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Commentary The youth employment conundrum
Policy changes to create jobs for young people may be needed
to avoid social unrest
By George Liebmann
November 22, 2010
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The level of youth unemployment, the highest since records began to be kept on
the present system in 1978, is the great undiscussed issue in American politics. The numbers for July 2010, a month when youth
employment usually reaches a seasonal high because of summer jobs programs, showed that fewer than half of those between 16
and 24 were employed - 48.9 percent - compared to a record high of 70 percent in 1988. The unemployment rate was 19.1 percent
in 2010, compared to 9.6 percent in 2000. (The employment and unemployment numbers do not add to 100 percent because of students
and others not seeking employment). Among blacks between 16 and 24, the unemployment rate this past July was 33.4 percent;
for blacks in the 16 to 19 age group, the rate was more than 50 percent.
These numbers depict potential social dynamite.
The effect of similar percentages in France is already visible. American youth are not politically minded and do not habitually
either vote or demonstrate, hence the relative calm here. (German politicians have never forgotten that the young unemployed
of the Weimar period fueled totalitarian movements; in the early 1930s, Chancellor Heinrich Bruning and the then British Ambassador,
Sir Horace Rumbold, saw no cure for Germany's political distempers save an increase in the voting age.) The impact
of our youth unemployment is felt in quieter ways: the lack of development of work habits, disciplines, and skills, and the
diversion of the quiet unemployed to substance abuse and the underworld. It is not for nothing that Franklin Roosevelt warned
that "continued dependence upon relief induces a spiritual and moral disintegration destructive to the national fiber.
To dole out relief in this way is to administer a narcotic, a subtle destroyer of the national spirit." What is
the response of American politicians, in an election year? The texts of President Barack Obama's last State of the Union
message and the Republican Party's "Pledge to America" will be searched in vain for a reference to the problem,
as will the websites of the House and Senate majority and minority leaders. The unspoken hope is that the economy will improve
and a rising tide will lift all boats; in the meantime there are, for those eligible, Food Stamps and an ever-lengthening
period of unemployment benefits, now up to 52 weeks, and in some instances 99 weeks. The lengthening of the "dole"
period threatens to create a white underclass resembling that in modern Britain.
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Neither the current president nor the Republican leadership have much else to say. The Republican Pledge proposes as
its principal job-stimulating measure a tax deduction of 20 percent of corporate income. This ringing proposal dissolves on
close inspection: It benefits only corporations, not proprietorships; is a deduction, not a credit; and benefits only corporations
that have taxable income, thus excluding most service businesses and small businesses, the tax benefit for these companies
amounting to about 7 percent of profits. The recession has had limited impact on corporate profits, businesses having responded
to it with job-shedding and cost-cutting. It is not want of profits but want of confidence in the future - stemming from the
uncertain state of the tax system, looming future pension deficits and reduced consumer demand - that has retarded the employment
of workers. The Democrats, for their part, have proposed marginal increases in existing federal youth jobs programs.
A Democratic-oriented think tank, the Center for American Progress, proposes an expansion of four youth jobs programs: AmeriCorps,
VISTA, Youth Corps and Youth Build. An appropriation of $1.5 billion is proposed, to create a year's worth of jobs at
$15,000 each. These "jobs," however, have no future, nor is the training provided related to the needs of any particular
employer, public or private. These are "feel-good" proposals, unrelated to the dimensions of the problem, which
do not heed Gen. George Marshall's admonition to his subordinates: "Avoid trivia." They are dwarfed by the New
Deal's Civilian Conservation Corps, adopted when the nation was less rich and had less than half its present population,
but which was informed by a sense of moral urgency. The difficulty with public youth jobs programs is that they require
the creation or expansion of youth jobs bureaucracies, staffed by middle-class workers already attached to the labor force,
and are hence over-administered, slow to start and unduly expensive. If much lesser sums were spent on providing each of the
appropriate federal and state agencies with funds to hire half-time trainees and to organize distance-learning and other training
programs for them, results would be swifter and costs far less; every federal agency would be involved in the effort, not
just purpose-built ones, and the temporary employment would be more likely to lead to actual jobs. Efforts to incentivize
youth employment in the private sector such as the targeted tax credit, however beautiful in theory, have foundered on their
unintelligibility, on restrictions and complexities imposed at the behest of organized labor, and on their lack of benefit
to smaller businesses, where the greatest opportunities for unskilled and semi-skilled jobs exist. The German response
to this problem, which has produced youth unemployment rates half of ours (9.4 percent in July), has taken the form of government
forgoing the payroll taxes on young workers, together with subsidies for employers providing half-time employment, and distance
and other learning opportunities tailored to employer needs. The per-capita costs of such a system are relatively modest.
The cost of 15.3 percent in forgone payroll taxes on 20 hours a week of earned income at the minimum wage amounts to about
$1,300 per worker per year. A 50 percent wage subsidy paid to the employer as a refundable tax credit or otherwise would cost
less than $5,000 per half-time worker per year. These measures, embodied in uniform and simple tax rules, would send
a message to the whole society, not just those parts of it patronized by the youth jobs bureaucracies. The employment provided
would be low-wage work, but austerity is better than idleness for the young. It also would not hurt to raise the low
($7,000-$10,000) wage bases on which federal and state unemployment taxes are levied; these fall disproportionately heavily
on low-wage workers and the companies employing them. The disgraceful organized-labor-induced prohibition on the employment
of "helpers" on federal construction projects under Davis-Bacon Act regulations should also be repealed, and in
the case of very young workers, there might be a reduced minimum "training wage." This is also a place here
for the bully pulpit, unused by our passive president. It is doubtful that our nation's large companies are acting prudently
by failing to recruit younger workers. This kills the seed corn; moreover, the opportunity to recruit competent and motivated
young workers is greater when jobs are scarce. Today's youth unemployment numbers are a threat to the nation's
future political and social welfare. They should be depicted as such and addressed accordingly. George W. Liebmann,
a Baltimore lawyer, is the volunteer executive director of the Calvert Institute for Policy Research. His e-mail is george.liebmann2@verizon.net. Register
with The Baltimore Sun and receive free newsletters and alerts >>
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Joe's
garage at 9:05 AM November 22, 2010
I seem to remember all those damn repubs that were complaining that the increase
in the minimum wage would keep many kids just entering the work force from getting jobs!
Its all thier fault that
they were correct! Damn tham repubs for being right again!
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f Jobs and Presidents by George W. Liebmann The economists of this administration
hold Keynesian beliefs, but their belief is in one-way Keynesianism. The stimulus package has not produced its expected multiplier
effects for several reasons, but one of them surely is its superimposition not on a previously balanced budget but upon enormous
structural deficits. No credible proposal has been forthcoming for the phasing out of the Bush tax cuts, or some of them,
or for a gradually rising gasoline tax, or for military base and naval reductions, or for curbs on unsustainable social security
and federal pension programs. New health care entitlements are to be financed by reimbursement curbs which Congress has failed
to enact and is known to be incapable of enacting. Expectations of the future feed into the present; the prosperity of the
Clinton years was due to a perception that a combination of Democratic tax increases and Republican budget cuts would provide
price stability and predictability and a climate supporting employment and investment. No such climate exists now as a result
of the Obama administration’s self-indulgence in protecting present benefits while deferring the measures needed to
produce long-term stability, a course rejected by the British and German governments. Another difficulty is the choice
of beneficiaries for stimulus funds. The Obama administration, unlike that of Roosevelt, did not undertake to swiftly supply
through a Works Progress Administration the maximum possible number of low-wage jobs at the earliest possible date. Nor did
it address the possible social, political, and educational costs of 25% youth unemployment by a Civilian Conservation Corps
to improve parks or construct a national network of footpaths or in the German manner by tax incentives to foster employment
and vocational education of the young. Instead, the recession was seized upon as an occasion to pay off political supporters
and client groups. Nearly half the stimulus was allocated to public education, with the declared purpose of preventing lay-offs
of the nation’s unionized teachers, whose ranks have multiplied as a result of recent campaigns to reduce class sizes
which have produced few positive educational results. These are middle-class persons, many with mediocre skills thanks to
state certification laws excluding more highly qualified liberal arts and science graduates from the teaching force. The stimulus
allowed states to defer long-overdue changes in automatic seniority increases, Cadillac health care plans, and unsustainable
pension and retiree health plans for teachers. The stimulus’ undifferentiated transportation subsidies bail out
governors like Maryland’s Martin O’Malley , who have balanced state budgets by deferring road maintenance and
raiding transportation trust funds. Unlike the New Deal public works programs, these subventions yield no permanent residue.
Wage-propping measures like the Davis-Bacon Act and administration-promoted ‘project labor’ agreements also ensure
that ‘stimulus’ construction costs more than usual state and local construction, and much more than private-sector
construction. The approach to housing shares similar infirmities. The Hoover and Roosevelt administrations created a
Home Owners’ Loan Corporation to acquire defaulted mortgages and hold them until they became sound by reason of re-employment
of the borrower or increases in property values; it was ultimately closed out with a small profit to the government. The mortgages
then prevalent were typically granted for at most two-thirds of value and ultimate soundness could be expected. Since today’s
sub-prime mortgages should never have been granted and will never be sound, the former approach has been forsworn in favor
of a program of exhortations accompanied by some subsidies to induce the writing-down of mortgages. Since lenders have incentives
not to recognize losses and thereby impair reported earnings, this approach has been as effective as pushing spaghetti through
a key-hole, it has produced an explosion of vacant, abandoned, or occupied but under-maintained residential properties. What
is needed is expanded availability of low-cost rental units, which requires a temporary tax credit for the creation of second
kitchens in existing homes to foster creation of new accessory apartments and mother-in-law flats and related long-overdue
zoning reforms. This approach would create jobs for small home-improvement contractors. But it relies on uniform laws, generates
no political patronage, creates no ribbon-cutting opportunities, and is of little benefit to unions; its appeal to Democratic
leaders in the House of Representatives is therefore non-existent. This is also true of land readjustment, a Far Eastern
device tailor-made for ruined cities which currently generate more Democratic congressmen than civic betterment. This is a
developer-driven device which allows a specified majority of property-owners to cooperatively improve a city block. Owner-occupiers
may opt out; other dissenters must be bought out at an appraised value. This involves much milder coercion than Kelo-style
eminent domain, but is anathema both to statists and to property rights fanatics. In the sphere of financial regulation,
the administration has forsworn clear prohibitions and predictable rules in favor of a morass of exceptions and discretionary
waivers resembling nothing so much as one of the less inspired N.R.A. codes. The prohibition of derivatives as gambling contracts
has not been restored, nor have the clear barriers of the Glass-Steagall Act or the prohibitions which the New Deal banking
legislation imposed on uses of insured deposits. For good measure, the Frank-Dodd Act confers a retroactive windfall on some
hitherto uninsured bank depositors, while permanently elevating insurance limits, contrary to most foreign practice, to a
level of $250,000, far above subsistence savings. For good measure, federal mortgage guarantees are now at the $800,000 level.
While Hoover promised only "a chjcken in every pot", Obama holds forth the promise of federally insured MacMansions
for all. After two years of failure, the approach to stimulus continues to be one of protecting unionized public employees
and construction workers, while extending unemployment benefits to one year or even more. Public employee unions were anathema
to the Roosevelt administration, as was a permanent dole of the sort that has created an huge white under-class in Britain.
The Obama economic policy is that of John L.Lewis—protection of a limited class of union workers and a dole for the
rest. If continued, it will convert the United States into a greater West Virginia. Foreign trade and immigration issues have
been swept under the rug, at the behest of the unions, leaving South Korea, Colombia and Peru, and the American companies
who trade with them, in limbo and leaving millions of Mexican and Central American migrants under threat of summary deportation
in an economic never-never land in which they cannot borrow, invest, buy homes, or establish small businesses. Roosevelt’s
economic record was certainly inconstant and flawed. But it maintained public morale, left behind some impressive public works;
workable systems of securities, banking, public utility and insurance regulation, now largely repudiated and not restored;
a reciprocal trade agreements act, the foundation of postwar prosperity; an administrative procedure act imposing legal rules
on an expanded state; federal rules of civil procedure which expanded discovery so as to allow private parties to curb corporate
abuses (a system that worked well until the class action rules of the late 1960s); and a general preference, fostered by Justice
Brandeis and his acolytes Felix Frankfurter, Dean Acheson, and Benjamin Cohen, for clearly stated and self-executing rules.
This contrasts with the administrative principles of the current administration, which have converted Washington into a political
gift shop. This is not even the system of the Court of Versailles, which had some regularity to it. It is that of the Ottoman
Court, with similar effects on economic development. The administration’s cluelessness as to why there are not
more jobs is reminiscent of the equal cluelessness of a British inter-war minister, satirized by the great British humorist
A.P. Herbert: "Abroad, to show that everyone was passionate for peace All children under seven joined the
army or police The babies studied musketry while mother filled a shell And the minister still wondered why the
population fell." George W. Liebmann, a Baltimore lawyer, is the volunteer executive director of the Calvert Institute
for Policy Research in Baltimore and is the author of The Common Law Tradition: A Collective Portrait of Five Legal; Scholars
(Transaction Books, 2005) among other works. by George W. Liebmann The economists of this administration
hold Keynesian beliefs, but their belief is in one-way Keynesianism. The stimulus package has not produced its expected multiplier
effects for several reasons, but one of them surely is its superimposition not on a previously balanced budget but upon enormous
structural deficits. No credible proposal has been forthcoming for the phasing out of the Bush tax cuts, or some of them,
or for a gradually rising gasoline tax, or for military base and naval reductions, or for curbs on unsustainable social security
and federal pension programs. New health care entitlements are to be financed by reimbursement curbs which Congress has failed
to enact and is known to be incapable of enacting. Expectations of the future feed into the present; the prosperity of the
Clinton years was due to a perception that a combination of Democratic tax increases and Republican budget cuts would provide
price stability and predictability and a climate supporting employment and investment. No such climate exists now as a result
of the Obama administration’s self-indulgence in protecting present benefits while deferring the measures needed to
produce long-term stability, a course rejected by the British and German governments. Another difficulty is the choice
of beneficiaries for stimulus funds. The Obama administration, unlike that of Roosevelt, did not undertake to swiftly supply
through a Works Progress Administration the maximum possible number of low-wage jobs at the earliest possible date. Nor did
it address the possible social, political, and educational costs of 25% youth unemployment by a Civilian Conservation Corps
to improve parks or construct a national network of footpaths or in the German manner by tax incentives to foster employment
and vocational education of the young. Instead, the recession was seized upon as an occasion to pay off political supporters
and client groups. Nearly half the stimulus was allocated to public education, with the declared purpose of preventing lay-offs
of the nation’s unionized teachers, whose ranks have multiplied as a result of recent campaigns to reduce class sizes
which have produced few positive educational results. These are middle-class persons, many with mediocre skills thanks to
state certification laws excluding more highly qualified liberal arts and science graduates from the teaching force. The stimulus
allowed states to defer long-overdue changes in automatic seniority increases, Cadillac health care plans, and unsustainable
pension and retiree health plans for teachers. The stimulus’ undifferentiated transportation subsidies bail out
governors like Maryland’s Martin O’Malley , who have balanced state budgets by deferring road maintenance and
raiding transportation trust funds. Unlike the New Deal public works programs, these subventions yield no permanent residue.
Wage-propping measures like the Davis-Bacon Act and administration-promoted ‘project labor’ agreements also ensure
that ‘stimulus’ construction costs more than usual state and local construction, and much more than private-sector
construction. The approach to housing shares similar infirmities. The Hoover and Roosevelt administrations created a
Home Owners’ Loan Corporation to acquire defaulted mortgages and hold them until they became sound by reason of re-employment
of the borrower or increases in property values; it was ultimately closed out with a small profit to the government. The mortgages
then prevalent were typically granted for at most two-thirds of value and ultimate soundness could be expected. Since today’s
sub-prime mortgages should never have been granted and will never be sound, the former approach has been forsworn in favor
of a program of exhortations accompanied by some subsidies to induce the writing-down of mortgages. Since lenders have incentives
not to recognize losses and thereby impair reported earnings, this approach has been as effective as pushing spaghetti through
a key-hole, it has produced an explosion of vacant, abandoned, or occupied but under-maintained residential properties. What
is needed is expanded availability of low-cost rental units, which requires a temporary tax credit for the creation of second
kitchens in existing homes to foster creation of new accessory apartments and mother-in-law flats and related long-overdue
zoning reforms. This approach would create jobs for small home-improvement contractors. But it relies on uniform laws, generates
no political patronage, creates no ribbon-cutting opportunities, and is of little benefit to unions; its appeal to Democratic
leaders in the House of Representatives is therefore non-existent. This is also true of land readjustment, a Far Eastern
device tailor-made for ruined cities which currently generate more Democratic congressmen than civic betterment. This is a
developer-driven device which allows a specified majority of property-owners to cooperatively improve a city block. Owner-occupiers
may opt out; other dissenters must be bought out at an appraised value. This involves much milder coercion than Kelo-style
eminent domain, but is anathema both to statists and to property rights fanatics. In the sphere of financial regulation,
the administration has forsworn clear prohibitions and predictable rules in favor of a morass of exceptions and discretionary
waivers resembling nothing so much as one of the less inspired N.R.A. codes. The prohibition of derivatives as gambling contracts
has not been restored, nor have the clear barriers of the Glass-Steagall Act or the prohibitions which the New Deal banking
legislation imposed on uses of insured deposits. For good measure, the Frank-Dodd Act confers a retroactive windfall on some
hitherto uninsured bank depositors, while permanently elevating insurance limits, contrary to most foreign practice, to a
level of $250,000, far above subsistence savings. For good measure, federal mortgage guarantees are now at the $800,000 level.
