Counties brace for O'Malley's budget decisions

The Baltimore Sun

"Horrifying" is how Carroll County budget director Ted Zaleski describes it.

"The bogeyman," says David R. Craig, county executive in Harford.

"There's very little I fear more than that," Howard County Executive Ken Ulman says.

What has local leaders trembling is the possibility that Gov. Martin O'Malley might try to shift the $622 million cost of teachers' pensions from the state to local governments in response to a projected $432 million budget shortfall this fiscal year.

The result could be local tax increases or severe cuts to services, leaders say.

In Baltimore, the resulting $60.8 million hit would be a harsh blow to the budget, officials say.

"We're already dealing with some structural deficit issues," said Sterling Clifford, spokesman for Baltimore Mayor Sheila Dixon. "It would present enormous challenges to the city's budget."

Clifford predicted that a $61 million cut would require "across-the-board cuts in city services."

In Baltimore County, the shift would deal a $78 million blow to the budget of County Executive James T. Smith Jr., said spokesman Donald I. Mohler III.

Smith "is hopeful that won't be one of the solutions," Mohler said. "It would not be easy."

The idea has been discussed in past times of economic distress, and local leaders remember that a similar transfer involving teachers' Social Security costs occurred during the recession of the early 1990s. That round of cuts forced unpaid furloughs, layoffs and tax increases in several jurisdictions.

O'Malley spokesman Shaun Adamec said the governor has a record of confronting state budget problems directly - not shifting them to local governments. But in the current economic climate, there are no guarantees.

"The governor's made it clear that everything is on the table," Adamec said.

The state budget shortfall developed despite more than $1 billion raised through new taxes and budget cuts since 2007. Beyond this year's gap lies a potential $1 billion deficit in the next fiscal year. And state transportation funding is down $1.1 billion.

Retiree costs have been a millstone on the finances of Maryland and other states for years.

A recent change in accounting standards is requiring governments to calculate and plan for the health care costs of future retirees, effectively forcing huge set-asides.

And this year, the state is on the hook for about $88 million that wasn't contributed to the pension system because of a software calculation error, said R. Dean Kenderdine, executive director of the Maryland State Retirement and Pension System.

O'Malley now must decide whether to make the system whole next year or over the next 25 years.

While O'Malley decides where to make more cuts, local government officials worry about how their budgets might be affected.

Anne Arundel County budget director John Hammond said the move would cost about $38 million.

"That'd be big," he said, noting that the county gets about $50 million in new revenue in a normal year.

Still, County Executive John R. Leopold said he's more worried about the $16.7 million in state transportation cuts Arundel faces. With thousands more military and civilian workers scheduled to begin arriving in and around Fort Meade in the next two years, Leopold said infrastructure improvements are crucial.

"We've already taken some tough medicine at the county level," he said, adding that he's preparing to announce more local cuts.

Craig, a former state legislator, vowed that he would not raise taxes, but would push the $25 million cut for Harford County on to the school board.

"I am not raising taxes to cover this shortfall," Craig said. "The state cuts this from the budget, not me."

Though Craig predicts the counties will take on the pension costs someday anyway, he opposes the idea.

"Having the state pay the costs makes it fair for everybody and allows all the counties to work at attracting the best teachers," he said.

If the counties have to pay, he said, they should participate in state pension planning decisions.

Teri Kranefeld, a spokeswoman for Harford schools, said the move would impose a severe burden on the school board.

"It would be impossible to cover that amount, and it would put extreme pressure on us," she said.

The Maryland State Teachers Union opposes the idea.

"By messing with formulas and investments that the state has made a commitment to in the long term to deal with a short-term problem doesn't make sense," said Daniel Kaufman, a spokesman for the union.

Ulman said such a move would cost Howard up to $45 million - roughly equaling the county's normal annual revenue increase. Zaleski said the $19 million Carroll would lose also would wipe out its expected revenue boost for next year. With inflation still pushing health care, fuel, electricity and other costs higher, "we would have no way to simply absorb that cost," he said.

The situation has Ulman advocating harder for approval of the slots referendum, which would provide $600 million in state revenues in two years. With that in mind, he and the Maryland Association of Counties are urging temporary, not structural, cuts to local governments, he said.

"We are mindful that we are in this together with the state," Ulman said. "My hope is the state will hold off any structural cuts that are long-term cuts, like the pension shift, pending the result in November."

Baltimore County and state officials have talked about various options for sharing the costs, Mohler said. The expense could be shared equally between the county and state. Or the county could begin paying a percentage, or perhaps just the annual increase, which would be $4.6 million a year.

In the meantime, local leaders are waiting to see what O'Malley, a former Baltimore mayor, will do.

"We're fortunate to have a governor who comes from local government and understands these issues," said Michael Sanderson, legislative director for the Maryland Association of Counties.

Sun reporters Arin Gencer, Chris Guy, Mary Gail Hare, Nick Madigan and Laura Smitherman contributed to this article.

TEACHER PENSION COSTS

Local leaders in the Baltimore region fear the effect of having the cost of teacher pensions shifted from the state. Here's what such a move would cost jurisdictions in the area:

Anne Arundel County: $38 million

Baltimore City: $61 million

Baltimore County: $78 million

Carroll County: $19 million

Harford County: $25 million

Howard County: $45 million

Correction: An article in Tuesday's editions about the possibility of teacher pension costs being shifted from the state to local governments might have left the impression that Baltimore County officials have been in recent talks with state officials about the possibility of sharing some of the costs. In fact, a spokesman for Baltimore County Executive James T. Smith Jr. said that while such a possibility had been floated in years past, county officials have had no discussions on the issue with their counterparts in state government since Smith has been in office. The Baltimore Sun regrets the errors.
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