County agencies have set aside just 3 percent of what they will need to cover health care for retirees. The pension funds, which have been in place much longer, are significantly underfunded.
Faced with these burgeoning shortfalls, Montgomery County Executive Isiah Leggett (D) has taken the dramatic step of ignoring the collective-bargaining process with the public employee unions, rejecting the results of binding arbitration.
With a labor arbitrator recommending no change in the amount that county workers contribute to their pensions and health insurance, Leggett is proposing significant new pension contributions for workers and a sizable cut in county health-care contributions.
The move prompted tough rhetoric from union leaders in the wealthy, liberal county, which employs some of the Washington region’s highest-paid, most generously benefited employees. County firefighters are planning to appeal Leggett’s labor and budget decisions this week, formally accusing the county of engaging in an unfair labor practice.
In rejecting the arbitrated rulings, Leggett proposed that workers increase their pension contributions by 2 percent of their salaries and that the county cut its contribution to current health-care costs from 80 to 70 percent.
One union leader responded to Leggett by suggesting that the county executive might don a cheese head, a dismissive reference to Republican Gov. Scott Walker of Wisconsin, whose fight against collective bargaining rights has made him a union villain. Another called Leggett a lawbreaker for ignoring binding arbitration.
“Let my membership operate outside the law, and they’d be fired on the spot,” said Gino Renne, head of the county’s government employee union, who said Leggett’s negotiators had been unyielding. “He drew a line in sand, pretty much like the radical Republicans in Wisconsin. Nothing good is going to come from that.”
Leggett said he supports collective bargaining but must, under the county’s charter, do what is fiscally responsible for taxpayers, binding arbitration or not. “It’s not as if it has no meaning, no impact. It does,” Leggett said of the arbitration process.
But, he said, the public interest and county’s financial health take priority, and his proposals will produce “real, sustainable savings.”
The County Council will most likely have the final say when it passes a budget in May. Leggett proposed a $4.35 billion budget.
The county’s options for getting out of this jam are all painful:
• Cut county services and divert the money to pay for pensions and health care.
• Impose significantly higher employee contributions for those benefits.
• Chop benefits to retirees.
• Sharply raise taxes.
Montgomery has set aside about $110 million in special accounts established to cover its $3.6 billion, long-term retiree health-care liability. The shortfall is serious, but could be worse; many local governments have set aside nothing at all for the future and simply pay a yearly bill.
As for the funding levels of Montgomery’s school and government pensions, 69 percent and 77 percent, respectively, they “fall on the low side of average,” said David Matkin, an assistant professor at Florida State University in Tallahassee.
“They’ve got a lot of company,” Matkin said. “It’s sort of like being in a danger spot together with others. Just because you’ve got company doesn’t mean you’re in good shape.”
The severe economic downturn that began in December 2007 helped reveal the extent of Montgomery’s problem. But the promise-making started years before.
In 2005, firefighters won an agreement that allowed full retirement, no matter their age, after 20 years of service rather than 25. The agreement took effect two years later, just months before the recession started. It was one of a string of enhancements to firefighters’ retirement benefits, which union leaders said had lagged behind.
By 2006, an election year, it was the teachers’ turn. Legislators in Annapolis voted to give teachers a dramatic bump in their pensions, which the state funds. Teachers had complained that Maryland’s benefit levels were behind those in other states. The state paired its increased spending with a requirement that teachers pay in more as well.
But the package included an additional generous element, something of a time-machine provision. Legislators, pushed by the state teachers union, voted to have the improvements kick in retroactively, to 1998, for working teachers. And for those eight earlier years, teachers would not have to pay in anything extra.
In Montgomery, the costs were amplified by local policy. Montgomery schools provide their employees with a supplemental pension to what the state pays. School officials say they know of no other Maryland county that does that. Despite warnings about the financial risks, school and county officials voted to adopt the enhancements locally, including the time-machine provision.
Rising benefits, mixed with market losses, have hit the pensions hard. And things are primed to get worse. Powerful state lawmakers are pushing to off-load hefty teacher pension costs to counties.
Jeremy Gruber, 45, worked for 20 years as a Montgomery firefighter and paramedic, rescuing the trapped, dousing flames and transporting the injured. He had been planning to retire after 25 years. But when the opportunity came early, he jumped on it. “I got there right at the wire,” he said.
The county pays about $10,000 of Gruber’s $14,000 health plan, he said. Now a restaurant owner, Gruber also gets an annual pension of about $48,000, he said.
During 20 years in the fire and rescue service, there were inherent dangers, noxious fumes and proud moments. He was trained as a respiratory therapist, but held onto a simpler job description: “making someone’s bad day into a better day.”
Always entrepreneurial, he moonlighted with his wife selling defibrillators. After retirement, he bought an old firehouse in Silver Spring where he once worked to start a restaurant. He opened Fire Station 1 Restaurant and Brewing Co. last year with some investors, though his timing this time was not as good.
“It’s tough. It’s like being a firefighter in the restaurant business. You’re always putting out little fires,” Gruber said, referring to things such as keeping the lobster BLT and mahi mahi wraps delicious and the food costs in check. He’s been pumping in money, and thinks they’ll break even in the near future.
On keeping county costs down, he considers himself “sort of in the middle.” There are ways to both live up to promises to retirees and not bankrupt government, he said. That might mean raising taxes, or tweaking agreements with employees, but not messing with the overall structure.
Gruber said he wasn’t paid much when he started, but worked his way up to an average salary of more than $90,000 in the years before he retired.
“Collective bargaining is there for a reason,” Gruber said. “It’s there so people are treated fairly with the benefits they’re supposed to receive.”
Sukhbir Bawa, 71, spent more than two decades counting coins for Montgomery — bus money, parking meter money, hundreds of heavy cloth sacks a week. Each 50-pound bag of quarters, dumped and tallied in the clinking, grinding machines that kept government running, was another $1,000 local officials could spend.
Bawa’s wife helped him find the county job. He started in a parking garage, later emptied meters, then was promoted to the counting office. The work was at times satisfying, but also monotonous. A ruptured bag of dimes could mean 10,000 frustratingly thin disks to pinch up off the floor. And there was the din.
“When the machine is running, it is quite noisy. But it’s okay. A job is a job,” said Bawa, who was earning about $45,000 when he retired in 2006, after 26 years.
He said he receives about $14,000 per year from his Montgomery pension. He pays about $140 a month for county-subsidized health insurance to supplement Medicare.
He now spends his days visiting his four grandchildren and going to church, which he does three or four times during the week, plus Sunday. He’s making do financially. “Saving is very hard these days because everything’s going up,” Bawa said. “I’m okay right know, with God’s grace.”
But he also knows how to count, and says the county can’t keep up.
“I can say only one thing, that they should cut the budget and they should reduce the benefits also,” Bawa said, adding that it’s only fair that the burden fall on new employees, not folks like himself who have already retired.
While pension costs have ballooned, Montgomery has repeatedly pushed off its plans to set aside tens of millions of dollars to cover future retiree health benefits.
In recent negotiations, Leggett proposed ending retiree health care for employees hired after this summer. Union chiefs were livid, and county arbitrators rejected the idea.
“We just could never agree to eliminate health care for firefighters who . . . run into burning buildings and get maimed and burned,” said John Sparks, head of the firefighters union. “If they want us to do that, then we won’t enter burning buildings. We’ll squirt the water on from the outside.”
Leggett backed down, and has proposed adding tens of millions into the health fund.
“We have not — and most places have not — been able to put the money in,” Leggett said. “It’s not like it’s a crisis today. But it will be a crisis tomorrow.”