June 19, 2018
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Pension debt and taxes

As is usually the case, members of the Legislature’s Appropriations Committee agree on most of the state budget for the next two years, but a small percentage of spending decisions will require difficult decisions and compromises.

Two of the places where there is broad disagreement are in proposed changes to the state’s pension system and a $200 million tax reduction package. This is, in part, because the two are inextricably linked.

For all the talk in Augusta of “fixing” the state’s pension system, one of the proposed fixes isn’t even related to paying down the pension debt.

There is no doubt that the unfunded pension liability — over $4 billion — is a major problem that must be addressed. But the unfunded liability shouldn’t be used an excuse to take more away from state workers than is necessary to address that liability.

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.

Over time, this led to a huge unfunded liability. In 1991, for example, the assets in the Maine State Employee and Teacher Retirement Program represented only 36 percent of the plan’s expected liability, among the worst in the country.

The program was on track to be fully funded by 2028, as required by a 1995 amendment to the state constitution, when the bottom fell out of the national economy. Because the value of the money the state had invested dropped — as did investments around the world — the unfunded liability grew.

While the state wasn’t putting in enough money into the system for decades, public employees had their required contributions — now at 7.65 percent — taken out of their checks and put into the system.

Gov. Paul LePage proposed, as part of his budget, the state’s share would drop from 5.5 percent to 3.5 percent, while the employees’ contribution would increase by 2 percent. Rather than collecting more money to pay down the unfunded liability, this proposal simply uses funds the state should be contributing to the pension fund to pay for other things, such as tax cuts.

Raising the retirement age for state workers makes sense and capping cost-of-living increases is reasonable. Asking workers to contribute more while the state puts in less — and uses that money for other things, such as tax cuts — isn’t part of the pension solution.

Because approval from two-thirds of legislators is needed to approve a budget for the next two years, flexibility in the pension and tax provisions is necessary for any agreement.

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