While Hoover promised only "a chjcken in every pot", Obama holds forth the promise of federally insured MacMansions
for all. After two years of failure, the approach to stimulus continues to be one of protecting unionized public employees
and construction workers, while extending unemployment benefits to one year or even more. Public employee unions were anathema
to the Roosevelt administration, as was a permanent dole of the sort that has created an huge white under-class in Britain.
The Obama economic policy is that of John L.Lewis—protection of a limited class of union workers and a dole for the
rest. If continued, it will convert the United States into a greater West Virginia. Foreign trade and immigration issues have
been swept under the rug, at the behest of the unions, leaving South Korea, Colombia and Peru, and the American companies
who trade with them, in limbo and leaving millions of Mexican and Central American migrants under threat of summary deportation
in an economic never-never land in which they cannot borrow, invest, buy homes, or establish small businesses. Roosevelt’s
economic record was certainly inconstant and flawed. But it maintained public morale, left behind some impressive public works;
workable systems of securities, banking, public utility and insurance regulation, now largely repudiated and not restored;
a reciprocal trade agreements act, the foundation of postwar prosperity; an administrative procedure act imposing legal rules
on an expanded state; federal rules of civil procedure which expanded discovery so as to allow private parties to curb corporate
abuses (a system that worked well until the class action rules of the late 1960s); and a general preference, fostered by Justice
Brandeis and his acolytes Felix Frankfurter, Dean Acheson, and Benjamin Cohen, for clearly stated and self-executing rules.
This contrasts with the administrative principles of the current administration, which have converted Washington into a political
gift shop. This is not even the system of the Court of Versailles, which had some regularity to it. It is that of the Ottoman
Court, with similar effects on economic development. The administration’s cluelessness as to why there are not
more jobs is reminiscent of the equal cluelessness of a British inter-war minister, satirized by the great British humorist
A.P. Herbert: "Abroad, to show that everyone was passionate for peace All children under seven joined the
army or police The babies studied musketry while mother filled a shell And the minister still wondered why the
population fell." George W. Liebmann, a Baltimore lawyer, is the volunteer executive director of the Calvert Institute
for Policy Research in Baltimore and is the author of The Common Law Tradition: A Collective Portrait of Five Legal; Scholars
(Transaction Books, 2005) among other works. by George W. Liebmann The economists of this administration hold
Keynesian beliefs, but their belief is in one-way Keynesianism. The stimulus package has not produced its expected multiplier
effects for several reasons, but one of them surely is its superimposition not on a previously balanced budget but upon enormous
structural deficits. No credible proposal has been forthcoming for the phasing out of the Bush tax cuts, or some of them,
or for a gradually rising gasoline tax, or for military base and naval reductions, or for curbs on unsustainable social security
and federal pension programs. New health care entitlements are to be financed by reimbursement curbs which Congress has failed
to enact and is known to be incapable of enacting. Expectations of the future feed into the present; the prosperity of the
Clinton years was due to a perception that a combination of Democratic tax increases and Republican budget cuts would provide
price stability and predictability and a climate supporting employment and investment. No such climate exists now as a result
of the Obama administration’s self-indulgence in protecting present benefits while deferring the measures needed to
produce long-term stability, a course rejected by the British and German governments. Another difficulty is the choice
of beneficiaries for stimulus funds. The Obama administration, unlike that of Roosevelt, did not undertake to swiftly supply
through a Works Progress Administration the maximum possible number of low-wage jobs at the earliest possible date. Nor did
it address the possible social, political, and educational costs of 25% youth unemployment by a Civilian Conservation Corps
to improve parks or construct a national network of footpaths or in the German manner by tax incentives to foster employment
and vocational education of the young. Instead, the recession was seized upon as an occasion to pay off political supporters
and client groups. Nearly half the stimulus was allocated to public education, with the declared purpose of preventing lay-offs
of the nation’s unionized teachers, whose ranks have multiplied as a result of recent campaigns to reduce class sizes
which have produced few positive educational results. These are middle-class persons, many with mediocre skills thanks to
state certification laws excluding more highly qualified liberal arts and science graduates from the teaching force. The stimulus
allowed states to defer long-overdue changes in automatic seniority increases, Cadillac health care plans, and unsustainable
pension and retiree health plans for teachers. The stimulus’ undifferentiated transportation subsidies bail out
governors like Maryland’s Martin O’Malley , who have balanced state budgets by deferring road maintenance and
raiding transportation trust funds. Unlike the New Deal public works programs, these subventions yield no permanent residue.
Wage-propping measures like the Davis-Bacon Act and administration-promoted ‘project labor’ agreements also ensure
that ‘stimulus’ construction costs more than usual state and local construction, and much more than private-sector
construction. The approach to housing shares similar infirmities. The Hoover and Roosevelt administrations created a
Home Owners’ Loan Corporation to acquire defaulted mortgages and hold them until they became sound by reason of re-employment
of the borrower or increases in property values; it was ultimately closed out with a small profit to the government. The mortgages
then prevalent were typically granted for at most two-thirds of value and ultimate soundness could be expected. Since today’s
sub-prime mortgages should never have been granted and will never be sound, the former approach has been forsworn in favor
of a program of exhortations accompanied by some subsidies to induce the writing-down of mortgages. Since lenders have incentives
not to recognize losses and thereby impair reported earnings, this approach has been as effective as pushing spaghetti through
a key-hole, it has produced an explosion of vacant, abandoned, or occupied but under-maintained residential properties. What
is needed is expanded availability of low-cost rental units, which requires a temporary tax credit for the creation of second
kitchens in existing homes to foster creation of new accessory apartments and mother-in-law flats and related long-overdue
zoning reforms. This approach would create jobs for small home-improvement contractors. But it relies on uniform laws, generates
no political patronage, creates no ribbon-cutting opportunities, and is of little benefit to unions; its appeal to Democratic
leaders in the House of Representatives is therefore non-existent. This is also true of land readjustment, a Far Eastern
device tailor-made for ruined cities which currently generate more Democratic congressmen than civic betterment. This is a
developer-driven device which allows a specified majority of property-owners to cooperatively improve a city block. Owner-occupiers
may opt out; other dissenters must be bought out at an appraised value. This involves much milder coercion than Kelo-style
eminent domain, but is anathema both to statists and to property rights fanatics. In the sphere of financial regulation,
the administration has forsworn clear prohibitions and predictable rules in favor of a morass of exceptions and discretionary
waivers resembling nothing so much as one of the less inspired N.R.A. codes. The prohibition of derivatives as gambling contracts
has not been restored, nor have the clear barriers of the Glass-Steagall Act or the prohibitions which the New Deal banking
legislation imposed on uses of insured deposits. For good measure, the Frank-Dodd Act confers a retroactive windfall on some
hitherto uninsured bank depositors, while permanently elevating insurance limits, contrary to most foreign practice, to a
level of $250,000, far above subsistence savings. For good measure, federal mortgage guarantees are now at the $800,000 level.
While Hoover promised only "a chjcken in every pot", Obama holds forth the promise of federally insured MacMansions
for all. After two years of failure, the approach to stimulus continues to be one of protecting unionized public employees
and construction workers, while extending unemployment benefits to one year or even more. Public employee unions were anathema
to the Roosevelt administration, as was a permanent dole of the sort that has created an huge white under-class in Britain.
The Obama economic policy is that of John L.Lewis—protection of a limited class of union workers and a dole for the
rest. If continued, it will convert the United States into a greater West Virginia. Foreign trade and immigration issues have
been swept under the rug, at the behest of the unions, leaving South Korea, Colombia and Peru, and the American companies
who trade with them, in limbo and leaving millions of Mexican and Central American migrants under threat of summary deportation
in an economic never-never land in which they cannot borrow, invest, buy homes, or establish small businesses. Roosevelt’s
economic record was certainly inconstant and flawed. But it maintained public morale, left behind some impressive public works;
workable systems of securities, banking, public utility and insurance regulation, now largely repudiated and not restored;
a reciprocal trade agreements act, the foundation of postwar prosperity; an administrative procedure act imposing legal rules
on an expanded state; federal rules of civil procedure which expanded discovery so as to allow private parties to curb corporate
abuses (a system that worked well until the class action rules of the late 1960s); and a general preference, fostered by Justice
Brandeis and his acolytes Felix Frankfurter, Dean Acheson, and Benjamin Cohen, for clearly stated and self-executing rules.
This contrasts with the administrative principles of the current administration, which have converted Washington into a political
gift shop. This is not even the system of the Court of Versailles, which had some regularity to it. It is that of the Ottoman
Court, with similar effects on economic development. The administration’s cluelessness as to why there are not
more jobs is reminiscent of the equal cluelessness of a British inter-war minister, satirized by the great British humorist
A.P. Herbert: "Abroad, to show that everyone was passionate for peace All children under seven joined the
army or police The babies studied musketry while mother filled a shell And the minister still wondered why the
population fell." George W. Liebmann, a Baltimore lawyer, is the volunteer executive director of the Calvert Institute
for Policy Research in Baltimore and is the author of The Common Law Tradition: A Collective Portrait of Five Legal; Scholars
(Transaction Books, 2005) among other works.
Obama’s Mitterrand Momentby George W. Liebmann
President Obama’s centralizing proposals have met the
same fate as those presented at the inception of President Francois Mitterand’s presidential term. Mitterand’s
left-wing program rapidly collided with economic realities. Obama’s delegation of legislative initiative to Democratic
House leaders, representatives of gerrymandered constituencies who are neglectful of moderate opinion, has similarly collided
with economic and political realities. Even the Massachusetts electorate understands that the health care proposals were unduly
centralizing and not honestly funded, and that the nation cannot afford compounding deficits.. Mitterand drew appropriate
conclusions from his initial setbacks, thereafter pursuing moderate economic policies and a program of revenue-sharing and
political decentralization revitalizing French regions and municipalities. This has been to date no reform administration,
though it follows 16 years of inadequate leadership. When it is considered that the Defense, State, Treasury and Justice Departments
are all led by the alumni of two failed administrations, no one had a right to expect an administration which would "cleanse,
reconsider, and restore."
There has been a stimulus bill, which holds the states harmless from any need to
rationalize their pension and retirement benefits and public school systems. Twenty-year retirements, Cadillac health insurance
plans, and lockstep seniority increases are left undisturbed. Two foundering bills, drafted in the House Democratic caucus
and on K Street addressed health care and global warming; both aggrandize federal executive power , while providing new opportunities
for Wall Street and the insurance companies. The abuses of options and derivative trading remain unreformed and indeed uninvestigated;
the Senate of Hugo Black and David Walsh is now the Senate of Charles Schumer and Chris Dodd. Education ‘reform’
takes the form of continuation of the Bush administration’s top-down tinkering, care being taken not to threaten the
education schools, single-salary schedule, or huge county bureaucracies.
Baby steps have been taken to reform drug
policy; the states may decriminalize possession , but are precluded from creating lawful channels of distribution. The worst
abuses of the ‘terror war’ have been curbed, but there has been no systemic exposure of them, or reassertion of
Justice Jackson’s principles: "that the executive power be under the law, and that the law be made by parliamentary
deliberations"; that "emergency powers are consistent with free government only when their control is lodged elsewhere
than in the Executive that authorizes them"; and that "procedural due process must be a specialized responsibility
within the competence of the judiciary on which they do not bend before political branches of the government."
Gasoline taxes and congestion charging have been all but renounced . The departments of agriculture and interior have been
treated as political throwaways. Federally-assisted housing is the playground of a few politically-favored developers in each
major city; mention of foreign initiatives like accessory apartments, land readjustment districts, pre-school playgroups and
old age clubs draws a blank stare from American housing bureaucrats.
There is another way, but it has not
been taken. It would involve renunciation of centralization . Legislation would not take the form of 900 page bills appearing
to be the work of an intoxicated centipede, but would in Learned Hand’s words "proliferate a purpose." The
laws creating the Social Security System and the British National Health Service were each about 5% of the length of the Democrats’
recent creations. Professor Hayek’s principle of "uniform rules laid down in advance" has much to be said
for it; what people want is what Kipling called "Leave to live by no man’s leave/ Underneath the law." The
primary care provisions of the British health service were wildly popular when adequately funded; they rest on a single-payer
voucher system that frees doctors from claims forms and meager payments from multiple insurers. The higher reaches of the
system require market signals, appropriately provided by catastrophic insurance. A properly educated public will accept gradually
increasing gasoline and carbon taxes to reduce looming future deficits in preference to a cap and trade scheme gutted by lobbyists
and understood by no one except the investment bankers who will profit from it.
The insurance industry, which is
actually solvent, should remain under the state control in which it was placed by Charles Evans Hughes’ reforms in New
York and left by the Mc Carran-Ferguson Act. The Glass-Steagall Act and Public Utility Holding Company Act should be restored
insofar as it is possible to do so. New Deal reforms produced a fifty-year period in which financial failures were unknown
, power was cheap and reliable, banks and utilties were of modest size and could be adequately regulated, and their proxy
statements could be read without inducing nausea.
In such a regime, both free markets and public facilities would
have a place, but the state capitalism of the Paulson-Geithner era would be brought to an end. Reform of science teaching
in high schools and of the drug war would be regarded as of equal importance to ‘global warming’ and reform of
health care. School reform would be an exercise in self-liquidating power which would entail weakening the vise-like grip
of the teachers unions and education schools, by requiring (as in Britain, Australia and New Zealand) all federally-assisted
schools to have community governance by their own boards, unimpaired by pre-existing state certification requirements and
restrictions on personnel changes and extra compensation imposed by union agreements,
That Mr. Obama is sincere
in his centralizing exhortations there is no doubt. But Tocqueville could have explained to him why they have just fallen
on so many deaf ears: "Sometimes the centralized power, in its despair, invokes the assistance of the citizens; it says
to them" ‘You shall act just as I please, as much as I please, and in the direction which I please. You are to
take charge of the details, without aspiring to guide the system; you are to work in darkness, and afterwards you may judge
my work by its results.’ These are not the conditions on which the alliance of the human will is to be obtained; it
must be free in its style, and responsible for its acts or (such is the constitution of man) the citizen had rather remain
a passive spectator, than a dependent actor, in schemes with which he is unacquainted…If in the midst of this general
disruption, you do not succeed in connecting the notion of right with that of private interest, which is the only immutable
point in the human heart, what means will you have of governing the world except by fear?"
The writer is the
author of Solving Problems Without Large Government: Devolution, Fairness and Equality (Praeger, 200, reprinted as Neighborhood
Futures (Transaction Books, 2004), among other works.
  Beyond drug law reform: We need a new Wickersham CommissionGeorge
W. Liebmann
2010-01-11
Change is in the offing for U.S. drug policy. More than a dozen states,
including Maryland, have adopted medical marijuana laws. Attorney General Eric Holder, a decisive member of a sometimes indecisive administration, stated that federal laws against marijuana possession would
not be enforced against persons immune under such state laws.
Various jurisdictions in California and Colorado
have begun to tax "medical marijuana," which provides an ever-growing exception to prohibitory legislation like
that provided for "medicinal alcohol" during Prohibition. Referendum campaigns are under way in California and other
states looking toward complete repeal of laws against marijuana possession.
These developments present a different
picture from that of five years ago, when the Supreme Court declined to extend its "federalism" cases to impugn
the federal law against marijuana possession.
