LePage uses the unfunded liability as a false excuse to balance his $6.1 billion budget proposal
BY RAMONA DU HOUX
February 28th, 2011
Gov. Paul LePage has proposed a biennial budget of $6.1 billion — an increase of $400 million from the last biennial budget of $5.7 billion.LePage wants to balance the budget to a large degree on the backs of Maine state retirees, which includes about 28,000 retired teachers and state workers. Or in more direct terms — he’s planning to cut their social security.
“The key component to put into this is that state workers never paid into Social Security. So they don’t receive a Social Security benefit. This is their Social Security. This is their only retirement,” said Maine State Employees Association Executive Director Chris Quint.
The average pension for state workers is about $19,000 a year. According to LePage’s speech, the changes are estimated to save $524 million over the next two years.
His plan would:
• Freeze the cost-of-living increase for retirees for three years;
• after that reduce the cap on annual increases from four to two percent;
• current employees would be required to contribute two percent more out of their paychecks to the retirement system;
• raise the retirement age from 62 to 65.
Facts behind the state’s Unfunded Actuarial Liability (UAL), on which LePage bases his state retiree cuts:
The state’s constitutional mandate to reduce the UAL does require a larger share of current revenues, because of stock market losses, which happened in 2008 and 2009. As the stock market continues to improve, the share of funds needed from state revenues — will go down. The state has been addressing these debt obligations that go back to the 1970s.
According to LePage, the UAL needs to be paid by 2028. According to Kay Rand, Gov. Angus King’s chief of staff, in her Kennebec Journal column, the state is already on course to pay off the debt — before 2028.
“In 1992, the UAL was only 33 percent funded. In 2008, it was 74 percent funded. The percentage has fallen since 2008, not because of any action by the state, but because of the drastic fall in the stock market in late 2008 and 2009. The Legislature will be asked to consider some reforms to the state employee and teacher pensions. None of those reforms will affect the UAL; it cannot be changed nor eliminated, only paid down. In fact, every state employee and teacher could be laid off and the UAL would not change,” said Rand.
“The UAL now is on course to be retired before 2028. The debt schedule was reduced twice during the years of Angus King’s administration and maintained by John Baldacci’s administration, saving taxpayers an estimated $1.9 billion,” she said.
Rep. Peggy Rotundo has served on the Appropriations and Financial Affairs Committee in the state Senate and now in the state House of Representatives. This committee works on all the budgets and decides how to improve a budget proposal. As co-chair she oversaw bipartisan budgets that made necessary cuts.
“We’ve been addressing the UAL for years and have found workable solutions. The UAL experienced problems during the recession, because of the stock market. Now that the market has recovered, we’re getting back on track with the retirement of the UAL,” said Rep. Rotundo. “We saved taxpayers millions of dollars during the Baldacci administration, working on bipartisan budgets. It’s fundamentally wrong to balance a budget on the backs of state workers.”
State government will not go bankrupt, contrary to what LePage implied when he stated in his speech, “If we were a private-sector company we would be in Chapter 11.”
In fact the fiscal responsibility of the Baldacci administration has left the state of Maine in good standing. Moody’s Investor Services and other national financial rating firms have stated that Maine has the fiscal capacity to address short- and long-range challenges.
As we are emerging from the Great Recession, we need to ask: Is this provision in the budget proposal needed? Does any worker deserve their promised pension cut?
LePage’s proposed cuts would hurt vulnerable citizens, in order to keep a campaign promise to reduce taxes:
LePage wants to “reform” welfare by limiting TANF eligibility to five years. The proposal would eliminate MaineCare eligibility for people who are legally residing in this country, but who are not yet citizens. His proposal would require more cost-sharing by recipients and cut off enrollment of parents who earn more than 133 percent of the poverty level. The current limit is 200 percent. The proposal also would cut about $50 million from the MaineCare budget.
LePage overlooked in his budget proposal speech that state revenues are projected to be about $365 million higher than initially thought. This increase shrank the gap between expected state spending and revenues. Maine was better positioned coming out of the recession, because of corporations in Maine increasing their revenues — big business is on an upswing. Projections say this trend will continue.
With more revenues coming into the state coffers LePage could have balanced the budget differently — not making drastic cuts to needed services or to the social security of state workers. Instead of holding back on cuts, he decided to spend $203 million more for tax reductions in his budget proposal. So, more has to be cut. Remember, this budget proposal is $400 million more than the last budget. He often says, “There is a new sheriff in town” — some have asked if he’s really the sheriff of Nottingham?
People who don’t get needed assistance from state government will seek aid from their local municipalities or hospitals. Local towns may have to raise property taxes, and hospitals will shift the costs so insurance premiums go up.
Shifting responsibility is not balancing a budget; it’s burdening committees and the health-care industry.
By cutting taxes by $203 million, LePage is obviously thinking about his voters — not about all the people of Maine, especially those in need.
Two people in a five-person unit that investigates child abuse and neglect in foster homes, day cares, and group homes will be fired if this budget is approved. The team currently handles 250 cases per year.
We must ask on behalf of state retirees, people on MaineCare, TANF recipients, and immigrants seeking to live the American Dream if it’s fair to cut their lifelines so that others — not in critical need — receive a tax break.
LePage did propose an investment of $63 million in education — most of which will replace the funding that has run out from the federal American Recovery and Reinvestment Act. There is a provision for an additional $332,000 each year to the Jobs for Maine’s Graduates program, as well as $730,000 per year for a charter school that specializes in agriculture at Good Will-Hinckley. For the latter to happen, the Legislature will need to enact a law to allow charter schools in Maine.
Voters in a referendum mandated that the state pay 55 percent of the cost of education. LePage’s budget roughly pays for 50 percent during the next fiscal year.
How will this budget create jobs?
LePage called his budget a “jobs bill,” but it lacks any focus on creating jobs. In fact he announced that for the next two years there will be “no bonding.”
Bonding is a proven way to stimulate the economy and grow jobs.
Bonds since 2002:
• Largely due to bonds, Maine’s land acquisitions increased by over 1.3 million acres, increasing Maine’s quality of life.
• Transportation and water/sewage bonds have fueled the economy year after year.
• Bonds for educational facilities added the infrastructure needed to begin to meet the skills workers seek in the innovation economy.
• Research-and-development bonds are proven to be a direct cause of growth in Maine’s innovation economy by investing in cutting-edge technologies. Every dollar invested leverages more than $14 in public and private funds. These technologies have spinoff companies in the state.
• In 2008, even though the economy was in decline, Maine’s technology companies had a 36 percent growth in revenues. Most were companies that had received bond funding through the Maine Technology Institute. MTI awards bond funds.
• Bonding created construction, transportation, education, and technology jobs. Bonds often receive federal matching finds, which doubles the investment.
Because Gov. Baldacci improved Maine’s financing, Maine’s bond rating is excellent.
The people of Maine understand bonding, for they consistently vote in favor of bond issues, so why can’t LePage see the obvious?
Bonding is smart financing, especially coming out of the recession — to create needed jobs.
LePage announced his campaign budget, grandstanding to the Legislature with a typical vintage stump speech. He ended with this, “Those who can work, we will simply ask them to get a job.”