Are government employee pension funds across the country facing a painful reckoning, asks The New York Times? Absolutely. But guess what? Realistic funding of employee pension systems is only one of the fiscal time bombs that governments must address in a serious manner. The cost of employee health care is also placing governments in a fiscally untenable position. The one-two punch of pension and health care costs are threatening a knockout against government's already weakened ability to maintain services without raising taxes.
Baltimore County, like every government in America, engages in a delicate balancing act each day. Baltimore County's cost of employee salaries and benefits constitutes more than 70 percent of its budget. Through consolidations and efficiencies, we have downsized the number of general government employees (the 3,400 employees excluding public safety, education and library) to the lowest level in the past 25 years — despite serving the county's largest population ever, more than 805,000 residents.
We are asking our hardworking employees to do more with less. Workers haven't received cost-of-living increases for years, and they are required to make increased contributions toward health care and retirement benefits. In return, we make a commitment to our employees that they will receive a quality health care program and, upon retirement, a guaranteed pension.
But our commitment isn't just to our employees; it is to our taxpayers as well. Baltimore County has not raised its property tax rate in 24 years; we haven't raised the income tax rate in 20 years. The continuing struggles of the economy make it harder than ever to hold the line on taxes while maintaining services, but we have an obligation to aggressively fight this one-two punch coming our way.
In Baltimore County, the cost of health care alone has escalated to the point where it is rapidly approaching an unsustainable threshold. Consider that for a county employee who selects family coverage, Baltimore County contributes between $15,950 and $20,554 annually, depending upon the selected plan. Baltimore County not only covers the health care of its current employees, but retirees as well.
The cost of health care benefits alone for general government, library, community college and school system employees is more than $280 million a year, roughly 10 percent of the county's total budget. By comparison, the county spends an equivalent amount to fund its entire police and fire operations. Such an expenditure for health care is simply not sustainable.
In recent years, Baltimore County has worked with its employees to restructure retirement and benefit packages. Other jurisdictions have made changes unilaterally, but our close collaboration with a number of labor leaders has helped us reach fair agreements with employees. Baltimore County has lengthened the vesting period, extended the retirement age (including for police and fire personnel), increased employee contributions to both pension and health care, and reduced cost-of-living adjustments for retirees. And so far we've been able to ensure no employee furloughs or firings, while still granting step pay increases. Unfortunately, the overall fiscal outlook is dour; even tougher decisions lie ahead for the county and its employees.
Keeping our pension system healthy also means ensuring that we are honest about its funding. Unrealistic projections of investment returns will surely hasten that promised painful reckoning. Last week, Baltimore County reduced the assumed investment earnings rate of return of the County Employee Retirement System, from 7 7/8 percent to 7 1/4 percent. As The Sun reported, "The move was seen as a significant change for a system that wasn't in crisis."
This reduction in the valuation rate does not come cheaply. Baltimore County must now pay an additional $15 million annually to the pension system, but we do so now to ensure that taxpayers won't be saddled with an unfunded liability down the road. Although this will indeed put a strain on the county budget, it is absolutely the right thing to do for our employees and our taxpayers. As part of the county's ongoing review of its operations, we will find efficiencies to fund the additional costs.
In Baltimore County, we are not just focused on what happens next week or next year. We are thinking decades ahead. We want our citizens to be able to rely on the services they expect and deserve for years to come. At the same time, we want our employees to be able to rely upon the stability of their health care and pension plans. An English economist once said, "It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities." In Baltimore County, we understand our responsibilities. Living up to those responsibilities isn't just the right way to run a county; it's the right thing to do.
Kevin Kamenetz is the Baltimore County executive. His email is email@example.com.