Alcohol prohibition fell victim to its own abuses and to a campaign
led by two groups: the former distillers, vintners and brewers and the very rich who hoped that alcohol taxes would replace
the husk of the income tax remaining after the Mellon tax cuts. Until recently, a comparable coalition for drug law modification
has been lacking.
It has now appeared. The recession has produced growing concern with the effect of over-criminalization
on state budgets and the dockets of federal courts; the Rockefeller drug laws are under attack not only by the usual liberal
and libertarian suspects but by the Republican governors of Texas and California and even former Attorney General Edwin Meese.
There is not merely domestic, but, as with the demise of school segregation, foreign pressure, in the form of the recent Report
of the Latin American Commission on Drugs and Democracy. There is also growing realization that testing and treatment programs
have done more than the criminal law to contain drug abuse in the military and work force, and the AIDS crisis has given an
urgent public health dimension to once-controversial "harm reduction" programs like needle exchange and methadone
maintenance of heroin addicts.
Although Mr. Holder's pebble may help to provoke an avalanche of change, little
thoughtful consideration has been given to channeling changes that are clearly in the offing. Nonenforcement or repeal of
laws against drug possession does not by itself produce legal sources of supply or defund the underworld; nor does it foster
alternative social controls in the form of education, mandatory testing or treatment.
Some states in their medical
marijuana laws have sought to do this by authorizing individual cultivation of limited numbers of plants, a source clearly
preferable to reliance on the drug cartels but one that raises problems of its own respecting quality control and amenability
to taxation. The seriously addictive drugs, or some of them, require more controlled approaches than marijuana (although with
respect to all drugs, a system of regulation that enlists rather than repudiates the laws of economics would be welcome).
If change is not to instigate another series of culture wars, some detached analysis and discussion is in order. The
disintegration of national Prohibition led President Herbert Hoover to create the Wickersham Commission in 1931. While that
commission produced inconclusive recommendations, its factual reports and the statements of its individual members had enduring
influence.
The report exposed the inadequacies of the probation and parole systems, the corruption of the enforcement
agencies, bad criminal statistics and abuses of the "third degree" in questioning of suspects, setting in motion
enduring reforms. It carried with it a sense of urgency, most eloquently expressed in the separate statement of Frank Loesch
of the Chicago Crime Commission: "If not soon crushed these criminal organizations may become as they are now seeking
to become super-governments and so beyond the reach of the ordinary processes of the law," a statement resonating in
Mexico, Colombia, and some of our large cities, not excluding Baltimore.
The Roosevelt administration wisely adopted
the policy urged by New Orleans lawyer Monte Lemann: "If an experiment with government control [of legalized distribution]
is to be undertaken, it appears to me better that it should be undertaken by the individual states," a recommendation
echoed in a 1994 report on drug law reform issued by the Association of the Bar of the City of New York, and one strikingly
successful in the context of alcohol. Local public opinion was heeded, and a patchwork of state monopolies, licensing laws,
price controls, local prohibition ordinances, and punishments of drunk driving and other abuses ended gangsterism and continues
to give general if not complete satisfaction, while removing a once-volatile question from national politics.
Is
President Barack Obama less a progressive than President Hoover? Does he fear what a commission including persons like Mr.
Meese, Governors Rick Perry of Texas and Arnold Schwarzenegger of California, New York Mayor Michael Bloomberg, and a host
of public health experts and police chiefs might recommend?
George Liebmann, a Baltimore lawyer, is the volunteer
executive director of the Calvert Institute for Policy Research and the author of "The Common Law Tradition: A Collective
Portrait of Five Legal Scholars." His e-mail is george.liebmann2@verizon.net.
Copyright © 2010, The Baltimore
Sun
Reforming Certiorari JurisdictionGeorge W. Liebmann
2009-12-24
This indignant screed is prepared in support of a proposal circulated by Professors Paul Carrington
and Roger Cramton and endorsed by several dozen judges, academic lawyers and practitioners. The proposal would somewhat enlarge
the Supreme Court’s docket and transfer control of most of it to a certiorari division of the Supreme Court consisting
of five Court of Appeals judges appointed in rotation by the Judicial Conference, which would be empowered to grant between
100 and 120 certiorari petitions per year.1
The premise is that the Supreme Court is the capstone of
a judicial system, not a free-floating island in the clouds, responsible only to itself. In the words of the late Philip Kurland,
"the law makes demands upon judges as well as upon litigants."2
Dissatisfaction with the Supreme
Court’s role rests on the widespread view that it misunderstands the function of courts. The role of the magistrate,
in Aristotle’s view,3 was corrective justice, the vindication of pre-existing expectations. The criminal
law punishes deviation from settled standards. The civil law compensates or assesses persons for deviation from settled rules.
Changes in the law, so-called distributive justice, are to come from elsewhere: from the ruler in authoritarian societies,
from the legislature in democratic ones. In this vision, courts provide what Professor Hayek called "rules fixed and
announced beforehand"4; what Kipling in an unfashionable context called "Leave to live by no man’s
leave/ Underneath the law."
Is this what we have? I think not. The startling though obscure case of Rogers
v. Tennessee,5 a 5 to 4 opinion by Justice O’Connor declaring that courts, unlike legislatures, may retroactively
invent new criminal offenses, showed this. (The dissenters in that case were Justices Stevens, Scalia, Thomas and Breyer).
Nulla poena sine lege is viewed as an old Latin tag, without contemporary relevance.6 The Supreme Court behaves
as a revolutionary committee or, increasingly, as a counter-revolutionary one. Its mission is popularly seen as the production
of thunderbolts, founded on the due process and equal protection clauses and perhaps on the even vaguer and more mysterious
privileges and immunities clause.
The public remembers that abortion and sodomy, once condemned as criminal acts,
were suddenly transformed into constitutional rights, and wonders whether the same thing is to take place with respect to
firearms display in cities and the subdivision and development of environmentally protected lands. In the heyday of the Warren
Court, Sidney Hook warned that the inevitable reaction would bring to power persons who were not only conservative, but illiberal.
7 If you wish to contemplate the intolerance of some for popular legislation, I commend to you the agenda for future
litigation set out in Clint Bolick’s David’s Hammer.8
Conflicts among circuits multiply
and settled law becomes ever more unclear, as documented in the literature supporting the abortive proposal for a National
Court of Appeals9. It is inaccurate to suggest that the Supreme Court now favors narrow judgments, consistent with
Edward Levi’s realistic vision of the law as a ‘moving classification system.’10 Rather it favors
purely discretionary judgments, affording the lower courts no guidance at all.
Discretionary law is more onerous
than strict or intermediate scrutiny; it involves complete substitution of judgment. ‘Strict scrutiny’ was justified
in Carolene Products11 on the basis of disenfranchisement; as Professor Owen Fiss pointed out 35 years ago, the
disenfranchisement has vanished but the habit of intense review remains.12 Righteousness has been succeeded by
self-righteousness.
Let us recall five examples, all involving matters central to free government:
In
Bush v. Gore,13 we were told that the standard by which the court would review non-uniform election counting practices
"is limited to present circumstances. . . some assurance that the rudimentary requirements of equal treatment and fundamental
fairness are satisfied."
In United States v. Booker,14 Justice Breyer’s opinion, supported
by the decisive vote of Justice Ginsburg, enunciated a standard for review of thousands of criminal sentences described as
follows: "unreasonableness, having regard for the factors to be considered in imposing a sentence and the reasons for
the imposition of the particular sentence as stated by the District Court."
In Parents United v. Seattle,15
we were told by Justice Kennedy’s decisive concurrence that racial categorization in pupil assignments was "presumptively
invalid" but might be all right when "other demographic factors plus special talents and needs are also considered."
In Hunt v. Cromartie, 16 a 5-4 decision, Justice O’Connor, who had previously condemned racial gerrymandering,
provided the decisive vote for Justice Breyer’s opinion saying that it was all right when "politics predominantly
accounts for the result."
In the worst default of all, the much-praised Hamdi case,17 involving
personal liberty properly so called, freedom from arbitrary confinement by the executive, the plurality opinion of Justices
O’Connor, Rehnquist, Kennedy and Breyer–do not forget Breyer- effectively blessed the executive detention of a
U.S. citizen for four years without so much as an administrative hearing What this did for liberty, let alone Active Liberty,
is woefully unclear; The District Courts were invited to look into the detention, receiving this illuminating bit of guidance:
"some system for a citizen detainee to refute his classification. . . a fact-finding process that is both prudent and
incremental."
Such decisions reflect not law, but the absence of law. Our proposal would allow the judges
of the Courts of Appeal, through certiorari grants, to interrogate the Supreme Court as to their meaning.
It is
true that if the majority of its docket were controlled elsewhere, the Supreme Court’s discretion would decrease. How
has this discretion been utilized?
Recently, a thoughtful Baltimore student of urban development, Charles Duff,
inspired by the recent Irish EEC referendum, invited Americans to celebrate the European constitutional development of the
last 60 years, which he likened to the American Founding.18 That development, you will recall, began with the Schuman
Plan and the Euratom project, focusing on iron, steel and nuclear power, thought to be the commanding heights of the economy.
I invite you to contemplate which industries in recent years have received the greatest degree of guidance and attention
from our Supreme Court. Search of one’s memory reveals that it has focused like a laser beam on a commanding height
of our economy, represented by the nude dancing industry, which has received legal guidance in no fewer than six plenary opinions.19
The internet pornography industry is not far behind 20. The rare phenomenon of third-term abortions has received
much attention, as has the even rarer phenomenon of capital punishment of juveniles.
It is perhaps unfair to blame
the clerks and the certiorari pool for this peculiar emphasis on the birds and the bees and children’s rights. I sometimes
gain the impression that there is a secret room in the basement of the Supreme Court building where the editorial board of
the National Enquirer convenes each fall to make up a portion of the Supreme Court docket. Certainly the Court has outdone
itself this year. Not only do we have the Mojave Desert cross case,21 but also the animal cruelty pornography case,22
the happiest cert pool discovery since that all-time favorite, "Bong Hits for Jesus."23 As Judge Tjoflat
will tell you, his colleagues and the District judges have been panting with eagerness in anticipation of the valuable guidance
this case will supply, to say nothing of the great waves of cases involving crosses, creches, ten commandment postings, pledges
of allegiance, school prayers, and the religious use of drugs. All of these cases are highly divisive; none are of practical
importance in the lower courts, at least to those who share the benighted view of Edmund Burke24 that in such matters
free societies are governed by manners rather than by laws.
Since the heroic age of the civil rights cases, legitimated
by purposeful constitutional amendments that were the product of civil war, we have had forty years of judicial dilettantism,
legitimated by nothing, but productive of culture wars with no analogues in other advanced democracies, that have convulsed
and altered the results of national elections.
The proposal is open to the objection that it will reduce the number
of such cases, rendering the docket dull. There will instead be cases about that terra incognita, the rights and responsibilities
of government contractors; about administrative law, criminal sentencing procedures, measurement of damages, social security
disability, the fourth and fifth amendments, immunity statutes, and the meaning and scope of drug laws. There will be greater
emphasis on procedural safeguards, about which Justice Jackson rightly told us: "Procedural due process must be a specialized
responsibility within the competence of the judiciary on which they do not bend before political branches of the government,
as they should on matters of policy."25 There will be fewer appearances in the court by representatives of
militant religious sects and equally devout atheists. On decision Mondays, Ms. Linda Greenhouse and her journalist colleagues
will be dozing off in their accustomed seats.
As a hopelessly corrupted practitioner, I will conclude not with
the sort of micro-economics found in law schools that defines away transaction and information costs, nor with the moral philosophy
equally beloved by many legal academics, which, as the late Max Rheinstein once said, presupposes "an operator more benign
than God,"26 but rather with the usual and dreaded anecdotal ‘war story.’
Some years
ago, I was engaged by an older lawyer, a bantam rooster type, to assist in litigation against the City of Baltimore. A motion
hearing ensued. Such hearings were scheduled in chambers, six to an hour. Our judge was the late Anselm Sodaro of the Baltimore
City Circuit Court, in whose honor the Bar Association of Baltimore City still gives an annual Judicial Civility award.
Our adversary was an elderly Assistant City Solicitor named Murphy, who I shall not otherwise identify. I am not putting
the finger on anyone, since there have frequently been a profusion of Murphys in the Baltimore City Solicitor’s office.
Mr. Murphy launched into a lengthy argument. After he had exhausted twelve minutes of his five minutes, my companion,
to my horror, extracted from his vest pocket a large gold pocket watch, of the type bestowed to commemorate the 50th anniversary
of something or other, which he began to ostentatiously examine. Mr. Murphy and Judge Sodaro paid no attention. After about
17 minutes, Mr. Murphy began to wind down, saying to the judge "I have only three other points I wish to make."
Then, apparently conscience-stricken, he declared: "I hope I’m not boring you, your Honor."
Judge
Sodaro looked at him for a long moment, shook his head, and replied: "Mr. Murphy, I’m paid to be bored."
So are the Justices of the Supreme Court, and your panel hopes not to provide them with ‘intellectual feasts’
but to insure that they earn their pay.
* Liebmann and Shively, P.A., Baltimore;
Senior Academic Visitor, Wolfson College, Cambridge.
Of 'Czars' and HistoryGeorge W. Liebmann
2009-10-27
examiner.com
The recent Senate hearing on the Obama administration’s
‘czars’ deserves more attention than the facetious comments of Dana Milbank. We see now the latest instance of
a bi-partisan and recurrent problem, last seriously discussed at the time of Watergate. At that time the constitutional scholar
Alexander Bickel observed "In opposing cant of ‘not men, but measures’, Burke therefore resisted rule by
non-party ministers who lack the confidence of the Commons. . . we may today oppose excessive White House staff- government
by private men whom Congress never sees. It was not for nothing that the American Constitution provided for ‘executive
departments’ and for Senate confirmation of the appointment of great officers of state." His contemporary constitutional
scholar Philip Kurland described Watergate as the consequence of "court locusts. . . [who] instill in the President’s
mind a divine right of authority to command his subjects. This is a most fitting description of the Executive Office of the
President under Nixon."
The next major constitutional embarrassment was the Iran-Contra affair, arising from
the machinations of three unconfirmed White House aides, Mc Farlane, Poindexter and North, undertaken over the objections
of Secretary of Defense Weinberger and Secretary of State Shultz., the constitutionally responsible cabinet officers. There
was then the Clinton health care proposal, conceived in secrecy by a 500-member staff directed by an unconfirmed first lady
and unconfirmed presidential aide, Ira Magaziner, the knowledgable Secretary of Health and Human Services, Donna Shalala and
her bureaucracy being marginalized. This experience was such a great success that it is now being replicated, the unconfirmed
directors of the administration’s efforts being Rahm Emanuel and Nancy De Parle.
The requirement of Senate
confirmation of principal officers was not a cosmetic provision, but involved conscious rejection of theories of the unitary
executive now apparently embraced by the Obama administration. The Constitutional Convention proposed a single President with
reluctance, after a plural Council of State on the Swiss model had been urged by Benjamin Franklin, George Mason and others.
The Senate confirmation provision as explained by Alexander Hamilton in Federalist 74 sought to guard against the duplication
here of abuses in the royal courts of Europe; it "would tend greatly to prevent the appointment of unfit characters from
state prejudice, from family connection, from personal attachment or from a view to popularity. . . He would be both ashamed
and afraid to bring forward candidates who had no other merit than. . . possessing the necessary insignificance and pliancy
to render them the obsequious instruments of his pleasure.
Morrison v. Olson (1988), the leading Supreme Court
case on the confirmation requirement, upheld appointment of a special prosecutor without confirmation on the stated ground
that she had no "authority to formulate policy for the Government or the Executive Branch." This does not describe
Emanuel, De Parle, or General Jones, let alone such past National Security Advisors as Mc George Bundy and Henry Kissinger,
who marginalized the Secretary of State. In the post-Watergate era, Congress wisely provided for confirmation of both the
Director and Deputy Director of the Office of Management and Budget, as well as the Director of the Office of National Procurement
Policy; in 1949 the antecedent of the Director of the Office of Federal Personnel Management was made subject to Senate confirmation.
Many current unconfirmed White House aides like the National Security Advisor and Assistants for Domestic Policy and Economic
Policy have duties and powers defined by statute. President Truman’s Director of Mobilization, John R. Steelman, recommended
discontinuance of his office on the stated ground that "I do not think the President needs anyone with power to act between
the resident and his Cabinet or the President and anybody else who is supposed to report directly to the President."
The unconfirmed Presidential chief of staff recommended by the First Hoover Commission in 1949 was supposed to be a career
civil servant on the British model who "would not himself be an adviser to the President on any issue of policy."
