Citing the new financial burden caused by last week's Maryland General Assembly action on teacher pension obligations, Harford County Executive David Craig withdrew legislation that would have paid a one-time, $625 bonus to all county government and school employees next month.
Craig sent a letter to County Council President Billy Boniface late Tuesday afternoon withdrawing three supplemental appropriation bills that contain about $5.5 million to fund the bonus payments.
The council members acknowledged Craig's action during their meeting Tuesday night, as they debated debate funding priorities and the accuracy of state budget projections. In the end, however, the bonus plan died an unceremonious death.
In the letter to Boniface, Craig said the bonus money would be needed to meet the county's new obligation to fund teacher pension costs that were previously paid by the state. The shift of responsibility for those payments to the counties was among the legislation passed last week in the special session.
"This is not an action which I take lightly, but given the difficult position in which the Governor and the General Assembly have placed us, this is the most prudent course of action to take," Craig wrote. "By paying for teacher pensions using our fund balance, we are able to avoid furloughs, layoffs, cuts in services, or an increase in the property or income tax rates."
"As I stated in October when I initially proposed a one-time bonus, all employees – whether county employees, school system employees, or employees of other county agencies – have been forced to make significant sacrifices and to do more with less in these difficult economic times," the letter continued. "Therefore, I felt strongly that a portion of our unanticipated fund balance from Fiscal Year 2011 should go to all employees equally. I am glad that we were able to work together with our public employee unions and with the Board of Education to get the first round of bonuses into employees' hands."
Not a shock
Craig's spokesman Bob Thomas said the action was not a total shock, as the administration knew the state could make such a move when the bonuses were issued.
"This was a possibility that we knew was hanging out there and we wanted to make the commitment to our employees, and we wanted to follow through with that," Thomas said. "The fiscal situation right now just doesn't permit us to do that."
He said the administration plans to have a meeting to address the long-term implications of the pension shift.
The state's action will ultimately mean an additional $10.6 million impact for Harford by Fiscal Year 2016, he added.
"We were very, very disappointed that the state waited until the 11th hour, 59th minute, to take an action, and their action basically was nothing more than a vote along party lines," Thomas said, adding that the county administration had diligently submitted its budget by the end of March.
Other counties will face even worse penalties, Thomas said, such as Montgomery County, which now has to find $50 million.
"It left a number of counties in a very, very difficult position," he said about the legislature's action. "This is a significant blow and we will be working with the council to address it."
Earlier bonus paid
The county made a similar $625 bonus payment to government and school employees previously. The money for both payments was coming from a $32 million budget surplus the county had at the end of the 2011 fiscal year last June.
The Craig bonus plan has not been without controversy. Initially, the county council balked at approving the entire allocation of more than $11 million last fall, pushing instead for splitting the money up as a contingency against unforeseen financial obligations. The teacher pension issue, still unresolved at that point, was prominently cited.
Then, leaders of the union representing some 3,200 Harford teachers balked at accepting the bonus, claiming to do so would compromise their position in an ongoing dispute with the county over contract negotiations. The union later backed down and accepted the deal.
Craig's letter Tuesday said he would not penalize school employees over the legislature's actions on the teacher pensions.
"Despite suggestions from some that we only withdraw the bonuses for school system employees to pay for teacher pensions and allow the bill regarding bonuses for employees of county government to remain, I stand by my position that all employees should be treated equally," he wrote. "Therefore I am withdrawing all three bills."
Boniface said he understood the tough situation the administration was in with the bonus.
"It's a difficult task, because when the county executive came to us with the plan of doing this split…we didn't know what was going to be involved," he said during Tuesday's council meeting. "Nobody likes to not have to give a bonus, but the only other opportunities to make cuts and reduce in paygo will make reductions in our operating side. The one good thing in this budget is it doesn't include furloughs and it doesn't include layoffs."
He said the current budget schedule, which is set to be changed by the newly proposed charter revisions, does not allow for more time.
"We're kind of up against the eight-ball in getting this done, so I recognize the tough situation the county executive is in," Boniface said.
Councilman Dick Slutzky noted that the "fantastic claims" of $15 million to $25 million for the pension' shift total cost do not seem to be accurate, since now the cost is projected to be almost $11 million by 2016.
