AUGUSTA, Maine – Lawmakers are looking at $94 million more in red ink for the two-year state budget as the state retirement system changed assumptions for the coming years and released a study on how those changes would affect the state budget.
Finance Commissioner Sawin Millett said the changed assumptions not only affected the needed appropriation for the retirement system, it affected the savings estimates in the governor’s proposed changes to retirement.
“It seems a bit counterintuitive, but as you change assumptions, it changes the savings that the governor’s proposal will generate,” he said.
The retirement system board made the changes in response to a recent “experience” study that examined the demographics and economic assumptions upon which the retirement system bases its estimates of both current and future costs.
There were two key changes. The first lowered the assumed inflation rate from 4.75 to 3.5 percent and the second adjusted the projected earnings rate on investments down from 7.75 to 7.25 percent.
Retirement system Executive Director Sandy Matheson said the focus of the study was on some of the same areas the governor had focused on in his budget proposal.
“The governor’s proposal also targeted the same aspect, the inflation aspect, that the changes in assumptions did,” she said.
The governor’s proposal would require that teachers and state workers increase their contributions by 2 percentage points, while reducing the state contribution. It freezes the cost of living increases for retirees for three years and puts a 2 percent cap on any increase in future years. The cap is currently set at 4 percent.
The proposal also increases the retirement age for newly hired workers, and those with fewer than five years of service would have their retirement age go from 62 to 65. The proposal also would make changes for state worker health insurance, requiring anyone who retires after Jan. 1, 2012, to pay for health insurance until age 65. That is currently paid by the state.
“You always have to cost these out because you never know about what the interactions will be,” Matheson said. “This is a demonstration of that.”
The panel was already looking at less revenue with the Revenue Forecasting Committee reducing estimates last week by $47 million over the two year budget. Millett said he is working on a change package to the budget to be presented by the end of the week.
“We will come in here with the Appropriations Committee on Thursday, no later than Friday, and put our cards on the table and say this is what we think we can comfortably recommend and will get us back into balance,” he said.
Millett said he has been working on the package and said the items in it should not be a surprise to the committee. He said that he is meeting with the governor on various options to close the budget gap and a wide array of possible solutions will be discussed.
“You brainstorm all of the options that you know of,” he said. “You look at ideas that were considered when the biennial budget was put together, and rejected. You look at updated areas that have developed in the last few months, and there are a few of them.”
Millett said he will be discussing a list of many options with the governor, but he declined to say what they are.
One concern facing the committee is if the governor proposes something entirely new in the change package. Public hearings were concluded weeks ago and to schedule additional public hearings would be difficult with legislative sessions ramping up and the daily need to be working on the budget.
“It depends on how significant the proposal may be,” said Rep. Peggy Rotundo, D-Lewiston, the Democratic leader on the panel and a former co-chair of the panel. “Getting public comment and input is very important to our process and we really need to make allowances for the public.”
Rep. Patrick Flood, House chairman of the Appropriations Committee, agrees public involvement is important to the budget process, but is pushing to complete work on the budget by midmonth. He does not expect any “entirely new” proposals in the change package.
“I expect the people that are interested in a proposal will have no problem communicating that to members of the committee,” said Flood, R-Winthrop.
Flood said the committee has always invited some public comment during work sessions on the budget and he intends to continue that approach.