Does this describe Rahm Emanuel?
Justice Story once observed, in the leading constitutional treatise of his time,
that offices in a republic "are established and are to be filled, not to gratify private interests and private attachments;
not as a means of corrupt influence or individual profit; not for cringing favorites or court sycophants, but . . . to give
dignity, strength, purity and energy to the administration of the laws." The Bush-Cheney administration to the contrary
notwithstanding, important public officers, including prosecutors, were not to be doppelgangers and apparatchiks, but persons
of independent standing. Consider, for example, the composition of President Washington’s cabinet. The limits on recess
appointments, which the Bush administration sought to avoid, were intended to give appointees some security of tenure by rendering
their replacement difficult, as explained by Hamilton in Federalist No. 77. The recent hearing should lead the Congress to
enact statutes extending the requirement of Senate confirmation to the heads of the principal branches of the President’s
staff. If this operates as a dis-incentive to continued expansion of the staff, many if not most of whose members are political
veterans engaged in the operation of 24-hour ’war rooms’ and perpetual campaigns, that is a consummation devoutly
to be wished.
George Liebmann, a Baltimore lawyer, is the author of The Common Law Tradition: A Collective Portrait
of Five Legal Scholars (Transaction Books, 2005), and of Diplomacy Between the Wars: Five Diplomats and the Shaping of the
Modern World (Palgrave Macmillan, 2008).
Maryland and the Stimulus: Responsibility DeferredGeorge
Liebmann
2009-03-12
Few states can have used the benefits accruing to them in the Obama administration’s
stimulus bill as irresponsibly as Maryland. We may pass in review the bill’s effect on Maryland public policy:
Pension and Retirement Systems
The Calvert Institute and the Maryland Public Policy Foundation
recently published a study of Maryland’s public pension and retiree health systems indicating combined state and local
funding deficits approaching $50 billion, and that figure did not consider the impact of the recent stock market crash. It
further pointed out that the O’Malley administration and legislature had reduced to $100 million annual contributions
toward the accrued deficit for health insurance subsidies.
In April 2006, the General Assembly created a Blue Ribbon
Commission to Study Retiree Health Care Funding Options, which was to report by Dec. 31, 2008. In 2008, the legislature, quavering
with fear at the probable contents of the report, postponed its due date until Dec. 31, 2009, two weeks before the start of
the 2010 legislative session, thus postponing action on its recommendations past the 2010 election. The commission has now
quietly released a required interim report, which is instructive both in what it records and in what it omits.
The
commission declares that the state has unfunded retiree health liabilities to its employees of $15.2 billion, or $3,000 for
every Marylander.
At present, the state funds such obligations on a "pay as you go" basis, now costing
$314 million a year, a sum traditionally obscured in state budget documents by being scattered among agencies. If left unchecked,
this cost will escalate to $600 million by 2014 and $1 billion a year by 2023.
Fully funding this deficit would
require added state appropriations of $500 million a year. The last three budgets did not propose the required $1.5 billion
in appropriations but only $410 million, of which only $148 million was actually appropriated. The actuarial deficit is thus
only 1 percent funded.
What will the taxpayers of the state get for these huge future commitments? Seventy-six
percent of the benefits go to retirees over the age of 65 who are already eligible for both Medicare and the new Medicare
prescription drug program. The state program relieves middle-class state retirees who already enjoy Social Security and pensions
much larger than private sector pensions of the deductibles and co-payments that Congress has determined are appropriately
borne by ordinary retired taxpayers. Even more shockingly, 59 percent of the cost of the program goes to relieve retirees
of prescription drug costs. The state program remains unchanged even though under the new Medicare Part D the maximum annual
exposure of any retiree is only $3,150 more than under the existing Maryland plan.
The premise of the benefit program,
as stated in the interim report's introduction, is that "retiree benefits are an important component of the state's
overall strategy for attracting the best possible employees to public service." This premise is totally unexamined. How
many 25-year-olds are tempted into state service by an unfunded promise that 40 years hence they may be relieved of a maximum
of $3,150 per year liability for prescription drug costs? Few, if any. For this reason, half the nation's private employers
with retiree health programs have abandoned them in recent years.
The state's retiree health obligations derive
not from recruiting needs but from political cowardice. Private sector employers with variable income flows know that improvident
retirement promises quickly affect profit and loss statements and impair the tenure of the responsible executives. Term-limited
public officials, by contrast, have an irresistible temptation to punt problems past the next election. Rather than pay salaries
needed to recruit, benefits are promised for which the bills do not fall due until the governor leaves office or secures re-election.
The result is an unambitious and immobile work force.
In Maryland, the bills are now falling due, since there are
new governmental accounting standards and the bond rating houses have made it clear that arrangements must be made within
the next several years to reduce or fully fund future obligations. They have left open, however, a short window of opportunity
for further procrastination, and the O'Malley administration and legislature seem to be enthusiastically embracing it.
The Deputy State Treasurer told the Maryland Troopers’ Association in November that "healthcare benefits are not
part of the defined pension benefit and as such are subject to adjustment. . . While it has not been proposed at this point,
it is possible that they may adjust the percentages to reduce the State’s liability going forward." With the advent
of the Obama administration stimulus package, any thought of this was abandoned by the O’Malley administration–a
classic example of ‘hit and run’ government.
K-12 Education
Prior
to the stimulus package, the O’Malley administration had planned to defer the portion of the Thornton plan appropriating
funds based on a geographic cost of education index. These appropriations were a bone tossed to wealthier subdivisions to
secure enactment of the Thornton plan. The $37.9 million involved included $9.2 million for Montgomery County, $11.8 million
for Prince George’s County. $6.8 million for Baltimore City, $2.5 million for Anne Arundel County, $1.9 million for
Frederick County, $1.6 million for Baltimore County, $1.5 million for Harford County and nothing for the state’s poorest
subdivisions, including Allegany, Caroline, Cecil, Harford, Somerset, Talbot, Washington, Wicomico, and Worcester Counties.
On January 27, 2009, the O’Malley administration celebrated the advent of the stimulus package by rescinding the cuts
to this generally regressive program.
On February 20, 2009, the O’Malley administration continued its carnival
of extravagance by announcing that $329 million of the federal stimulus funds would be dedicated to avoiding any change in
the teachers’ pension program which was extravagantly sweetened in the last year of the Ehrlich administration on the
false premise that this needed to be done to preserve competitiveness with other states. See Abell Foundation, Is It Time
to Rethink Pensions in Maryland,(http://www.abell.org/publications/detail.asp?ID=123) The program ever since has exceeded
its projected cost because of an alleged actuarial error. On the same day, the administration announced that contrary to earlier
plans, it would fully fund the inflation adjustment in the Thornton plan, thus expending an additional $185 million.
Finally, and even more scandalously, the administration dedicated $260 million of the new federal money to the state’s
school construction program, which thus will have received more than $1 billion in three years. There is no demonstrated association
between the use of these funds and improvement in educational results. For good measure, any school built as part of the program
will cost significantly more than a locally constructed school as a result of the O’Malley administration’s insistence
in extending the prevailing wage law to school construction projects, a gift of $100 to $150 million over a three-year period
to the administration’s faithful supporters in the construction unions. The buildings resulting from this binge have
the effect of relieving subdivisions from the costs of sprawl zoning. Nor has this misbegotten state program, which has exploded
from the $22 million level to which it was reduced by the end of the Hughes administration, been a gift to the fine arts.
The O’Malley administration school buildings bear a greater resemblance to single-story meat warehouses than to the
Parthenon, owing a greater debt to the neo-kickback and riot modern architecture of the late 60s than to any models
inspired by classical antiquity.
Although the administration has given lip service to improving STEM (science,
technology, engineering and math) education, not a dime of the funds available to it has been dedicated to providing salary
supplements for science and math teachers, although this has been recommended by a host of national and state commissions.
The state, without let or hindrance from Governor O’Malley and Superintendent Grasmick likewise will continue to maintain
teacher certification requirements mandating a year of education courses, thus excluding about 90% of the state’s scientifically
trained manpower from the teaching force. In New Jersey, by contrast, 20% of the state’s new teachers are recruited
through alternative certification programs, as against 1% in Maryland, and the performance of the alternatively-certified
teachers on certification (NTE) tests was markedly higher than that of teachers presenting a year of education courses. L.
Klagholz, Growing Better Teachers ibn the Garden State (Thomas Fordham Foundation, 2000).
Although Governor O’Malley
and Superintendent Grasmick like to claim that Maryland has the best public schools in the country, one study on which they
rely is concerned only with the percentage of students taking and passing advanced placement examinations, a self-selected
cohort that could be expected to be high in a state with one of the nation’s highest incomes and one at the top in the
percentage of 25-64 year olds with bachelor’s degrees: 37% as against a national average of 29%.. "Maryland is
the top state in student performance on Advanced Placement tests, but only fair proportions score well on college entrance
exams." National Center for Public Policy and Higher Education, Measuring Up: 2008: The National Report Card on Higher
Education. The rating was compiled by the College Entrance Examination Board, producer of the Advanced Placement Tests.
Broader-gauged studies present a radically different picture. Maryland’s average composite SAT score
in 2008, 1001, compared with a national average of 1017 and ranked 40th in the nation. Its mean SAT scores fell during the
period 1988-2008, placing it 45th in the nation in its trend relationship.
In 2007, the performance of its students
on the internationally recognized NAEP grade 8 tests placed it 12th in math and 20th in reading. For grade 4, Maryland was
26th in math and 12th in reading. Overall, Maryland schools were ranked 20th in the nation, the three leading states being
Minnesota, Vermont, and Massachusetts. In per-pupil spending, however, Maryland was 12th in the nation. American Legislative
Exchange Council, Report Card on American Education, A State by State Analysis (15th ed.2008). High school completion in Maryland
is 90%, as against 95% in the top 5 states and 88% in the nation. The percentage of 18-24 year olds enrolled in college is
32% in Maryland as against 34% nationally and 44% in the top 5 states. National Center for Public Policy and Higher Education,
Measuring Up: 2008: The National Report Card on Higher Education.
Governor O’Malley and Superintendent Grasmick
cite a second study, produced by Education Week, Quality Counts 2008 which also gives Maryland schools a number 1 rating.
When the study is actually read (Superintendent Grasmick has sedulously refrained from posting it on her website in full text)
a much less flattering picture emerges. Maryland’s test results are middle-of-the pack, 25th, 14th, 17th and 21st; its
high school graduation rate is 19th; its rating for K-12 achievement, tied with Massachusetts for first place, derives from
‘soft’ criteria like year to year improvement. Its overall first place rating is due to its high ratings on other
‘soft’ criteria like "Transitions and Alignment" and to its Thornton extravagances, causing it to be
rated behind only seven states and tied with three in the "School Finance" category. With respect to "Standards
and Assessment" about which Superintendent Grasmick never ceases to boast, Maryland is rated behind 22 states and tied
with two others. As for "Teaching Profession" which generally assesses incentives for teachers, Maryland is behind
23 states and tied with six others. None of the criteria assess such things as science achievement or incentives for recruitment
of science teachers.
The detailed Education Week tabulations are attached as an appendix. (http://www.edweek.org/media/ew/qc/2008/18shr.md.h27.pdf)
To say that the No 1 rating has been over-hyped is an understatement. Governor O’Malley may not know better; Superintendent
Grasmick certainly does. The "Standards and Assessment" and "Teaching Profession" standings as well as
the "hard’ achievement results are an indictment of her ten-year tenure in one of America’s richest states.
Higher Education
Governor O’Malley’s initial approach to the state’s
budgetary problems was to drastically cut the state’s subventions to community colleges, while leaving the appropriations
to the state’s four-year schools inviolate. This was proposed to be done notwithstanding that the recession has produced
an explosion of enrollment in community colleges. The reason for this choice is quite simple: the four-year colleges have
politically articulate alumni bodies and faculty; the community colleges, relying heavily on adjunct teachers, do not.
The advent of federal largesse has led to the rescinding of proposed cuts to community colleges.
Although
recent studies have demonstrated the ineffectiveness of the state’s traditionally black colleges, their budgets are
sacred cows. The percentage of enrollees graduating after six years is 17% at Coppin, 39% at Morgan,42% at UMES, and 43% at
Bowie. The corresponding figures for the remaining public colleges are 56% at Frostburg, itself a remarkably low figure; 64%
at UMBC, 69% at Towson, 72% at Salisbury and 80% at UMCP.
Any high school with a performance like Coppin’s
would be closed as an ineffective institution. A recent article indicated that its entrance standards were such that 50% of
its students required remediation in math and 50% failed freshman English. Its record is a function of the inadequate preparation
of its students, but its condition feeds on itself and cannot be cured with more money. Qualified faculty do not want to teach
under-qualified students; the recent Toll Report on Coppin revealed that the school could not recruit even its authorized
complement of remedial reading instructors. For the class entering in 2006, the 25th percentile of the class had mean SAT
reading scores of 390 and math scores of 380, (http://www.eduers.com/University/Maryland/Coppin_State_College.html)
suggesting that a large percentage of the students are not prepared for college work (http://www.baltimoresun.com/news/education/college/bal-md.gap11mar11,0,2948229.story).
This strongly suggests that either the institution should be explicitly turned into a remedial institution to prepare students
for college, or that it should be turned into a two-year college or community college rather than pretending to be a university.
At present, the cost to the state per graduate exceeds that at elite private institutions and much of the funds expended would
be better used in trying to run a good two-year college rather than a bad four-year one.
The O’Malley administration’s
response to this condition was to appropriate $100 million for a new physical education building at Coppin. Its response to
similar but less dramatically bad conditions at Bowie was an appropriation of $34 million for a new fine arts building. Building
college buildings for students not prepared for college work is not a prudent use of state funds, particularly at a time when
the state’s community colleges need added funds. Given the opportunities now available at institutions not "traditionally
black" (in Maryland, the dropout rates of black students from such colleges are no greater than the average dropout rate),
it is clear that the main function of the black colleges is to make four-year college entrance available to students who would
otherwise be excluded from it on academic grounds. This has an adverse effect on the incentive of students to take their high
school work seriously and the incentive of high schools to properly prepare their students.
As presently constituted,
Coppin is not operated for the primary benefit of its students but rather for its staff and for the construction unions. In
2008, it was found that in the Maryland university system "forty-two percent of blacks graduate within six years, compared
with seventy-three percent of whites–one of the largest gaps in the nation." National Center for Public Policy
and Higher Education, Measuring Up: 2008: The National Report Card on Higher Education
This gap is due almost entirely
to Maryland’s failure, unlike many of the southern states (most recently Georgia), to phase out its traditionally black
colleges.
Transportation
The O’Malley administration, notwithstanding its increase
in virtually every other tax and notwithstanding a fallback in gasoline tax revenues, has refrained from proposing any increase
in gasoline taxes, or any substantial recourse to road pricing, time-of-day pricing, or tolling measures other than some modest
increases in EZ Pass charges. Its approach to transportation funding has featured raids on the general fund, the deferral
or skipping of necessary preventive maintenance, and the avoidance of any significant road improvements in growing areas of
the state like Harford, Frederick, Charles and Wicomico counties which suffer from a surfeit of traffic congestion and a shortage
of Democratic voters. Rather than seek added state revenues , the State by its own admission, has deferred $2.1 billion in
planned projects in 2009-14, including many projects necessary for "system preservation". The stimulus funds of
$638 billion will fund only about 30% of these deferred projects. See http://www.marylandtransportation.com/Planning/Economic_Recovery/FactSheet_022309.pdf
The O’Malley Administration’s use of federal stimulus funds has been entirely dedicated to postponing
the evil day when facts must be faced about the need for new revenue sources for the transportation fund.. Virtually all the
stimulus funds, with the exception of about $60 million for new buses, are devoted to resurfacing of existing roads and other
deferred maintenance. When the stimulus funds disappear, the transportation deficit will reappear, though in more virulent
form, given plummeting gasoline use resulting from the recession and the increased prevalence of hybrid and fuel-efficient
cars. Those expecting significant permanent improvements to transportation infrastructure from hundreds of millions of dollars
in stimulus funds are going to be sorely disappointed. The funds instead are going to be used essentially for janitorial work–to
get the Governor to the next election without having to face fiscal realities. Nor is it any accident that $141.8 million
of the initial $365 million tranche of funds are being used for mass transit and $144 million for highway maintenance in the
Baltimore and Washington areas, leaving only about $80 million for the highway needs of the rest of the state, including its
growth corridors. The breakdown is at http://www.marylandtransportation.com/Planning/Economic_Recovery/Documents/Phase%20_I_Transit_and_Highway_Recovery_Projects_022809.pdf
Drugs and Corrections
Although the stimulus bill contained only limited funds for law
enforcement and corrections, it should be noted that Maryland’s capacity to meet the educational and transportation
needs of its citizens and the demands of its work force is significantly constrained by the level of its spending on incarceration
and corrections. The policy of the O’Malley administration has been to resist relaxation of Maryland’s version
of the ‘Rockefeller drug laws’ with their minimum sentence provisions even though they are in the process of being
repealed in New York, the state of their origin, and have been significantly relaxed in other jurisdictions, including such
improbable states as Texas and Kansas. Thus Governor O’Malley vetoed a bill sponsored by Delegate Curtis Anderson which
passed both houses in the 2008 session, his veto message being distinguished by its spectacular incoherence. The Governor
does not have the excuse of political pressure to be ‘tough on crime’, since both his Republican opponent in his
Mayoral race, David Tufaro and his opponent in the gubernatorial race, Robert Ehrlich held moderate and enlightened positions
on criminal justice issues.