Kim Spence, county chief of budget and management research, and Treasurer Kathryn Hewitt replied they were just going by what was provided by the state.
The administration offered amendments to the 2013 budget Tuesday transferring money that had been earmarked for the bonuses to the state pension obligation.
Boniface clarified that the council was not voting on the three bonus funding bills, which had already been pulled at Craig's behest.
"What you're being asked in these amendments is to take $5.5 million in fund balance and put it toward the budget [pension] obligation," he explained.
Councilman Dion Guthrie said he would vote against the amendments. He was joined by Councilman Joe Woods.
Guthrie noted that last year, the county executive said he somehow "miraculously" had a $32 million surplus.
"What we are now doing is asking employees of the county to give up $5.5 million of their bonus that they thought they were going to get, and we are going to take that and put it in the budget and pay their pensions with their $5.5 million," Guthrie said. "Now because the state obligated the county to pay it, we are now going to obligate the employees to pay it," he said, asking what will happen in 2014 and whether the funding would possibly be taken out of employee salaries.
"I assure you the administration is as unhappy, if not more so, [about the action]," Hewitt replied.
Guthrie said: "Well, they can't be too unhappy, because they are taking $5.5 million away from their employees."
Hewitt explained why the county executive wanted to originally give bonuses to employees.
"Unfortunately, at that time, it was not known we would have this additional expenditure coming from the state," she said. "It's an interesting thing that our half of the bonus bill is about the same as the teacher pension shift. It just happened to be that way. But the money was really created through many sources."
Where did $27 million go?
Guthrie asked what ended up happening to the other $27 million that was supposed to be in the surplus.
Hewitt said Hurricane Irene and Tropical Storm Lee affected the general fund by a little over $200,000, the fire and emergency medical service personnel needed another $400,000 in stopgap funding after they ran out of money, a bill to fund the post-employee health plan that was union-negotiated for post-employees health retirement cost a little over $1 million.
The county has also added many new paygo capital projects, she said, using cash on hand rather than borrowing by selling bonds for them.
"We were able to do a larger number of paygo capital projects than in the prior year," Hewitt said. "So there is over $15 million in paygo capital projects. Those items that I just listed to you gives us over $22 million."
The rest will pay for the teachers pension costs, which leaves about $4.5 million, Hewitt said.
Also, Hewitt explained, "we always have to keep some money in savings that can be used for future budget situations, future paygo, natural situations - hurricanes, natural disasters."
The county also needs to maintain some savings over and above its "rainy day" fund to maintain its AAA bond rating.
Guthrie said: "I guess the bottom line here is the administration is much more in favor of projects than the employees who work for the county… To me, it's just extremely poor management."
Councilwoman Mary Ann Lisanti wondered what additional revenue is expected from the state relative to last week's budget actions in Annapolis. She cited a briefing from the Maryland Association of Counties that was circulated suggesting the net cost to Harford for the pension would be only $1.6 million.
"We know the expenditure number but we don't know how much money they [the state] will forgive us," Lisanti said, explaining she finds it strange that the number that will return to counties in more revenue is apparently unknown.
Lisanti said she understands the need for the pension shift, but is skeptical of the situation.
"I'm not comfortable that this is the total story and I think we all agree, that we don't know what that is, and I'm not sure how we go back and amend the budget for new revenues when they come in, and where they come in," she said.
"In a perfect world, I would like to step back a little bit and have Ms. Moore, our county council auditor, look at this and give us a much more real number, but I don't think we are there at this point due to the budget schedule," Lisanti continued. "I do hope that when it becomes more clear what money we will get from local aid, that the administration comes back to the council and we update these estimates."
Hewitt replied: "I promise you that we'll do that. I think all of us are very frustrated with the efforts we're going through right now."
She said she is very hopeful the revenue the state has given the county will come through.
"Let me assure you that none of us sitting in this room are very happy with what happened," Hewitt said.
Slutzky said the pension plan has never played out the way people might expect.
"It isn't that we had one pension system and it operated the way it was supposed to," he said. "It's changed and it's been changed by the state four times, just from my experience being in the pension system."
Earlier versions of this story gave the incorrect amount for the bonus payment. The correct amount is $625 per employee. The number of teachers represented by the teachers union was also correct. The union represents about 3,200 teachers.