The Legislature is thinking about mortgaging millions for employee benefits

On my desk lies a 2007 legislative update. It says, “Passed a balanced budget that makes funding health care and education more sustainable, without raising taxes.”

On March 13, the State House was dangerously crowded, preventing safe passage in the hallways. Stairways were nearly impassable with visitors, many carrying signs saying, “Maine can do better.”

The disadvantaged, disabled, mentally ill and state employees in union T-shirts converged on the Appropriations committee pleading for relief from cuts to the “balanced” budget; urging a raise in taxes to sustain services and jobs they were promised.

It is that time again in Augusta. The 123rd Legislature passed a “balanced budget,” yet, a gap existed between spending and revenues. It’s no mystery how we got here.

Politicians love to shower benefits on people to win their votes. When it comes time to pay the bill, they discover “structural gaps” instead of admitting they over-promised and over-spent.

While serving in the 121st and 122nd Legislatures, I lost count of the supplemental majority budgets proposed and passed in Augusta to tweak “balanced budgets”; while I heard about “structural gaps” and “unfunded liabilities.”

Garvey funding proposed last term would have borrowed against future highway revenues; borrowing that creates “structural gaps,” for example. Each year, “structural gaps” are addressed by threatening cuts to the most vulnerable, while “unfunded liabilities” are largely ignored.

The largest unfunded liability, about $3 billion, is owed to the Maine Public Employees Retirement System, which pays pensions to retired teachers and state workers. A smaller, faster-growing debt pays their health insurance premiums; estimated at $1.2 billion last term; it’s now more than $2 billion.

Making it worse, the state added municipal police officers and firefighters to the Retiree Health Insurance Fund with estimated cost of $80 million to the unfunded liability. Yet no money was provided to cover that cost, and there is no plan to pay off this debt.

Under a constitutional amendment, this debt must be paid by June 30, 2028. Gov. Angus King set the state on track to retire this debt in 2019, at a cost, including interest, of about $5.5 billion. But the Baldacci administration has switched to the longest allowable repayment schedule.

The intent was to reduce the annual payment, similar to taking a 30-year mortgage instead of a 15-year mortgage. Last session, the state “saved” about $178 million by making smaller payments on the pension fund “mortgage.” Instead of paying $540 million during 2006 and 2007 – as King’s plan called for – it was to pay $362 million.

This sounds great, except for the real costs.

In extending the repayment schedule a decade, Baldacci added $2.4 billion to the total expense. Instead of $5.5 billion, it now totals $7.9 billion. In a cash-strapped state like Maine, an extra $2.4 billion is serious money. What could be done with that money for health care, education, or economic development? Instead, we will get nothing.

Gov. King had a reserve fund to chip away at this debt; by 2004, it contained $88 million. Baldacci “swept” the reserve clean in 2004, spending in “supplemental” budgets. This administration also sold 10 years of liquor revenues, and tried to sell lottery revenues. Now current revenues won’t pay our bills. Not surprising.

We’ve sold off revenues and allowed debt to grow unchecked.

What’s happening now in Augusta?

With serious cuts ahead, Senate President Beth Edmonds is sponsoring a bill to “restore equity” to the retirement system by reducing the penalty for retiring early (before age 62) from 6 percent to 3 percent, including a retroactive component. The state had changed this percentage in 1993, in a cost-saving move.

LD 1693 doesn’t require general fund money; the money would come from $200 million appropriated to the retirement system for the “employer’s contribution” – read: taxpayer’s money – for the unfunded liability. (Remember the $362 million payment cut to $178 million in 2004-05? The payment in 2007-2008 is $199 million).

But by reducing the repayment to the unfunded liability this year, the additional payments on this debt required through 2028 will cost taxpayers an extra $305.5 million.

This adds hundreds of millions more to the $7.9 billion already owed. Those who retired at 62 and took reduced Social Security payments could ask the federal government to reduce their penalty and increase their pay.

If you live in Maine, you’re going to need it.

Because taxpayers will need a big bucket of cash for this bail-out.

Joan Bryant-Deschenes is a selectman in Turner and a former two-term Republican state representative.