Editor’s note: This is the fourth part in a multi-part series.

A Maine think tank calls the $4.2 billion that taxpayers owe to Maine’s retirement system a “ticking time bomb” that should dominate any discussion of the state’s finances.

The assessment by the nonpartisan Envision Maine is echoed by experts in state finances.

Robert A. G. Monks, the Cape Elizabeth resident who chaired two definitive studies of the retirement system, said the next governor will have to perform “triage” on the state’s competing needs and “dilute drastically” many programs to offset the pension expense.

Yet, most of the candidates for governor — one of whom will have to solve the problem — have treated it as a side issue, at best.

An examination of the official candidates’ websites by The Maine Center for Public Interest Reporting reveals that not one candidate for governor has attempted to address the problem as part of their platform.

Jobs, health care, education, energy, taxes, business regulation and other issues make the list of their formal policies — but not a problem that currently eats up 10 percent of the state budget and is projected to take up as much as 20 percent while the next governor is in office.

The very areas the candidates cite as needing attention are some of the same areas that will have to be neglected to pay for the pension liability.

“The cost of paying the unfunded liability,” according to the Envision Maine study, “comes off the top of the state budget, crowding out spending for education, roads, support to towns, social services and the environment.”

Alan Caron, a co-author of the study, said, “Most of the candidates seem to acknowledge the mountain of debt that the state is carrying … but haven’t been pressed to answer what they intend to do.

“On the core question of whether candidates think we have to repay the pension as scheduled or not, we haven’t had an answer,” he said. “It’s stunning to me that this ticking time bomb is just sitting there while candidates are allowed to talk in generalities about deficits and change. This is a failure of not only the candidates but also the press.”

The group most directly affected by the problem is the 87,000 Maine adults who are covered by the plan — state employees and public schoolteachers and those retired from those jobs. Combined, this traditionally Democratic-voting group represents almost 9 percent of the registered voters in the state, assuming they are all registered to vote.

Behind the scenes at the State House, the most talked-about solution to the problem is a change in the Maine Constitution.

A 1995 constitutional amendment, which was approved by 70 percent of voters, required the state to pay off the debt by 2028. As the debt gets larger near the end of the period, it takes up more and more of the state’s budget.

The Maine Education Association and the Maine State Employees’ Association — the two groups that represent the current and future retirees — have suggested a new amendment that would replace the 1995 law and allow the state a longer period to pay off the debt.

Their plan would pay off the $4.2 billion in 25 years from passage using a “rolling average” to determine the annual payment from the state. The payments would be lower than what is currently required, thereby reducing the pressure on the state budget.

But this plan would extend the payments by at least eight years and would reduce the debt to a negligible amount, but not zero, according to a pension system analysis.

Envision Maine opposes that idea.

“We cannot continue to push the state’s bills onto future generations, as we’ve been doing for decades,” Caron said. “The voters gave the state 30 years to bring these bills current. The state then adopted a payment schedule based on optimistic investment returns, which now has us in a deep hole. It is hard to imagine that Maine people would have much sympathy for the argument that 30 years wasn’t enough time for the state to pay its pension obligations.”

David Wakelin, a former chairman of the retirement system, now represents the employees and teachers on the matter and argues the opposite view.

“These liabilities were built up over 40 or 50 years and there’s no critical reason they need to be eliminated over the next 15 years,” he said, but he said getting voters to pass a change in the Constitution would present “some political hurdles.”

Following is what five gubernatorial candidates have said — and not said — about the issue and, where available, their records on public pensions.

Eliot Cutler

Cutler, one of three independents in the race, doesn’t list the pension problem in his “My Plan” white paper on his website. But he did address the issue in interviews he has posted on his site.

Cutler told the Third Party and Independent Daily he is “concerned about the state’s indebtedness.”

While he acknowledged in an interview with the Center that the issue is not part of his formal platform, “I talk about it all the time, in every stump speech,” stressing that all of the state’s debts — including the pension debt — “threaten to crush us.”

“We can do something constitutionally about that, perhaps a different amortization schedule,” he said, adding that he would also consider examining current cost-of-living increases and extending the retirement age.

Cutler said he would support a change in the Constitution only if the state employees’ union and teachers agree to a cheaper plan for new hires that would keep the liability from getting worse.

Paul LePage

The Republican nominee’s platform talks of many issues — from the right to bear arms to welfare and jobs — but never the multibillion-dollar debt.

Asked about the issue by the Sun Journal, LePage indicated he’s in favor of changing the 2028 funding deadline, which would require approval of the Legislature and the voters.

“I don’t see how we can get there in 18 years without cutting state government in half,” he said. “And I do not intend to cut state government in half.”

He said he would try to grandfather employees currently enrolled in the system while designing a new system for new hires.

Said LePage, “Can I promise that there won’t be modifications to the old system? No, I can’t. I would be an absolute idiot to make that kind of commitment.”

LePage referred questions about the issue to an adviser, Bruce Poliquin, one of the Republicans LePage beat in the June primary.

“Unless we deal with this,” Poliquin said, “Maine will not return to fiscal health.”

Libby Mitchell

The pension liability problem doesn’t make a showing anywhere in the veteran legislator’s platform.

In an e-mail response to the Center’s questions, she wrote, “At forums and in interviews I have talked about making sure the state meets its responsibility to its workers and (I am) looking forward to a system that is more portable and more affordable.”

In April — before she won her party’s nomination — she told the Seacoast newspapers based in Portsmouth, N.H., “Maine has a very responsible course for paying that off over time. And as the economy grows, the pension fund will become more robust.”

The plan Mitchell refers to assumes an annual return rate on the pension system’s investments of 7.75 percent. This year, stock market returns are up, but by less than 6 percent. If the system makes the 7.75 percent return, that would still leave the debt to be paid off between now and 2028 at $4.2 billion.

Mitchell told the Sun Journal she doesn’t favor amending the state Constitution to extend the payback period.

Shawn Moody

The independent candidate from Gorham makes no mention of the pension liability in his official platform, but he has addressed it in reply to questions posed by the Sun Journal.

Moody said he believes residents would support amending the Constitution to eliminate the pension deadline, but it would be a divisive issue.

He also said, “I’d do an immediate investigation to find out who was managing these funds and how we ended up so deeply invested in the stock market for a pension plan. … Instead of people becoming upset, they should be taking their energy and publicize how this happened. I’m not satisfied that they’ve done that.”

But an investigation may not be necessary — the retirement system’s website (mainepers.org) shows multiple pages on the investments, including who manages the funds, the asset allocation and the historical performance.

Moody did not return two phone messages left at his headquarters.

Kevin Scott

Scott, one of the three independents in the race, doesn’t address the unfunded liability in his platform, but he does say that if elected, he would ask state employees to work 32 hours per week, but while losing pay they would be “maintaining their current level of benefits, pension plan, vacation days, etc.”

He said his plan for a voluntary, 32-hour workweek for public employees could be used to pay down the debt.

He believes the state should meet its obligation to state employees, but should stop hiring new employees under the old system “so we don’t compound the problem.”

He also said he believes the system’s board should not be headed by a political appointee and all board members should be confirmed by the Legislature.

John Christie is the publisher and senior reporter of The Maine Center for Public Interest Reporting, a nonpartisan and nonprofit journalism organization based in Hallowell. Robert A. G. Monks is a member of the Center’s advisory board. E-mail: mainecenter@gmail.com. Web site: pinetreewatchdog.org.

 

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