Thursday, December 5, 2013
AUGUSTA — State Treasurer Bruce Poliquin characterized Maine's pension debt as a "monster" Tuesday during a news conference to rebut what he considers high-risk alternatives to pension changes proposed by Gov. Paul LePage.
But others, including a pension lawyer in South Portland and a 20-year board member of the state retirement system, said Poliquin is describing a temporary cash flow problem as a crisis.
"That's simply baloney, and they are scaring retirees," said David Wakelin, who served on the retirement system board from 1988 to 2008, including 14 years as chairman.
Last week, hundreds of state workers and teachers came to the State House to protest the changes and give highly charged testimony. Now lawmakers are settling in to examine more closely the proposals made by LePage in his $6.1 billion, two-year budget.
The ideas are designed to free up state money for other priorities and address the pension system's long-term $4.3 billion debt, which must be repaid by 2028.
The 2028 deadline was established by a constitutional amendment approved by voters in 1996. One idea floated by Wakelin is to eliminate the 2028 deadline and move to a 20-year rolling average payment schedule.
LePage's budget would require teachers and state workers to contribute an additional 2 percent of their salaries to the system. That would correspond with a nearly 2 percentage point drop in the state's share.
The budget also would freeze cost-of-living increases for retirees for three years and cap the increases at 2 percent thereafter. The current cap is 4 percent.
In addition, it would increase the retirement age for new hires and workers with fewer than five years of service from 62 to 65.
Those changes would save $390 million over the two years starting July 1, and $2 billion from now until 2028, Poliquin said.
"They avoid cuts to retiree pension checks, and don't require furlough days or mass layoffs," he said. "These reforms should give teachers and state employees more confidence that their future retirement checks will be waiting for them."
But such proposals continue to worry and anger unions that represent the affected employees.
Mary Anne Turowski, a lobbyist with the Maine State Employees Association, said state workers are facing a tax -- the increase in their contribution -- that would be used to pay for other things in the budget.
"The pension system is solvent," she said. "Chicken Little is governing our state budget at this point."
Wakelin said the state's pension problem can be solved with a new constitutional amendment changing the payback schedule from the hard deadline in 2028 to a 20-year rolling average payment system. He said retirees who pushed for the 2028 deadline in the mid-1990s didn't intend for it to cause a reduction of their cost-of-living increases.
Another problem with the current system is that it requires stock market losses to be repaid within 10 years, which is adding stress on the state budget now.
"A rolling 20 is what we would do in the private sector," he said.
Sandy Matheson, executive director of the Maine Public Employees Retirement System, said rolling average payment systems are considered sound by actuaries.
But Poliquin said he doesn't support the idea because the debt is never fully paid back.
"I can't imaging rolling it out year after year and never quite paying off the debt," he said. "It just drains money out of the economy."
State Sen. Tom Saviello, R-Wilton, is sponsoring a bill on behalf of the Maine Education Association that calls for a constitutional amendment with a 25-year rolling payback schedule. Saviello said he submitted the bill before the governor released his budget, so it was not intended to be an alternative.
But the bill, which has yet to be printed, will be part of talks as groups look for various ways to tackle the same problem. Saviello said he compares the pension debt to a home mortgage that can be refinanced during a difficult financial period.
"It does make you pay more interest," he said. "But my $700 (monthly payment) keeps me in my house."
Maine Education Association lobbyist Steve Crouse said the idea would level out payments in a responsible way. But he acknowledged that the constitutional amendment would need two-thirds support in the Legislature, which creates some potential political roadblocks.
After that, it would go to Maine voters for approval.
"It's the most rational answer to this problem," Crouse said. "If we were to step outside this building ... I think people would agree that is the best option."
MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at: firstname.lastname@example.org