WHEN IT comes to repairing the gaping hole in Maryland’s public employee pension fund, on whose good health nearly 400,000 current and retired teachers, prison guards and other state workers depend, elected officials in Annapolis are taking a stroll down memory-impaired lane.
That includes not just the Democratic-controlled legislature, which has a spotty track record on the pension fund, but also, more recently, Republican Gov. Larry Hogan, who took office promising an end to what he correctly considered the gimmickry that has bedeviled state finances.
Practically the first fight Mr. Hogan picked with lawmakers, in 2015, involved their efforts to trim the state’s contributions to the $46 billion fund, whose obligations outweigh its balance by about $20 billion. Back then, the governor fought to maintain extra annual set-asides to fatten the fund’s bottom line. Now, under mounting budgetary pressure, he seems content to join forces with the legislature, which prefers to divert dollars to pressing popular causes, and let the looming long-term pension problem sort itself out. Or rather, foist the problem on a future generation of politicians and taxpayers.
That might work, assuming the stock market, on whose performance the fund largely depends, suffers no serious setbacks. But to imagine such a future is to forget the recent past — namely, the 2000s, which the pension fund began flush with cash but ended in a deep hole, from which the state has been trying to extract itself ever since.
Reforms enacted under then-Gov. Martin O’Malley (D) — higher contributions, lower benefits and later retirement age for future employees, plus a sizeable bump in the state’s own annual set-aside — put the fund on course to reestablish good health by 2023. But lawmakers whittled away at the set-aside in 2014, and again in 2015. And now Mr. Hogan himself wants to scrap a provision that earmarks a sizeable chunk of any end-of-year state budget surplus for the pension fund. That’s a bad idea.
Mr. Hogan has proposed legislation that would create a 401(k)-style savings program for future state workers as an alternative to the traditional pension. In the long run, such a program might trim the state’s annual pension contributions and stabilize the existing fund to some degree, but only if any savings are earmarked for deposit into the fund — which the governor’s bill does not require. It’s an empty gesture.
Against the backdrop of fading memories of hard times in Annapolis, the target for restoring the pension fund to good health has slipped by five years, to 2028. Last year, Moody’s Investors Service ranked Maryland’s three-year average pension liabilities seventh-highest in the nation. It does not help that the fund’s investment returns have been anemic for two years straight.
On balance, Maryland has been a competent manager of its finances, with the glaring exception of the pension fund. The state now faces a revenue squeeze owing to a slowdown in federal spending, on which Maryland depends heavily. That slowdown will inevitably trigger tough choices, but it is important that the pension fund, which will deliver monthly checks to hundreds of thousands of retirees, not become a casualty of budgetary convenience.