Maryland ranks eleventh in the nation in corrections as a percentage of general fund
expenditures in 2007, such expenditures accounting for 7.6% of the general fund and amounting to 1.084 billion dollars.. For
every dollar it spends on higher education, it spent in 2007 74 cents on corrections, a ratio placing it 14th in the nation.
As of January 2008, it incarcerated 23,342 prisoners. 636 of every 100,000 Marylanders was behind bars in 2005, an average
rate for American states, but one higher than that in any foreign country, the highest rate in a foreign country being 628
per 100,000 in the Russian Federation. Pew Center on the States, One in 100: Behind Bars in America 2008.
Health
and Welfare
Maryland spent some $4.7 billion on its Medicaid program in 2004,and $5.3 billion in the current
year of which $2.5 billion represented state funds. The current administration has expanded dental care coverage, creating
what amounts to a new entitlement program for providers, as well as expanding eligibility for the basic medicaid program.
It has been less interested in curbing medicaid fraud, legislation which would have added resources for this purpose failing
in the 2008 General Assembly, partly by reason of industry arguments that most of the recoveries that might be obtained would
inure to the benefit of the federal government and not the state. The state has also done little to promote care-giving by
relatives as an alternative to medicaid nursing homes, and has done nothing to liberalize its accessory apartment laws or
provide incentives for the creation of second kitchens in single family homes, even though 70% to 80% of medicaid spending
is for nursing home care. Its efforts to discourage emergency room use by encouraging primary care clinics in inner-city areas
have been intermittent and inadequate, nor has it done much to enhance the role of nurse practitioners. There are estimates
that Maryland may receive between $1 billion and $1.4 billion in health care funds from the stimulus funds over a two year
period, leading some to predict an 18% increase in medicaid spending and others to propose extending the program to some childless
adults. How these increases will be sustained if and when the temporary appropriations are ended is little discussed.
Maryland has done a credible job in implementing the 1996 federal welfare reform legislation, although its implementation
of time-limit provisions is weak and its sanctions regime is mediocre. One survey credits it with the best overall implementation
of the law among the 50 states. Its caseload reduction over a ten-year period was 78.9%, the eleventh largest in the country,
and it also made good progress in reducing its poverty rate and teen birth rate and in enforcing work requirements. See G.Macdougal
et al, State Welfare Report Card 2008: Welfare Reform After Ten Years (Heartland Institute, 2008).The stimulus bill provides
incentives to relax restrictions, raising the danger that any relaxation will outlast the funds providing an incentive for
it.
Conclusion
Nothing about the O’Malley administration’s approach to
the stimulus package suggests that a responsible, future-oriented approach is being taken. Rather the administration has chosen
to use the newly available funds to avoid taking necessary measures that would offend what it regards as its core constituencies:
state employees, unionized teachers, construction unions, and the local governments of areas that reliably vote Democratic.
There is similar reluctance to face up to the facts about the future funding requirements of the transportation system, to
curb the growth of medicaid nursing homes, or to cease demagoging the crime and drugs issue and embark on reform of sentencing
and corrections statutes. Funds that should have been used creatively to provide public works and institutions of enduring
value and to improve the state’s colleges and its teaching force are instead being poured down the usual rat-holes,
to the detriment of the interests of the state.
Not Just for Mother in Law: Accessory Apartments Benefit Society and
the Economy and It's Time for Tax Credits to Promote ThemP.Hare and G. Liebmann
2009-01-29
Baltimore Sun
baltimoresun.com
Not just for mother-in-law
Accessory apartments benefit
society and the economy, and it's time for tax credits to promote them
By Patrick H. Hare and George W. Liebmann
January 29, 2009
Twenty years ago, we separately produced publications urging that governments should provide
incentives for the creation of accessory apartments (sometimes called "mother-in-law apartments") in owner-occupied
housing. Our writings pointed out that there was a shortage of small-unit housing; that household sizes had dropped, rendering
many large homes ripe for partial use by renters; that it was irrational to maintain regulations that discouraged extended
families from living next to each other; and that Germany, Japan and Finland had provided such incentives as housing policy.
The idea fell on stony soil. Only a handful of wealthy American suburbs then permitted accessory apartments. The political
climate was hostile to new federal programs and "tax expenditures." No need was felt to further stimulate housing-related
industries.
Today, all has changed. Most municipalities have accessory-apartment ordinances. California, Oregon,
Vermont and Washington state, along with most Canadian provinces, require municipalities to consider accessory-apartment ordinances
- laws fostered by the AARP. A Montgomery County task force has recommended that they be allowed as of right, as in parts
of Arlington, Va., the District of Columbia and Prince George's County.
Home improvement contractors and appliance
manufacturers face economic recession. Millions have over-invested in housing, and many would welcome rental income to avoid
foreclosure. Politicians seek stimuli for the economy that do not involve "trickle-down" bailouts or indiscriminate
gifts that may be hoarded rather than spent. States struggle with exploding budgets for Medicaid nursing homes because elderly
people who want separate apartments cannot live near their children.
We advance a modest proposal: a temporary,
three-year tax credit of $5,000 or one-half installation cost - whichever is less - for new, accessory apartments in owner-occupied
homes. The proposed credit is temporary because it pays people to do what ultimately is in their interest; it is a publicity
device as much as an incentive, and can be removed once accessory apartments become a popular option for builders, homeowners,
renters and contractors. Tax credits, rather than financing incentives or grant programs, are appropriate because with the
aid of Form 1040 and the tax preparation profession, they would get the word out much faster than programs trickling down
from bureaucracies.
The credits would spur construction that is labor-intensive and that, unlike public works,
involves little lead time. It would increase the supply of small-unit rental housing at a fraction of the cost of new, subsidized
housing. Six studies (one done by Montgomery County) show that accessory apartment rents are below those for most units of
similar size. Moreover, half are rented by relatives at "deep subsidies." Tenants will typically be acceptable to
or relatives of residents. Despite conventional fears that such arrangements may diminish property values or lead to neighborhood
decline, Internet searches reveal no reported instances of actual neighborhood decline. And leaders at the local level have
by now secured enactment of thousands of ordinances, so national leadership is no longer a significant political risk.
Accessory apartments would relieve demand for subsidized-housing construction and nursing homes and services for the
elderly. Any worsening of parking availability would be more than offset by benefits to the tax base and to property values
provided by new flows of rental income and reduced foreclosures. People buying homes with the help of rental income from accessory
apartments would strengthen the housing market.
Politicians do not get to cut ribbons when a homeowner installs
an accessory apartment. Nor do benefits accrue to the politically wired-in builders of subsidized housing, whose fast write-offs
and subsidies result in six-figure costs to government for each newly created small unit. Rather, the beneficiaries are families
struggling to keep homes, elderly citizens seeking added income and companionship, small improvement contractors and workers
in appliance plants. "Mother-in-law apartments" are an age-old, common-sense solution whose time has come.
Patrick H. Hare is the author of "Creating an Accessory Apartment" and has been a consultant to governments on
accessory housing. George W. Liebmann is a Baltimore lawyer and author of "Neighborhood Futures.".
MARYLAND’S STATE AND LOCAL
PENSION COFFERS
MARYLAND’S
STATE AND LOCAL PENSION COFFERS SERIOUSLY UNDERFUNDED,
STUDY FINDS ERIOUSLY UNDERFUNDED, STUDY FINDSROCKVILLE, MD—The Maryland Public Policy Institute in Rockville, MD, and the
Calvert Institute in Baltimore, MD, have released a joint evaluation of state and local retirement benefits:
"Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees," authored
by Gabriel J. Michael and George W. Liebmann. Maryland’s state and local pension
and retirement benefits plans are in for some hard times ahead. Facing budget shortfalls, governments are
skimping on their annual contributions to pension plans, while at the same time promising broader retirement
benefits to public employees. Today, the Maryland State Retirement and Pension System suffers from an unfunded
deficit of over $11 billion. Many county governments face similarly severe deficits. The State’s
unfunded non-pension retirement benefits liabilities range anywhere from $8 billion to $15 billion. With the implementation of the Governmental Accounting Standards Board Statement 45, state and local
governments will be forced to calculate and make public the unfunded liability for these retirement benefits.
These enormous liabilities will increase the cost of state and local governments' borrowing, as lenders
will address government bond ratings. The full report can be viewed online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp.Founded in 2001, the Maryland Public Policy Institute is a nonpartisan public policy research and education organization that focuses on state policy issues. The Maryland Public Policy Institute’s work can be found on the Internet at www.mdpolicy.org. The Calvert Institute for Policy Research is a
non-partisan, educational institution dedicated to the research and propagation of solutions to Maryland
state and local public policy concerns based upon the principles of free markets and personal responsibility.
The Calvert Institute’s work is available at www.calvertinstitute.org. http://www.mdpolicy.org/research/pubID.215/pub_detail.asp.Founded in 2001, the Maryland
Public Policy Institute is a nonpartisan public policy research and education organization that focuses
on state policy issues. The Maryland Public Policy Institute’s work can be found on the Internet
at www.mdpolicy.org. The Calvert Institute for Policy Research is a non-partisan, educational institution
dedicated to the research and propagation of solutions to Maryland state and local public policy concerns
based upon the principles of free markets and personal responsibility. The Calvert Institute’s work
is available at www.calvertinstitute.org. #
# # Press Release October 29, 2008 The Maryland Public Policy Institute 1 Research Court, Suite 450, Rockville, Maryland 20850 (240) 686-3510 mdpolicy.org mdpolicy.orgCalvert
Institute for Policy Research, Inc. 8 West Hamilton
Street Baltimore, Md. 21201 (410) 752-5887, info@calvertinstitute.org FOR IMMEDIATE RELEASE Media Contact: 240.686.3510(Md. Public Policy
Institute)
410 752 5887 (Calvert Institute) Calvert Institute alvert InstituteSUMMARY UMMARYMaryland’s state and local
pension and retirement benefits plans are in for some hard times ahead. Facing budget shortfalls, governments
are underfunding their retirement plans, while at the same time expanding the benefit promises to public employees. This unsustainable financing places both taxpayers and public employees at risk. Today, the Maryland State Retirement and Pension System suffers from an unfunded deficit of
over $11 billion. The State’s unfunded liabilities for non-pension retirement benefits (such as retirees’
health care) are estimated to range anywhere from $8 billion to $15 billion. Many county and local government
entities face similarly severe deficits. Those liabilities will constrain state and local budgets in the decades ahead. To make matters worse, with the implementation of the Governmental Accounting Standards Board Statement 45, state and local governments will be required for
the first time to calculate and make public their retirement benefit liabilities. Those liabilities will
reduce the governments’ creditworthiness and increase their borrowing costs. This
joint study by the Maryland Public Policy Institute and the Calvert Institute evaluates Maryland’s
unfunded retirement liabilities for its public employees. The first report, by George Liebmann, specifically
examines pension liabilities, while the second report, by Gabriel Michael, examines liabilities for other
retirement benefits. PASSING THE BUCK PASSING THE BUCKMARYLAND’S UNFUNDED ARYLAND’S UNFUNDEDLIABILITIES
FOR STATEAND LOCAL RETIREES IABILITIES FOR STATEAND LOCAL RETIREES LOCAL RETIREESCalvert
Institute alvert
InstitutePASSING THE BUCK:MARYLAND’S UNFUNDED ASSING THE BUCK:MARYLAND’S UNFUNDED ARYLAND’S UNFUNDEDLIABILITIES FOR STATEAND LOCAL
RETIREES IABILITIES FOR STATEAND
LOCAL RETIREES LOCAL
RETIREESCalvert Institute alvert InstitutePublished by The Maryland Public Policy Institute 1 Research
Court Suite 450 Rockville, Maryland 20850 (240) 686-3510 mdpolicy.org Copyright
© 2008 Nothing written here is to be construed
as the official opinion of the Maryland Public Policy Institute or the Calvert Institute or as an attempt
to aid or hinder the passage of any bill before the Maryland General Assembly. 1 SUMMARY UMMARYMaryland’s state and local
pension and retirement benefits plans are in for some hard times ahead. Facing budget shortfalls, governments
are underfunding their retirement plans, while at the same time expanding the benefit promises to public employees. This unsustainable financing places both taxpayers and public employees at risk. Today, the Maryland State Retirement and Pension System suffers from an unfunded deficit of
over $11 billion. The State’s unfunded liabilities for non-pension retirement benefits (such as retirees’
health care) are estimated to range anywhere from $8 billion to $15 billion. Many county and local government
entities face similarly severe deficits. Those liabilities will constrain state and local budgets in the decades ahead. To make matters worse, with the implementation of the Governmental Accounting Standards Board Statement 45, state and local governments will be required for
the first time to calculate and make public their retirement benefit liabilities. Those liabilities will
reduce the governments’ creditworthiness and increase their borrowing costs. This
joint study by the Maryland Public Policy Institute and the Calvert Institute evaluates Maryland’s
unfunded retirement liabilities for its public employees. The first report, by George Liebmann, specifically
examines pension liabilities, while the second report, by Gabriel Michael, examines liabilities for other
retirement benefits. 3 MARYLAND’S STATE AND LOCAL ARYLAND’S STATE AND LOCALPENSION LIABILITIES ENSION LIABILITIESGeorge
W. Liebmann MARYLAND STATE FUND ARYLAND STATE FUNDThe State of Maryland and its subdivisions
face equally large hidden contingent liabilities in their defined benefit pension
plans. The response of both the Robert Ehrlich and Martin O’Malley administrations to this impending crisis has been defined by the principle, "When you’re in a hole, dig deeper." The Ehrlich administration, under pressure from Democrats in the 2006 election year, signed into law a major expansion of the state’s defined benefit pension program for teachers. Even the outgoing president of the Maryland State Teachers’ Association, Patricia Foerster, noted how remarkable this lobbying achievement was, in that Maryland was actually expanding its defined benefit program while other states were converting to sounder, defined contribution systems. Furthermore,
the expansion was enacted on the premise that it was needed to bring Maryland teacher
compensation in line with compensation elsewhere, a proposition promptly deflated
in a careful study by the Abell Foundation and the Maryland Public Policy Institute:
Is It Time To Rethink Teacher Pensions in Maryland? Is It Time To Rethink Teacher Pensions in Maryland?(2006).1 Moreover,
in a feat of misplaced egalitarianism, the increases made availableto teachers were also made available to
state employees generally. The result is recorded in purposefully obscure notations in "The Ninety-Day Report" issued by the Department of Legislative Services after the 2008 General Assembly.
The report notes that the state’s structural deficit or annual recurring shortfall was recently increased
because of "an actuarial error in retirement contributions which adds nearly $70 million per year
in additional spending for teachers’ retirement costs."2 1 Moreover, in a feat of misplaced egalitarianism,
the increases made availableto teachers were also made available to state employees generally. The
result is recorded in purposefully obscure notations in "The Ninety-Day Report" issued by the
Department of Legislative Services after the 2008 General Assembly. The report notes that the state’s
structural deficit or annual recurring shortfall was recently increased because of "an actuarial error
in retirement contributions which adds nearly $70 million per year in additional spending for teachers’ retirement costs."2 2Projecting increases for fiscal 2009, the report notes: "Teachers’
retirement, which is paid by the state on behalf of local school systems, will grow from $566.4 million
to $621.8 million, an increase of $55.4 million or 9.8 percent...The increase of nearly ten percent in
the teachers’ retirement program is mostly due to an 8.8 percent increase in the salary bases for
local boards of education." These include seniority increments, with the increase far exceeding the
rate of inflation.3 3Similarly, state retirement contributions for local employees, chiefly those
in community colleges and libraries, increased from $36 million to $39.3 million.4 41.
