealing, By Barry Rascovar

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The New Year starts on a positive note for Gov. Martin O’Malley. After years of depressing budget shortfalls and an achingly slow economic recovery, the governor received good news from the Board of Revenue Estimates (BRE) and the state’s Spending Affordability Committee.

The bottom line: Maryland’s budget picture is brightening just as O’Malley prepares in another week to unveil his final spending plan as governor.

But there are cautionary notes attached to those reports warning of risks ahead, especially the unpredictable gridlock in Congress that could lead to a financial crisis over raising the nation’s debt ceiling. Still, the BRE reports “a rising possibility of stronger, more sustainable growth in 2014 and beyond.”

Projections for 2014

The state’s unemployment rate has dropped to 6.4% and is expected to continue inching downward.

Housing starts are projected to rise 14% this year and 26% in 2015. Casino revenues should rise 28% to over $1 billion, thanks to the fall opening of Horseshoe Casino Baltimore.

All this prompted the revenue board to project a 4.6% increase in state receipts, which in turn led the legislature’s spending commission to recommend 4% growth in Maryland’s general fund budget.

Will O’Malley use this good news to launch a new spending spree that cements his liberal legacy — and helps his national ambitions? Or will he heed the warning signs and plot an incremental course that doesn’t handicap the next governor?

How other governors acted

There are precedents for O’Malley to consider. Gov. Parris Glendening ignored urgent appeals in 2002 from Lt. Gov. Kathleen Kennedy Townsend to make cuts in his final budget and start closing a projected $1.8 billion deficit.

“Leaving the deficit unsolved further complicated the charge that this government was fiscally irresponsible,” noted Del. Pete Rawlings, the late House Appropriations Committee chairman, in hindsight. It was a major factor in Townsend’s electoral defeat that fall.

On the other hand, Republican Gov. Bob Ehrlich accumulated a $2 billion surplus in the last budget of his term. He hoped to use this as a cushion in his second term.

Of course Ehrlich ended up losing to O’Malley in 2006, giving the new Democratic governor a windfall he happily spent.

Years later it is clear that it would have been better to conserve that money for later use as state revenues plunged off the fiscal cliff during the Great Recession.

Reasons for Caution

Here’s why O’Malley and legislators would be wise to take a “go slow” approach in the next budget.

Even with all the good news, fiscal analysts are predicting a $188 million deficit by July and a nearly $400 million deficit the following fiscal year.

Most troubling are new costs.

Ballooning, unbudgeted Medicaid bills ($200 million) could grow further due to unexpected fallout from the disastrous start of Obamacare in Maryland.

The state also must contend with soaring debt costs ($150 million) as the governor continues to push for a higher borrowing capacity, and delayed salary increases ($190 million).

What’s left for successor

O’Malley also should recognize that his chosen successor, Lt. Gov. Anthony Brown, has made a string of expensive campaign promises that cannot be met if O’Malley lets the state budget spins out of control.

Will he follow Glendening’s example and choose reputation-building over responsible budgeting? Or will O’Malley look to Ehrlich’s example and moderate his spending plans so as to leave a manageable budget situation for the next governor?

Those fiscal decisions will tell us a lot about O’Malley’s character as he concludes his term and prepares for entry onto the national political campaign scene.

All of Barry Rascovar’s columns can be found at politicalmaryland.com and www.marylandreporter.com

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