Montgomery, Md., pension deal eases sacrifice for unions

Montgomery council member Phil Andrews, center, is flanked by George L. Leventhal and Valerie Ervin.
Montgomery council member Phil Andrews, center, is flanked by George L. Leventhal and Valerie Ervin. (Katherine Frey/The Washington Post)
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By Michael Laris
Washington Post Staff Writer
Saturday, March 13, 2010

The politics of shrinking government spending can lead to tortured math and bureaucratic back flips. In one of the Washington area's wealthiest counties, recession has prompted a bout of creative bookkeeping and something called the "Phantom COLA."

As state and local officials from California to Miami have sought to cut payroll costs, officials in Montgomery County last year pressed government employees to forgo part of their negotiated pay raises. They did. But some of the county's powerful public employee unions also benefited from an unusual deal.

Employee pensions -- already a major cost -- will be calculated as if employees had received their full raises.

To manage that financial sleight of hand, county computer programmers must essentially set up two sets of books, one with employees' real salaries and another that includes what government documents refer to as the "phantom" cost-of-living adjustments.

Backers said the move, made in May, was necessary to close a large budget gap. It will cost Montgomery at least $5 million a year for the next 40 years to pay for higher pension costs on raises that never happened. Withholding those raises saves Montgomery taxpayers $29 million this year, officials said, and they argue that those savings will continue in the future. But those savings could also disappear if the size of raises bounces back.

Critics of the move say the deal is representative of an unreasonable deference given to public employee unions in Montgomery, where officials have been trying to eliminate a $600 million budget shortfall and unions have been pressing for higher salaries ahead of Monday's release of a new budget proposal.

"It makes no sense to base a pension on a salary that wasn't paid," said Montgomery County Council member Phil Andrews (D-Gaithersburg-Rockville), who cast the sole vote against the arrangement. "It's indefensible policy . . . and we can't afford it."

But the politics are not that simple in Montgomery, or elsewhere, as recession-squeezed budgets are forcing uncomfortable interactions between some Democrats and the party's allies in the labor movement, a significant electoral force. Rory Reid, son of Senate Majority Leader Harry M. Reid (D-Nevada) and a candidate for governor in Nevada, has questioned the sustainability of public-employee pay. Democratic leaders in Los Angeles have pushed for big layoffs.

In a recent newspaper column, Willie Brown, the former speaker of the California State Assembly and former San Francisco mayor, took on the state's "out of control civil service." "We politicians, pushed by our friends in labor, gradually expanded pay and benefits" and layered on "incredibly generous retirement packages," he wrote. "At some point, someone is going to have to get honest."

Union stronghold

Public employee unions are a political force in Montgomery County, a Democratic stronghold where President Obama netted more than 70 percent of the vote. Though pay increases were reduced last year and could be cut altogether this year, union negotiators in Montgomery have a history of effective advocacy.

It has not been uncommon in recent years for the county to give large numbers of employees annual raises of 7 percent or more. By way of comparison, private-sector raises averaged a little more than 4 percent, according to a survey conducted by the Human Resource Association of the National Capital Area and covering 2004 to 2008.

The effect of those raises on the budget has been compounded as the county has added employees. Montgomery's government grew by the equivalent of 1,400 full-time jobs over the past 10 years, and the county's public schools added more than twice that number. That's about a 17 percent increase, while the population rose about 11 percent.

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