Available at http://www.abell.org/publications/detail.asp?ID=123. 2. "The Ninety-Day Report,"
Department of Legislative Services, p. A-17. 3. Ibid., A-24 and A-85. Ibid., A-24 and A-85.Passing the
Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 4 Notwithstanding the melancholy experience with
affirmative action for investment firms, notably those of Nathan Chapman and Alan Bond,5 the 2008 legislaturepassed and the governor signed S.B.
606, mandating affirmative action for such firms.6 In addition, urged on by some neoconservative organizations inWashington, D.C., the General Assembly
required divestiture from companies doing business with Iran and Sudan, thus reducing yields and enlarging
administrative costs.7 Although
the Chapman firm allegedly did not actually lose moneyduring a five-year period when peer pension funds were
enjoying 5.13 percent average annual yields, another affirmative action manager, Progressive, lost more than half the funds confided to its care. The dimensions of the actuarial deficit of the Maryland
State Retirement and Pension System are disclosed in its report for the year ending June 30, 2007.8 Asof that date, the actuarial liabilities
of the fund were $49.3 billion, an increase of $6 billion in one year, while actuarial assets were $37.9
billion, an increase of $2.1 billion. The actuarial deficit was thus $11.4 billion, and the funding ratio
was 76.8 percent. The origins of much of this deficit are found in the years 2000 to 2005,
when the five-year rate of return for the State Retirement System was an annual 3.21 percent as against
5.13 percent for peer funds,9 translating into
ashortfall in investment earnings of $2.5 billion over that five-year period. The calculation of
actuarial value assumes (with some qualifications) a constant investment return of 7.75 percent. Many authorities
regard this sort of projected return over time as over-optimistic, though the projected return was far
exceeded in 2006-2007. "While anything is possible, does anyone really believe
this is the most likely outcome?" Warren Buffett wrote in the most recent annual report of his firm, Berkshire Hathaway. A growing number of leading investors are warning that the return rates
used by state and local governments are unreasonably optimistic. Buffett, for one, has pointed out that
over the twentieth century, when the Dow Jones Industrial Average soared from 60 points to 13,000, the
stock market produced a 5.3 percent annual return for investors. Over the next century, the Dow would have to explode to 2.4 million to produce a similar rate of return.10 5 the 2008 legislaturepassed and
the governor signed S.B. 606, mandating affirmative action for such firms.6
In addition, urged on by some neoconservative organizations inWashington,
D.C., the General Assembly required divestiture from companies doing business with Iran and Sudan, thus
reducing yields and enlarging administrative costs.7 Although the Chapman firm allegedly did not actually lose moneyduring a five-year period when peer
pension funds were enjoying 5.13 percent average annual yields, another affirmative action manager, Progressive,
lost more than half the funds confided to its care. The dimensions of the actuarial
deficit of the Maryland State Retirement and Pension System are disclosed in its report for the year ending
June 30, 2007.8 Asof that date,
the actuarial liabilities of the fund were $49.3 billion, an increase of $6 billion in one year, while
actuarial assets were $37.9 billion, an increase of $2.1 billion. The actuarial deficit was thus $11.4
billion, and the funding ratio was 76.8 percent. The origins of much of this deficit are found in the years
2000 to 2005, when the five-year rate of return for the State Retirement System was an annual
3.21 percent as against 5.13 percent for peer funds,9 translating into ashortfall in investment earnings of $2.5 billion over that five-year period. The
calculation of actuarial value assumes (with some qualifications) a constant investment return
of 7.75 percent. Many authorities regard this sort of projected return over time as over-optimistic, though
the projected return was far exceeded in 2006-2007. "While anything is possible,
does anyone really believe this is the most likely outcome?" Warren Buffett wrote in the most recent
annual report of his firm, Berkshire Hathaway. A growing number of leading investors are warning that the return rates used by state and local governments are unreasonably optimistic. Buffett, for
one, has pointed out that over the twentieth century, when the Dow Jones Industrial Average soared from
60 points to 13,000, the stock market produced a 5.3 percent annual return for investors. Over the next
century, the Dow would have to explode to 2.4 million to produce a similar rate of return.10 6 In addition, urged on by some neoconservative organizations inWashington, D.C.,
the General Assembly required divestiture from companies doing business with Iran and Sudan, thus reducing
yields and enlarging administrative costs.7 Although the Chapman firm allegedly did not actually lose moneyduring a five-year period when peer
pension funds were enjoying 5.13 percent average annual yields, another affirmative action manager, Progressive,
lost more than half the funds confided to its care. The dimensions of the actuarial
deficit of the Maryland State Retirement and Pension System are disclosed in its report for the year ending
June 30, 2007.8 Asof that date,
the actuarial liabilities of the fund were $49.3 billion, an increase of $6 billion in one year, while
actuarial assets were $37.9 billion, an increase of $2.1 billion. The actuarial deficit was thus $11.4
billion, and the funding ratio was 76.8 percent. The origins of much of this deficit are found in the years
2000 to 2005, when the five-year rate of return for the State Retirement System was an annual
3.21 percent as against 5.13 percent for peer funds,9 translating into ashortfall in investment earnings of $2.5 billion over that five-year period. The
calculation of actuarial value assumes (with some qualifications) a constant investment return
of 7.75 percent. Many authorities regard this sort of projected return over time as over-optimistic, though
the projected return was far exceeded in 2006-2007. "While anything is possible,
does anyone really believe this is the most likely outcome?" Warren Buffett wrote in the most recent
annual report of his firm, Berkshire Hathaway. A growing number of leading investors are warning that the return rates used by state and local governments are unreasonably optimistic. Buffett, for
one, has pointed out that over the twentieth century, when the Dow Jones Industrial Average soared from
60 points to 13,000, the stock market produced a 5.3 percent annual return for investors. Over the next
century, the Dow would have to explode to 2.4 million to produce a similar rate of return.10 7 Although the Chapman firm allegedly did not actually lose moneyduring a five-year period when peer
pension funds were enjoying 5.13 percent average annual yields, another affirmative action manager, Progressive,
lost more than half the funds confided to its care. The dimensions of the actuarial
deficit of the Maryland State Retirement and Pension System are disclosed in its report for the year ending
June 30, 2007.8 Asof that date,
the actuarial liabilities of the fund were $49.3 billion, an increase of $6 billion in one year, while
actuarial assets were $37.9 billion, an increase of $2.1 billion. The actuarial deficit was thus $11.4
billion, and the funding ratio was 76.8 percent. The origins of much of this deficit are found in the years
2000 to 2005, when the five-year rate of return for the State Retirement System was an annual
3.21 percent as against 5.13 percent for peer funds,9 translating into ashortfall in investment earnings of $2.5 billion over that five-year period. The
calculation of actuarial value assumes (with some qualifications) a constant investment return
of 7.75 percent. Many authorities regard this sort of projected return over time as over-optimistic, though
the projected return was far exceeded in 2006-2007. "While anything is possible,
does anyone really believe this is the most likely outcome?" Warren Buffett wrote in the most recent
annual report of his firm, Berkshire Hathaway. A growing number of leading investors are warning that the return rates used by state and local governments are unreasonably optimistic. Buffett, for
one, has pointed out that over the twentieth century, when the Dow Jones Industrial Average soared from
60 points to 13,000, the stock market produced a 5.3 percent annual return for investors. Over the next
century, the Dow would have to explode to 2.4 million to produce a similar rate of return.10 8 Asof that date, the actuarial liabilities of the fund were $49.3 billion, an increase of $6
billion in one year, while actuarial assets were $37.9 billion, an increase of $2.1 billion. The actuarial
deficit was thus $11.4 billion, and the funding ratio was 76.8 percent. The origins of much of this deficit
are found in the years 2000 to 2005, when the five-year rate of return for the State Retirement System
was an annual 3.21 percent as against 5.13 percent for peer funds,9
translating into ashortfall in investment earnings of $2.5 billion
over that five-year period. The calculation of actuarial value assumes (with some qualifications) a constant
investment return of 7.75 percent. Many authorities regard this sort of projected return over
time as over-optimistic, though the projected return was far exceeded in 2006-2007. "While
anything is possible, does anyone really believe this is the most likely outcome?" Warren Buffett
wrote in the most recent annual report of his firm, Berkshire Hathaway. A growing number of leading investors
are warning that the return rates used by state and local governments are unreasonably optimistic. Buffett, for one, has pointed out that over the twentieth century, when the Dow Jones Industrial Average
soared from 60 points to 13,000, the stock market produced a 5.3 percent annual return for investors. Over
the next century, the Dow would have to explode to 2.4 million to produce a similar rate of return.10 9 translating into ashortfall in investment earnings of $2.5 billion over that five-year period. The
calculation of actuarial value assumes (with some qualifications) a constant investment return
of 7.75 percent. Many authorities regard this sort of projected return over time as over-optimistic, though
the projected return was far exceeded in 2006-2007. "While anything is possible,
does anyone really believe this is the most likely outcome?" Warren Buffett wrote in the most recent
annual report of his firm, Berkshire Hathaway. A growing number of leading investors are warning that the return rates used by state and local governments are unreasonably optimistic. Buffett, for
one, has pointed out that over the twentieth century, when the Dow Jones Industrial Average soared from
60 points to 13,000, the stock market produced a 5.3 percent annual return for investors. Over the next
century, the Dow would have to explode to 2.4 million to produce a similar rate of return.10 104.
Ibid., A-81.5.
See Calvert Institute, The Baltimore City Retirement Systems: Heading for Trouble,March 2006, 25, n. 3. 6. Chapter 601 of the Acts of 2008,
enacting Sec. 21-116(D)(1) of the State Personnel and Pensions article. 7. Chapter 342
of the Acts of 2008, enacting Sec. 21-123.1 of the State Personnel and Pensions article. 8.
P. 66. 9. 2002-2003 Maryland State Budget, vol. I, 582.10. David Cho, "Growing Deficits Threaten Pensions: Accounting
Tactics Conceal a Crisis for Public Workers," The Washington
Post, May 11, 2008, A-1. Ibid., A-81.5. See Calvert
Institute, The Baltimore City Retirement Systems: Heading for Trouble,March 2006, 25, n. 3. 6. Chapter 601 of the Acts of 2008,
enacting Sec. 21-116(D)(1) of the State Personnel and Pensions article. 7. Chapter 342
of the Acts of 2008, enacting Sec. 21-123.1 of the State Personnel and Pensions article. 8.
P. 66. 9. 2002-2003 Maryland State Budget, vol. I, 582.10. David Cho, "Growing Deficits Threaten Pensions: Accounting
Tactics Conceal a Crisis for Public Workers," The Washington
Post, May 11, 2008, A-1. The Baltimore City Retirement Systems: Heading for Trouble,March 2006, 25, n. 3. 6. Chapter 601 of the Acts of 2008, enacting Sec. 21-116(D)(1)
of the State Personnel and Pensions article. 7. Chapter 342 of the Acts of 2008, enacting
Sec. 21-123.1 of the State Personnel and Pensions article. 8. P. 66. 9.
2002-2003 Maryland State Budget,
vol. I, 582.10. David Cho, "Growing Deficits Threaten Pensions: Accounting Tactics Conceal a Crisis
for Public Workers," The Washington Post, May 11, 2008, A-1. Maryland State Budget, vol. I, 582.10. David Cho, "Growing Deficits Threaten Pensions: Accounting
Tactics Conceal a Crisis for Public Workers," The Washington
Post, May 11, 2008, A-1. The Washington Post, May 11, 2008, A-1.Maryland’s State and Local Pension Liabilities 5 The state actuarial deficit was 115 percent of
covered payroll as of June 30, 2007. The fund had an actuarial surplus as recently as 2000.11 One of the threecauses of the sharp increase in the
actuarial deficit is "the benefit enhancements recognized in 2006."12 In 2007, the system shifted from "the aggregate entry agenormal
cost method to the individual entry age normal cost method." Absent this change, the funding ratio
as of June 30, 2007, would have been 84.6 percent, rather than the 76.8 percent reported. As at June 30,
2007, the funding deficit was equal to 115 percent of payroll. The funding ratio as of June 30, 2006, was
82.78 percent as against 88.21 percent as of June 30, 2005. Between June 30, 2005, and June
30, 2006, actuarial liabilities increased by $4.1 billion and the actuarial deficit by $3.8 billion. This
sizable one-year change, unlike the one that followed, appears to have been due to the benefit improvements
secured at the behest of the teachers’ unions. In the 2006–2007 fiscal year,
the State Fund had investment returns of 17.6 percent. This seemingly glittering performance, however,
compares unfavorably with the 18.33 percent return of the Baltimore City Employees’ Retirement System and the 19.8 percent return of the Baltimore City Fire and Police Retirement System. The benchmark
used by the latter system (45 percent Russell 3000, 20 percent MSCI ACWI Free Ex-US, 25 percent Lehman
Aggregate, and 10 percent NCREIF Property Index) had a return of 18.2 percent. The state’s
formula for funding these deficits is recognized by its board as being inadequate. The situation was aggravated
by the Ehrlich administration’s failure to make $267.5 million in required contributions over a three-year
period as a "budget balancing" measure.13 The contributions not made were $52 million in 2003,$78 million in 2004, and $137 million in 2005.
The new O’Malley administration, not to be outdone, withheld required contributions of $157 million
in 2006 and $195 million in 2007. In the latter year, only 81 percent of the required contribution was made.14 Maryland adopted a
funding formula in 1992 thatprompted a sharp drop in pension funding levels.15 11 One of the threecauses of the
sharp increase in the actuarial deficit is "the benefit enhancements recognized in 2006."12 In 2007, the system shifted from "the aggregate
entry agenormal cost method to the individual entry age normal cost method." Absent this change,
the funding ratio as of June 30, 2007, would have been 84.6 percent, rather than the 76.8 percent reported.
As at June 30, 2007, the funding deficit was equal to 115 percent of payroll. The funding ratio as of June
30, 2006, was 82.78 percent as against 88.21 percent as of June 30, 2005. Between June 30, 2005, and June 30, 2006, actuarial liabilities increased by $4.1 billion and the actuarial deficit by
$3.8 billion. This sizable one-year change, unlike the one that followed, appears to have been due to the
benefit improvements secured at the behest of the teachers’ unions. In the 2006–2007
fiscal year, the State Fund had investment returns of 17.6 percent. This seemingly glittering performance,
however, compares unfavorably with the 18.33 percent return of the Baltimore City Employees’ Retirement
System and the 19.8 percent return of the Baltimore City Fire and Police Retirement System. The
benchmark used by the latter system (45 percent Russell 3000, 20 percent MSCI ACWI Free Ex-US, 25 percent
Lehman Aggregate, and 10 percent NCREIF Property Index) had a return of 18.2 percent. The
state’s formula for funding these deficits is recognized by its board as being inadequate. The situation
was aggravated by the Ehrlich administration’s failure to make $267.5 million in required contributions
over a three-year period as a "budget balancing" measure.13
The contributions not made were $52 million in 2003,$78 million
in 2004, and $137 million in 2005. The new O’Malley administration, not to be outdone, withheld required
contributions of $157 million in 2006 and $195 million in 2007. In the latter year, only 81 percent of
the required contribution was made.14 Maryland adopted a funding formula in 1992 thatprompted a sharp drop in pension funding levels.15 12
In 2007, the system shifted from "the aggregate entry agenormal
cost method to the individual entry age normal cost method." Absent this change, the funding ratio
as of June 30, 2007, would have been 84.6 percent, rather than the 76.8 percent reported. As at June 30,
2007, the funding deficit was equal to 115 percent of payroll. The funding ratio as of June 30, 2006, was
82.78 percent as against 88.21 percent as of June 30, 2005. Between June 30, 2005, and June
30, 2006, actuarial liabilities increased by $4.1 billion and the actuarial deficit by $3.8 billion. This
sizable one-year change, unlike the one that followed, appears to have been due to the benefit improvements
secured at the behest of the teachers’ unions. In the 2006–2007 fiscal year,
the State Fund had investment returns of 17.6 percent. This seemingly glittering performance, however,
compares unfavorably with the 18.33 percent return of the Baltimore City Employees’ Retirement System and the 19.8 percent return of the Baltimore City Fire and Police Retirement System. The benchmark
used by the latter system (45 percent Russell 3000, 20 percent MSCI ACWI Free Ex-US, 25 percent Lehman
Aggregate, and 10 percent NCREIF Property Index) had a return of 18.2 percent. The state’s
formula for funding these deficits is recognized by its board as being inadequate. The situation was aggravated
by the Ehrlich administration’s failure to make $267.5 million in required contributions over a three-year
period as a "budget balancing" measure.13 The contributions not made were $52 million in 2003,$78 million in 2004, and $137 million in 2005.
