Appropriations Committee gets some good budget news

Posted April 15, 2011, at 6:32 p.m.

AUGUSTA, Maine — After weeks of testimony uncovering increased budget needs, members of the Legislature’s budget writing committee got some good news Friday. The state retirement system needs $85 million less than what it now is allocated in the proposed budget.

“That will relieve some of the pressure that we face in the biennium,” said Sen. Richard Rosen, R-Bucksport, co-chairman of the Appropriations Committee. “People should not take away from the adjustments that we are hearing about today that the enormity of the liability that taxpayers confront and owes has gone away.”

He said the action by the board of trustees of the Maine Public Employees Retirement System that changes the assumptions used to determine what the state needs to pay into the system is certainly good news as the committee grapples with the $6.1 billion, two-year state budget.

“The $4.3 billion unfunded liability is now reduced to a $4.1 billion unfunded liability,” Rosen said. “It is an enormous liability that we still confront; we are still seeing a major increase in this budget over last in what we need to pay into the system.”

Rep. Peggy Rotundo, D-Lewiston, the lead Democrat on the committee, agreed with Rosen that the retirement system change is good news.

“However, it does not change the work that we need to do to address how we are going to pay for the increased needs,” she said. “There are a lot of other shortfalls across state government that we still have to address.”

Rotundo said the proposals in the budget to address the long-term needs of the system remain controversial. But, Senate Democratic leaders were blunt in their assessment of the report and its impact on the budget process.

“We should not be crying wolf when the wolf isn’t present,” Senate Minority Leader Barry Hobbins, D-Saco, said in a statement. “It is unfortunate that before all the facts came out, the administration made accusations that have caused anxiety to thousands of Maine’s retirees.”

The retirement system board action changed assumptions on what the inflation rate is expected to be and also changed what the actual use of the system is expected to be in the future.

“The hysteria created by Governor LePage and Treasurer Poliquin regarding Maine’s pension system is nothing more than a manufactured crisis,” Sen. Justin Alfond, D-Portland, the assistant Senate minority leader, said in a statement.

Rosen said the retirement system still faces a serious long-term problem, even with the good news for this biennial budget from the changed retirement system need.  A request for comment from Gov. Paul LePage was declined.

The adjustments made by the retirement system board drew several questions from committee members. Rep. Dennis Keschl, R-Belgrade, worried that the inflation rate will be higher than what the system is assuming, 3.5 percent.

“My sense is that inflation will probably rise at a more rapid rate than a lot of people think,” he said.

Sandy Matheson, executive director of the system, said the computations used by the system are complex and are applied to every person in — or expected to be in — the system by the actuaries.  She said it takes into account a number of factors in making the projections.

“With the huge changes in the economy, we needed to make sure our assumptions are valid, still,” she said. “Inflation, I believe, has averaged out at about 2.5 percent, which is why we are comfortable with 3.5 percent.”

Sen. Dawn Hill, D-York, was concerned about the accuracy of all of the projections, given that some are not conducted regularly, such as experience studies. Those studies look at every member of the system and track what has happened to them over a period of time, whether they have retired, died, been disabled or have left the system.

“The bad thing I take out of this is just how fictional sometimes the numbers can be that we are relying on because they may not be as current as we would like them to be,” she said.

Matheson said the studies are expensive and usually do not result in a major change in the assumptions that are made about the needs of the system. She said the system does one “every few years” but does not have a fixed schedule for the studies.

The committee, like the rest of the Legislature, is taking next week off, so work on the retirement provisions of the budget will not resume for 10 days.

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