EDITORIAL

Pension compromise good foundation for rest of budget

Posted June 03, 2011, at 10:15 p.m.
Protesters crowd into the State House in Augusta to show their anger recently with Gov. Paul LePage's proposed budget cuts.
Pat Wellenbach | AP
Protesters crowd into the State House in Augusta to show their anger recently with Gov. Paul LePage's proposed budget cuts.

A compromise plan to shrink the state’s pension liability approved by the Legislature’s Appropriations Committee is a fair and responsible solution to a pressing problem. The committee’s unanimous support of the plan is an encouraging sign that similar reasonable agreements can be reached on other contentious parts of the state budget, including a tax cut package.

Late Thursday, members of the Appropriations Committee agreed on a re-written reform plan that addresses the state’s large unfunded pension liability without unduly punishing state employees and teachers.

Beginning many decades ago, the state did not set aside enough money each year to meet its pension obligations. Lawmakers also added new benefits without putting money into the system to pay for them. As a result, the state’s unfunded pension liability has grown to $4.4 billion, an amount that must be paid off by 2028 under a 1995 constitutional amendment.

Under the Appropriations Committee plan, there will be no cost-of-living increases for current and retired employees for three years, after which increases will be capped at 3 percent. For retirees, increases would be limited to the first $20,000 of yearly pension benefits. The average annual state pension payment is now $19,000. The COLA provisions can be revisited in the future if further adjustments are necessary, say if inflation is much higher than expected or if the $20,000 pension cap is too low.

The plan maintains employee contributions to the pension system at the current 7.65 percent of salary while keeping the state contribution at 5.5 percent. Combined with the COLA changes, this plan will reduce the unfunded pension liability by about $1.5 billion.

This is superior to Gov. Paul LePage’s proposal to increase employee contributions to the pension system by 2 percent while dropping the state contribution by about the same percentage. Rather than collecting more money to pay down the unfunded liability, this proposal would have simply used funds the state should be contributing to the pension fund to pay for other things, such as tax cuts.

The compromise plan also calls for the creation of a group to look for ways to restructure the state’s pension system to make it more affordable, stable and fair. This is the appropriate forum for this overdue work rather than having the Legislature tackle it. Another committee will look at reducing state retiree health costs, which would be held flat for two years under the agreement.

The pension compromise is a good sign that the Appropriations Committee — and hopefully the entire Legislature — can work together in good faith to tackle the toughest areas of the state budget. The same diligence and willingness to work together must now be brought to a plan to reduce state taxes.

Gov. LePage and many Republicans have said they will not support a budget that does not include at least $203 million in tax cuts. Demanding adherence to an arbitrary target makes such work more difficult, but just as a way to reduce the state’s pension debt was found, lawmakers can reach a deal on tax reductions — and cuts and reforms within the state’s social service sector — if they remain flexible and willing to set aside ideology in the name of practicality.

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