The new O’Malley administration, not to be outdone, withheld required contributions of $157 million
in 2006 and $195 million in 2007. In the latter year, only 81 percent of the required contribution was made.14 Maryland adopted a
funding formula in 1992 thatprompted a sharp drop in pension funding levels.15 13 The contributions not made were $52 million in
2003,$78 million in 2004, and $137 million in 2005. The new O’Malley administration, not
to be outdone, withheld required contributions of $157 million in 2006 and $195 million in 2007. In the
latter year, only 81 percent of the required contribution was made.14
Maryland adopted a funding formula in 1992 thatprompted a sharp
drop in pension funding levels.15 14 Maryland adopted a funding formula in 1992 thatprompted
a sharp drop in pension funding levels.15 15Anne Arundel County Funds Anne Arundel County’s annual expenditures for pensions have increased from $23.8
million in fiscal 2003 to $35.7 million in fiscal 2007, a more modest increase than in other subdivisions.
Its four funds have funding ratios as of June 30, 2007, of between 87.2 percent and 97.1 percent; the overall
funding ratio is a 11. P. 71. 12. P. 68. 13. Maryland State Retirement System, 2004-2005 Annual Report, p. 35.14. Maryland State Retirement Systems, 2006-2007 Annual Report, p. 34.15. David Cho, "Growing
Deficits Threaten Pensions: Accounting Tactics Conceal a Crisis for Public Workers," The Washington Post, May 11, 2008, p. A-1. Annual Report, p. 35.14.
Maryland State Retirement Systems, 2006-2007 Annual Report, p. 34.15. David Cho, "Growing Deficits Threaten Pensions: Accounting
Tactics Conceal a Crisis for Public Workers," The Washington
Post, May 11, 2008, p. A-1. Annual Report, p. 34.15. David Cho, "Growing
Deficits Threaten Pensions: Accounting Tactics Conceal a Crisis for Public Workers," The Washington Post, May 11, 2008, p. A-1. The Washington Post, May 11, 2008, p.
A-1.Passing the Buck: Maryland’s Unfunded Liabilities
for State and Local Retirees 6 solid 95.2 percent. The funds total $1.28 billion; the total actuarial deficit is $62.1 million. Baltimore City Funds The
Baltimore City Employees Retirement System had an actuarial deficit as of June 30, 2007, of $151.5 million,
up from $119.4 million in the preceding year. There was an actuarial surplus position as recently as June
30, 2003. The funding ratio as of June 30, 2007, was 90.5 percent, the actuarial deficit being 43.7 percent of covered payroll. Annual required contributions by the City escalated from $17.7 million
in 2003 to $36.8 million in 2007. The Baltimore City Fire and Police System had an actuarial deficit as
of June 30, 2007, of $235.2 million, up from $204.5 million in the preceding year. There was an
actuarial surplus position as of June 30, 2001. The funding ratio as of June 30, 2007 was 91.9 percent,
the actuarial deficit being 92.4 percent of covered payroll. Annual required contributions by the city
increased from $34.7 million in 2003 to $54.6 million in 2007, in which year the city contributed an additional
$5.4 million toward the accrued deficit. Thus, the city’s combined contributions to the two systems virtually doubled in four years, from $52.4 million in 2003 to $96.8 million in 2007. The two city systems used the same investment manager, Callan and Associates, until June 30,
2002. Thereafter, the Fire and Police System used a different manager, Summit and Associates, and dispensed
also with its affirmative actionoriented Equity Fund of Funds, managed by FIS Funds Management, Inc. The result has been something in the nature of a controlled experiment. In the ensuing five years,
the Fire and Police portfolio outperformed that of the ERS. The divergence in the last year was 1.47 percent;
over the five-year period there was an average of 1.18 percent, or an aggregate 5.9 percent. As applied
to the ERS’s $1.6 billion portfolio, this difference represents $94 million in lost potential yield, enough to eradicate more than half the ERS actuarial deficit. The ERS has endeavored to conceal
its poor relative performance by frequently altering its "benchmarks."16 Its composite benchmark for 2006-07 was 16.26 percent,as
against 18.2 percent for the benchmark used by the Fire and Police system. The ERS’s composite benchmark
"is comprised of 41.0 percent Russell 3000, 26.0 percent LB Aggregate, 9.0 percent CPI-W plus 6 percent,
l 5.0 percent 3 month Treasury bill plus 5 percent, 5.0 percent ERS Alternative Investment and 14.0
percent MSCI ACW ex US Free index."17 16 Its composite benchmark for 2006-07 was 16.26 percent,as
against 18.2 percent for the benchmark used by the Fire and Police system. The ERS’s composite benchmark
"is comprised of 41.0 percent Russell 3000, 26.0 percent LB Aggregate, 9.0 percent CPI-W plus 6 percent,
l 5.0 percent 3 month Treasury bill plus 5 percent, 5.0 percent ERS Alternative Investment and 14.0
percent MSCI ACW ex US Free index."17 17By contrast, the Fire and Police benchmark is made up
of only four components: Russell, MSCI, Lehman, and the NCREIF property index. Inclusion of CPI and
three-month Treasury bill-based numbers in the ERS formula has no justification, nor does inclusion of
ERS’s own Alternate Investment (affirmative action) 16.
See Calvert Institute, Maryland’s Pension Scandals, October 2006, p. 4.17. ERS 2006-07 Report, 45. Maryland’s Pension Scandals, October 2006, p. 4.17.
ERS 2006-07 Report, 45. Maryland’s State and Local
Pension Liabilities 7 yields. The 19 percent of the ERS benchmark made up of these three items is explainable
only by a purpose to depress the composite benchmark to make the fund managers look good: had the Fire
and Police benchmarks been used, the ERS would have outperformed by 0.13 percent in 2007, and would have
underperformed by 0.17 percent annually over three years and 0.68 percent annually over
5 years. Baltimore County Fund The Baltimore County Retirement System as of June 30, 2007, had a funding ratio
of 91.8 percent, down from 102.3 percent in 2002; assets of $2.1 billion; and a funding deficit of $188.4
million, or 42.8 percent of covered payroll appears to be fully funded. The liberality of benefits has
caused costs to the operating budget to escalate from $16.2 million in 2003 to $36.0 million in 2007.18 18Carroll County Fund The Carroll County pension
plan as of July 1, 2006, had a commendable funding ratio of 94.2 percent as a result of a one-time contribution
in fiscal 2006, raising the ratio from 55.9 percent in the preceding year. The remaining deficit is $0.9 million (3.2 percent of payroll); assets are $15.6 million. Frederick
County Fund The Frederick County Employees Retirement Fund as
of July 1, 2005, amounted to $134.5 million and had an unfunded liability of $39.4 million (52.5 percent of covered payroll) and a funding ratio of 77.3 percent, having declined from 86.4
percent as of July 1, 2000. Howard County Funds According to the prospectus for Howard County’s 2007 General Obligation Bonds, Series B, County contributions to its two pension funds increased from $12.5 million
in 2003 to $24.6 million in fiscal 2008. The Police and Fire Fund, which was only 37 percent funded when
established in 1990, was 73.4 percent funded as of July 1, 2006, with its funding deficit amounting to
$65.3 million. The County Plan for other employees was 91.5 percent funded and had a deficit of
$15.3 million. Montgomery County Fund The Montgomery County retirement system has recently been the subject of substantial
controversy as a result of union efforts to gain added influence over its board. Those efforts have been
strenuously resisted by its staff director, Stephen Farber, a respected official who was formerly executive
director of the National Governors’ Conference. Montgomery County adopted a defined contribution
sys- 18. Baltimore County, Five-Year Summary of General Fund Revenues and Expenditures. Five-Year Summary of General Fund Revenues and Expenditures.Passing the Buck: Maryland’s Unfunded Liabilities
for State and Local Retirees 8 tem for all employees other than public safety employees in 1994. The defined benefit
fund for public safety employees had assets of about $2 billion as of 2005. The plan was 98.9 percent funded
as of June 30, 2000, but as a result of benefit liberalizations enacted by County Executive Doug Duncan
during his abortive campaign for governor, the funding ratio declined to 75.7 percent as of June 30, 2005, at which point the actuarial deficit amounted to $674.5 million.19 19As of June 5, 2008, presumably
using June 30, 2007, figures, the defined benefit plan had assets of $2.8 billion, unfunded liability was
$631 million, and the funding ratio was 79.5 percent.20 In August 2008, the fund was found to be $2.5billion and the funding ratio was
79.7 percent.21 20 In August 2008, the fund was found to be $2.5billion and the funding ratio was
79.7 percent.21 21Prince George’s County Retirement Systems Current
reports for the eleven plans making up the Prince George’s County Retirement Systems are not readily
available; in 2006, the Calvert Institute was obliged to use a Public Information Act request to obtain
the July 1, 2004–June 30, 2005 report. That report revealed combined plan actuarial assets of just
under a billion dollars, $992 million, and combined actuarial deficits of $397.6 million, producing
a combined funding ratio of 59.92 percent, as follows: Fund
Actuarial Assets Funded Ratio Deficit as % of Payroll Police
$571.1 75.48% 243.48% Fire 261.8 73.16% 238.48% Deputy Sheriffs 23.6 50.19% 363.05% Correctional Officers 39.4 60.24% 154.52% Other 96.1 59.06% 55.04% The position of at least the two largest funds, the police and fire funds, has since
deteriorated. The Fitch Bond Rating Agency reported on May 20, 2008, "The County’s funded portion
of its pension systems for police and fire are well below average at approximately 65 percent and 60 percent
respectively." This suggests that deficits have increased by about $100 million, to $500 million,
since June 30, 2005. Washington County Fund The Washington County fund as of July 1, 2005 had a funding ratio of 76.1 percent, a deficit of $13.6 million (56 percent of covered payroll), and assets of 43.2 million. 19. Montgomery County Retirement System, 2004-05 Report, p. 32.20. Addendum to Memorandum of Stephen
B. Farber to Management and Fiscal Policy Committee, Montgomery County, June 9, 2008. 21.
K. Miller, "Montgomery Paid to Scrutinize Retired Officers’ Disability Pay," TheWashington Post, August 28, 2008. Report, p. 32.20. Addendum
to Memorandum of Stephen B. Farber to Management and Fiscal Policy Committee, Montgomery County, June 9,
2008. 21. K. Miller, "Montgomery Paid to Scrutinize Retired Officers’ Disability Pay,"
TheWashington Post, August
28, 2008. TheWashington Post, August 28, 2008. , August 28, 2008.Maryland’s State and Local Pension Liabilities 9 Wicomico County Fund The Wicomico County fund had a funding ratio of 84.4 percent, up from 56.8 percent in 2002, total assets of $25.6 million, and an actuarial deficit of $4.7 million (25.2
percent of payroll). ONGOING PROBLEMS NGOING PROBLEMSDefined Benefit Plans. The case for conversion of the deficit-laden defined benefitplans to defined-contribution
plans is manifest. Making this change eliminates government’s responsibility
to manage retirement fund investing, a responsibility that many governments have
failed to meet. Many other states are making this change; Montgomery County has already
done so with respect to all employees save public safety personnel. The case for conversion of the deficit-laden defined benefitplans to defined-contribution plans is manifest. Making this change eliminates government’s
responsibility to manage retirement fund investing, a responsibility that many governments
have failed to meet. Many other states are making this change; Montgomery County
has already done so with respect to all employees save public safety personnel. Hedge Fund Investing. The
Calvert Institute warned against moves toward highriskhedge fund investing by the Retirement
Systems’ essentially amateur boards.22
These warnings have not been heeded. The most recent BaltimoreCity
ERS report discloses that approximately $69 million, or 6 percent of the portfolio, was committed to hedge
funds, which returned 12.91 percent as against 18.33 percent for the portfolio as a whole.23 The Fire and Police fundcommitted $136.3 million to
hedge funds, 7.1 percent of the portfolio, achieving a yield of 15 percent as against 19.8 percent for
the total portfolio.24 The Calvert Institute warned against moves toward highriskhedge fund investing
by the Retirement Systems’ essentially amateur boards.22 These warnings have not been heeded. The most recent BaltimoreCity
ERS report discloses that approximately $69 million, or 6 percent of the portfolio, was committed to hedge
funds, which returned 12.91 percent as against 18.33 percent for the portfolio as a whole.23 The Fire and Police fundcommitted $136.3 million to
hedge funds, 7.1 percent of the portfolio, achieving a yield of 15 percent as against 19.8 percent for
the total portfolio.24 22 These warnings have not been heeded. The most recent BaltimoreCity
ERS report discloses that approximately $69 million, or 6 percent of the portfolio, was committed to hedge
funds, which returned 12.91 percent as against 18.33 percent for the portfolio as a whole.23 The Fire and Police fundcommitted $136.3 million to
hedge funds, 7.1 percent of the portfolio, achieving a yield of 15 percent as against 19.8 percent for
the total portfolio.24 23
The Fire and Police fundcommitted $136.3 million to hedge funds,
7.1 percent of the portfolio, achieving a yield of 15 percent as against 19.8 percent for the total portfolio.24 24A recent report by the Maryland Tax Education Foundation25 reaffirms thesewarnings.26 The MTEF report emphasizes that hedge fund investments are renderedunprofitable
by the high commission rates paid to their managers, typically 2 percent of corpus and 20 percent of gains.
As if in perverse response to this report, the 2008 General Assembly repealed a preexisting 1.2 percent
cap on compensation of real estate and alternative investment managers.27
Thisstatute boldly declares: "The Board of Trustees is not
limited in the amount of investment manager fees that the board of trustees may pay as necessary for 25 reaffirms thesewarnings.26 The MTEF report emphasizes that hedge fund investments
are renderedunprofitable by the high commission rates paid to their managers, typically 2
percent of corpus and 20 percent of gains. As if in perverse response to this report, the 2008 General
Assembly repealed a preexisting 1.2 percent cap on compensation of real estate and alternative investment
managers.27 Thisstatute boldly
declares: "The Board of Trustees is not limited in the amount of investment manager fees that the
board of trustees may pay as necessary for 26 The MTEF report emphasizes that hedge fund investments are renderedunprofitable
by the high commission rates paid to their managers, typically 2 percent of corpus and 20 percent of gains.
As if in perverse response to this report, the 2008 General Assembly repealed a preexisting 1.2 percent
cap on compensation of real estate and alternative investment managers.27
Thisstatute boldly declares: "The Board of Trustees is not
limited in the amount of investment manager fees that the board of trustees may pay as necessary for 27 Thisstatute boldly declares: "The
Board of Trustees is not limited in the amount of investment manager fees that the board of trustees may
pay as necessary for 22. See The Baltimore City Retirement Systems: Heading for Trouble, The CalvertInstitute, 2006, P. 25-26. 23. Baltimore City ERS
Report, 2006-2007 Report, 45.24. 2006-2007 Report, 48.25. "Latest Research Concludes that
Private Equity Funds Fail to Deliver Premium Returns," Maryland Tax Education Foundation, July 23,
2008. 26. Cites L. Phalippou and O. Gottschalg, Performance
of Private Equity Funds:Another Puzzle, University of Florida, Warrington
College of BusinessAdministration, 2005, and A. Metrick and A. Yasuda, The Economics of PrivateEquity Funds, The Swedish Institute for
Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs
of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. The Baltimore City Retirement Systems: Heading for Trouble, The CalvertInstitute, 2006, P. 25-26. 23. Baltimore City ERS Report, 2006-2007 Report, 45.24. 2006-2007 Report, 48.25. "Latest
Research Concludes that Private Equity Funds Fail to Deliver Premium Returns," Maryland Tax Education
Foundation, July 23, 2008. 26. Cites L. Phalippou and O. Gottschalg, Performance of Private Equity Funds:Another Puzzle, University
of Florida, Warrington College of BusinessAdministration, 2005, and A. Metrick and A. Yasuda, The Economics of PrivateEquity Funds, The Swedish Institute for
Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs
of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. ERS Report, 2006-2007 Report, 45.24.
2006-2007 Report, 48.25.
