ANNAPOLIS, Maryland — Maryland senators on a key state spending panel voted Friday to plug a budget hole by using more money initially planned to strengthen the finances of the state pension system.
Under pension reform lawmakers approved three years ago, the state planned to pay $300 million above its required pension payment each year to move gradually to fully funding the pension system.
Gov. Martin O'Malley this year proposed capping the payment indefinitely at $200 million to help fill a budget gap this year and to address an ongoing budget deficit. But lawmakers now face an even bigger fiscal hole than when O'Malley submitted his budget plan in January, because of a $238 million downward revision in state revenues announced Thursday. So, the Senate Budget and Taxation Committee decided to only spend $100 million above the required payment for fiscal year 2014 and fiscal year 2015. That frees up big money to ease budget pressures.
"I know how we agonized over this. We knew we were going to face a significant write down. We were trying to prepare for it, and when it happened yesterday, I don't think any of us were really surprised, but we were limited in what we could do," Sen. James Robey, D-Howard, said, adding that the alternative was to cut, eliminate or delay state employee raises that have been avoided in recent years due to budget constraints.
Union representatives for state employees said they approved of the plan to protect salary increases in the current budget from cuts.
"We support this plan because it protects pension benefits in the long run while securing fair pay in the short run," said Sue Esty, assistant director of the Maryland chapter of the American Federation of State, County and Municipal Employees.
Senators emphasized that the decision on Friday won't affect pension payments to state employees.
The Senate budget panel decided to slowly increase the payments in future years. For example, the panel decided to bring the additional payment up to $150 million in fiscal year 2016, $200 million in fiscal year 2017 and $250 million in fiscal year 2018. In fiscal year 2019, the full $300 million payment would be made.
O'Malley's proposal to cap the additional payment at $200 million raised objections from Treasurer Nancy Kopp and Comptroller Peter Franchot. Both testified before lawmakers expressing concern about how the proposal could influence bond-rating agencies, which consistently have given Maryland a top rating, and would send a bad message to state employees by reneging on the stated purpose of their added contributions in the 2011 pension overhaul.
After Thursday's drop in revenue estimates, though, senators on the budget panel said they couldn't find a better alternative to fill the hole, short of cutting planned raises for state employees.
Robey also said state still will be making progress in shoring up the pension system, which would be on track to be fully funded in 2039.
Members of the state's Board of Revenue Estimates attributed the downward revenue revisions announced Thursday to a variety of factors. Federal budget battles in Washington last year had a significant impact on the large numbers of federal workers who live in the state. Growth in food and energy costs and expiration of the federal payroll tax holiday also were noted as factors.