February 23, 2012

MARYLAND’S SYSTEM for funding teachers’ pensions is rife with perverse incentives, lacks accountability and is heedless of taxpayers. Unfortunately, a fix proposed by Gov. Martin O’Malley (D) doesn’t go far enough.

Maryland’s scheme is the product of decades of improvisation, fiscal mismanagement and political pandering. Not surprisingly, it is virtually unique among states — and almost uniquely senseless.

It leaves local school boards to negotiate the salaries on which teacher pensions are based and then pass the cost of those pensions to the state. That means school board members — often highly sympathetic to teachers unions that are critical to their elections — have no incentive to contain costs. The buck stops nowhere.

Compounding the damage, the state, under Democratic and Republican governors, has mismanaged and underfunded the pension fund and, when times were flush, sharply increased pension payouts. Unsurprisingly, those pensions have become a crushing burden, amounting to about $1 billion annually. That’s more than Maryland spends on the state police, housing, economic development or many other government functions.

Now Mr. O’Malley is seeking reforms, largely at the initiative of the state Senate president, Thomas V. Mike Miller Jr. (D-Calvert), who himself is partly to blame for the mess. Starting next year, the governor’s plan would offload half of the cost for teachers’ pensions to local governments. Collectively, the localities would be hit with a $240 million bill in 2013, a charge that would increase over time.

The governor says the state would help the counties pay the bill through a variety of measures. But the counties correctly see those offsets as squishy and subject to future shrinkage. In the absence of help, Montgomery and Prince George’s counties, the state’s two biggest localities, would face a combined bill of about $120 million by 2017, the equivalent of about 2 percent of their budgets. That would mean higher taxes or more cuts to libraries, parks and other locally funded programs.

The main problem with the governor’s plan is that it sticks counties with a heavy bill but gives them no power to control costs. After all, school boards, not counties, negotiate teachers’ contracts. And state law forbids counties from cutting funding for schools unless enrollment shrinks.

If localities are to shoulder more of the costs, they need a say in determining those costs. That could be achieved by giving counties a seat at the negotiating table with teachers, relaxing the law that mandates ever-rising budgets for schools or allowing counties to credit their contribution to teachers’ pensions toward their overall education funding. Any of these would require Mr. O’Malley and the other Democrats who dominate Annapolis and most of Maryland’s big localities to confront teachers unions and challenge the idea that school budgets alone are immune from austerity.

Until now, they have been loath to do that. In the past five years, Annapolis has cut state aid to counties for roads, police and other programs by $456 million while increasing aid to schools by an almost identical amount. Good education is critical. But it’s time to restore some balance.