"Latest Research Concludes that Private Equity Funds Fail to Deliver Premium Returns," Maryland
Tax Education Foundation, July 23, 2008. 26. Cites L. Phalippou and O. Gottschalg, Performance of Private Equity Funds:Another Puzzle, University
of Florida, Warrington College of BusinessAdministration, 2005, and A. Metrick and A. Yasuda, The Economics of PrivateEquity Funds, The Swedish Institute for
Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs
of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. Report, 48.25. "Latest
Research Concludes that Private Equity Funds Fail to Deliver Premium Returns," Maryland Tax Education
Foundation, July 23, 2008. 26. Cites L. Phalippou and O. Gottschalg, Performance of Private Equity Funds:Another Puzzle, University
of Florida, Warrington College of BusinessAdministration, 2005, and A. Metrick and A. Yasuda, The Economics of PrivateEquity Funds, The Swedish Institute for
Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs
of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. Performance of Private Equity Funds:Another Puzzle, University of Florida, Warrington College of BusinessAdministration, 2005, and A. Metrick and A.
Yasuda, The Economics of PrivateEquity Funds, The Swedish Institute for Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008
Ninety-Day Report, enacting
chapter 506 of theActs of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. University of Florida, Warrington College of BusinessAdministration, 2005, and
A. Metrick and A. Yasuda, The Economics of PrivateEquity Funds, The Swedish Institute for Financial Research Conference, 2007.27. S.B.384,
H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs of 2008, section 21-315(d)(2) of the State Personnel and Pensions
article. The Economics of PrivateEquity Funds, The Swedish Institute for Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs of 2008, section 21-315(d)(2) of the State
Personnel and Pensions article. , The Swedish Institute
for Financial Research Conference, 2007.27. S.B.384, H.B. 481, C-19, 2008 Ninety-Day Report, enacting chapter 506 of theActs
of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. Ninety-Day Report, enacting chapter 506 of theActs
of 2008, section 21-315(d)(2) of the State Personnel and Pensions article. Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 10 external real estate or alternative
investment management services." The effect of this change will not be to improve the state’s
investment return but to further endow hedge fund managers with personal incomes in the hundreds of millions a year, nearly all taxable as capital gains as a product of the 20 percent profit sharing.28 There are few if any provisions, however, for
repayment of 20percent of the losses produced by hedge fund managers in recession years. The
State Retirement System, though slower in moving into hedge funds, now has 1 percent of its portfolio,
or $386 million, in private equity as of June 30, 2007, and has a new affirmative action Emerging Manager
program containing $340 million as of June 30, 2007. 28
There are few if any provisions, however, for repayment of 20percent
of the losses produced by hedge fund managers in recession years. The State Retirement System, though slower
in moving into hedge funds, now has 1 percent of its portfolio, or $386 million, in private equity as of
June 30, 2007, and has a new affirmative action Emerging Manager program containing $340
million as of June 30, 2007. Inadequate Fiduciary Standards.
The 2006 Calvert Report urged extension in Marylandof the Uniform Management
of Public Employees Retirement Systems Act with its duties of loyalty to preexisting as well as new systems.29 This has nothappened: see section
40-101 of the State Personnel and Pensions article as enacted by Chapter 146 of the Acts of 2005, which
exempts both the state system and pre-existing local systems. The 2006 Calvert Report urged extension in Marylandof the Uniform Management of Public Employees
Retirement Systems Act with its duties of loyalty to preexisting as well as new systems.29 This has nothappened: see section 40-101 of the State
Personnel and Pensions article as enacted by Chapter 146 of the Acts of 2005, which exempts both the state
system and pre-existing local systems. 29 This has nothappened: see section 40-101 of the State Personnel and Pensions
article as enacted by Chapter 146 of the Acts of 2005, which exempts both the state system and
pre-existing local systems. Politically-Influenced Investing.
The 2006 Calvert Report urged a ban on ‘affirmativeaction’
investing. Instead, the General Assembly has encouraged it, and the state comptroller has attended a convention
of the Jesse Jackson Wall Street Project and has urged affirmative action for minority investment bankers.30 The 2006 Calvert Report urged
a ban on ‘affirmativeaction’ investing. Instead, the General Assembly has encouraged it, and the state comptroller has attended a convention of the Jesse Jackson Wall Street Project and has
urged affirmative action for minority investment bankers.30 30Amateur Boards. The
2006 Calvert Report urged that boards be constituted primarilyof financial professionals. Governor O’Malley’s
appointments to the Board of the State Retirement Systems, including that of Thurman Zollicofer, his former ‘point man’ for politicizing City investment policy, do not further that
objective. Union agitation in Montgomery County seeks to end the tradition of apolitical investing there,
despite its excellent results and the inferior results of union-controlled funds demonstrated in the Farber
report referenced above. The 2006 Calvert Report
urged that boards be constituted primarilyof financial professionals. Governor O’Malley’s appointments
to the Board of the State Retirement Systems, including that of Thurman Zollicofer, his
former ‘point man’ for politicizing City investment policy, do not further that objective.
Union agitation in Montgomery County seeks to end the tradition of apolitical investing there, despite
its excellent results and the inferior results of union-controlled funds demonstrated in the Farber report
referenced above. Industry Entertainment
and Travel Abuses. The 2006 and 2007 Calvert Reportscriticized the practice
of the Baltimore ERS board of extensive travel to industry- sponsored conventions. Although cosmetic reforms
were instituted, limiting attendance at foreign conventions to one per member per year, and limiting to three the number of board members at any conference, proposals to reduce the $10,000 travel
allowance per member to $7,500 or $8,500 were rejected at the board’s meeting on July 20, 2006. The
ERS budget for "Trustee Education" for its small board is still twice that of the larger Fire
and Police Board ($43,328 for seven members as against $22,213 for nine). The 2006 and 2007 Calvert Reportscriticized the practice of the Baltimore ERS board of extensive
travel to industry- sponsored conventions. Although cosmetic reforms were instituted, limiting attendance
at foreign conventions to one per member per year, and limiting to three the number of board members at
any conference, proposals to reduce the $10,000 travel allowance per member to $7,500 or $8,500 were rejected
at the board’s meeting on July 20, 2006. The ERS budget for "Trustee Education" for
its small board is still twice that of the larger Fire and Police Board ($43,328 for seven members as against
$22,213 for nine). 28. See Appendix. 29.
P. 29. 30. See http://www.marylandtaxes.com/publications/nr/current/pr32.asp. Maryland’s State and Local Pension Liabilities 11 Brokerage and Management Fees. The 2006 report urged in-house internet executionof trades and replacement of
investment advisers by index funds. This has not happened. The Baltimore Fire and Police fund in 2006–2007,
with $2.3 billion in assets, spent $1.3 million on brokerage fees and $7.5 million on managers’ fees; the ERS with $1.5 billion in assets spent $0.6 million on brokerage fees and $5.6 million
on managers’ fees. The State Retirement Systems spent $9.7 million on brokerage commissions in 2006-2007. The 2006 report urged in-house internet executionof trades and replacement of
investment advisers by index funds. This has not happened. The Baltimore Fire and Police fund in 2006–2007,
with $2.3 billion in assets, spent $1.3 million on brokerage fees and $7.5 million on managers’ fees; the ERS with $1.5 billion in assets spent $0.6 million on brokerage fees and $5.6 million
on managers’ fees. The State Retirement Systems spent $9.7 million on brokerage commissions in 2006-2007. SUMMARY UMMARYThe combined actuarial pension deficits
of the State and Baltimore City, Montgomery County, Howard County, and Prince George’s
County thus amount to about $13 billion. The state health benefits deficit and the
combined local health benefits deficits are each around $15 billion. Recent estimates
of the state’s health deficit by Credit Suisse and the Cato Institute are $5
billion to $7 billion higher than the state’s estimate of $15 billion. Amortization
of these combined deficits of more than $45 billion could require annual sums equal
to 12 percent of the present state budget, more than twice Maryland’s total
state public safety expenditures. The need for alteration at least for new employees
of the retirement health programs and the need for converting the defined benefit
pension programs into defined contribution programs is manifest. The consequences
of such changes are benign: de-emphasis of fringe benefits in favor of salaried compensation
will provide a less immobile state work force, with fewer "time servers"
and more opportunities for new entrants. At
the least, both state and local governments must adopt credible formulas for funding
both health and pension deficits and must adhere to them. Failure to confront such
problems potentially induces not merely inflation, but hyper-inflation. Some European
and Latin American countries have seen democracy swamped by the political consequences
of inflation unleashed by improvident and unredeemed promises by the state. The way
Maryland’s elected state and local officials deal with these issues is a sure
litmus test of their political morality as individuals. Hit and run politics will
not suffice. —George Liebmann is volunteer
executive director of the Calvert Institute for Policy Research. 13 MARYLAND’S STATE AND LOCAL ARYLAND’S STATE AND LOCALRETIREMENT BENEFIT
LIABILITIES ETIREMENT BENEFIT LIABILITIESGabriel
J. Michael The cost of providing non-pension retirement
benefits for government employees, commonly referred to as "other post-employment benefits" (OPEB),31 issteadily increasing. During
FY 2007, the State of Maryland paid over $255 million to subsidize its retirees’ health insurance
premiums, an amount that has increased by 220 percent since 1997, while the number of retirees receiving
these benefits has only increased by 54 percent. 31
issteadily increasing. During FY 2007, the State of Maryland paid
over $255 million to subsidize its retirees’ health insurance premiums, an amount that has increased by 220 percent since 1997, while the number of retirees receiving these benefits has only
increased by 54 percent. Table 1 – Maryland’s OPEB
Pay-As-You-Go Funding, 1997-2007 Source: State CAFRs Unlike pension systems, which rely on investments and are funded by contributions from employees and employers that are paid in during the workers’ years of employment,
OPEB have traditionally been provided on a pay-as-you-go (PAYGO) basis. That is, funding for FY 2007 OPEB
expenditures came from the FY 2007 state budget. However, Maryland must be compliant with the Governmental Accounting Standards Board Statement 45 (GASB 45) beginning in FY 2008, and that standard
requires governments to assess and disclose estimates of their total OPEB liabilities. As has been reported
elsewhere, preliminary estimates are staggering, and are likely to present serious fiscal challenges to
state and local 31. The major portion of OPEB consists of health
care benefits; however, depending upon the employer, OPEB may also include dental benefits, vision benefits,
life insurance, prescription drug plans, and other types of benefits. Year PAYGO % change Beneficiaries % change 1997 $79,840,000 n/a 21,991 n/a 1998
$59,179,293 -25.9% 22,055 0.3% 1999 $79,885,000 35.0% 22,100 0.2% 2000 $84,475,000 5.7%
35,382 60.1% 2001 $95,447,000 13.0% 29,792 -15.8% 2002 $109,838,000 15.1% 29,670 -0.4% 2003 $125,209,000 14.0% 31,080 4.8% 2004 $135,806,000 8.5% 32,451 4.4% 2005
$145,919,000 7.4% 33,641 3.7% 2006 $236,328,000 62.0% 33,953 0.9% 2007 $255,929,000
8.3% 33,939 0.0% Passing the Buck: Maryland’s Unfunded
Liabilities for State and Local Retirees 14 governments in coming years. More than simply the challenge of paying for promises made in the past, a government’s inability to begin paying down its OPEB liabilities has
the potential to adversely affect that government’s bond ratings.32 Thisincreases the cost of borrowing for that government. As
of 2007, various sources have estimated the State of Maryland’s OPEB unfunded actuarial accrued liability
(UAAL) to be anywhere from $14.5 billion to $22.9 billion.33 In order to obtain a more up-to-date figure, I contacted the Stateof Maryland’s
Department of Legislative Services Office of Policy Analysis. The Office provided a more up-to-date figure—an
actuarial valuation conducted for FY 2007. This figure represents the most recent actuarial valuation available
at the time of writing. Since GASB 45 will be implemented for the first time this year, a new
actuarial valuation may be completed in time for inclusion in Maryland’s FY 2008 Comprehensive Annual
Financial Report (CAFR). The report examines Maryland’s liabilities for future OPEB for state and
local employees. This information is important for two reasons: First, it indicates how much
future government revenue will be directed toward compensating retired government employees instead of
to other public purposes. Second, it informs the regular debates on employee compensation; there are strong
incentives for both government personnel managers and union leaders to agree to currently unfunded
future compensation for government employees, but those agreements impose considerable cost and uncertainty
on both taxpayers and employees. It is hoped that this report will lead to a more transparent and sustainable
OPEB system in Maryland. 32 Thisincreases the cost of borrowing for that government. As
of 2007, various sources have estimated the State of Maryland’s OPEB unfunded actuarial accrued liability
(UAAL) to be anywhere from $14.5 billion to $22.9 billion.33 In order to obtain a more up-to-date figure, I contacted the Stateof Maryland’s
Department of Legislative Services Office of Policy Analysis. The Office provided a more up-to-date figure—an
actuarial valuation conducted for FY 2007. This figure represents the most recent actuarial valuation available
at the time of writing. Since GASB 45 will be implemented for the first time this year, a new
actuarial valuation may be completed in time for inclusion in Maryland’s FY 2008 Comprehensive Annual
Financial Report (CAFR). The report examines Maryland’s liabilities for future OPEB for state and
local employees. This information is important for two reasons: First, it indicates how much
future government revenue will be directed toward compensating retired government employees instead of
to other public purposes. Second, it informs the regular debates on employee compensation; there are strong
incentives for both government personnel managers and union leaders to agree to currently unfunded
future compensation for government employees, but those agreements impose considerable cost and uncertainty
on both taxpayers and employees. It is hoped that this report will lead to a more transparent and sustainable
OPEB system in Maryland. 33 In order to obtain a more up-to-date figure, I contacted the Stateof Maryland’s Department
of Legislative Services Office of Policy Analysis. The Office provided a more up-to-date figure—an
actuarial valuation conducted for FY 2007. This figure represents the most recent actuarial valuation available
at the time of writing. Since GASB 45 will be implemented for the first time this year, a new
actuarial valuation may be completed in time for inclusion in Maryland’s FY 2008 Comprehensive Annual
Financial Report (CAFR). The report examines Maryland’s liabilities for future OPEB for state and
local employees. This information is important for two reasons: First, it indicates how much
future government revenue will be directed toward compensating retired government employees instead of
to other public purposes. Second, it informs the regular debates on employee compensation; there are strong
incentives for both government personnel managers and union leaders to agree to currently unfunded
future compensation for government employees, but those agreements impose considerable cost and uncertainty
on both taxpayers and employees. It is hoped that this report will lead to a more transparent and sustainable
OPEB system in Maryland. THE STATE OF MARYLAND HE
STATE OF MARYLANDThe State of
Maryland’s most recent actuarial valuation was performed by Buck Consultants
in December 2007 and presents estimates as of July 1, 2007. What follows is a brief
overview of this valuation that will aid the reader in understanding the results
of other actuarial valuations as they are reported. 32.
For example, Fitch, a credit rating agency, has stated: "[S]teady progress toward reaching the actuarially
determined annual contribution level will be critical to sound credit quality. An absence of action taken
to fund OPEB liabilities or otherwise manage them will be viewed as a negative rating factor." For
further statements from credit rating agencies, see The Pew Center on the States, Promises with a Price: Public Sector Retirement Benefits, 20.33. See Promises with a Price; Cato Institute, Unfunded
State and Local Health Costs:$1.4 Trillion; Credit Suisse, You Dropped a Bomb on Me, GASB. , 20.33. See Promises with a Price; Cato Institute, Unfunded State and Local Health Costs:$1.4 Trillion; Credit Suisse,
You Dropped a Bomb on Me, GASB. Promises with a Price; Cato Institute, Unfunded State and Local Health Costs:$1.4 Trillion; Credit Suisse,
You Dropped a Bomb on Me, GASB. ; Credit Suisse, You Dropped a Bomb on Me, GASB.Maryland’s State and Local Retirement Benefit Liabilities 15 Table 2 – Maryland’s OPEB
Liabilities and ARC ($ in billions) Source:
GASB 45, July 1, 2007 Actuarial Valuation By their very nature,
actuarial valuations attempt to measure the unknown. They rely on a large number of assumptions, and even
a small change in any one of these can result in a vastly different estimate. As a result, it is important
to keep in mind that no one figure can tell the whole story. Usually, as is the case here, actuarial
valuations will provide several different estimates of the UAAL based on differing discount rates.34 Changes in the discount rate drastically affect
the calculationof the UAAL, with the result that showing the UAAL without its accompanying discount
rate is essentially meaningless and often misleading. This valuation provides estimates based on two different
discount rates: an unfunded rate of 4.25 percent, and a funded rate of 7.75 percent. These two rates reflect the differing returns on investments governments can expect if they continue to use
a PAYGO method (unfunded), which relies on general government funds with an earning potential limited by
strict investment policies, versus establishing an irrevocable trust to pay for OPEB liabilities (funded).
In reality, however, the actual discount rate is likely to fall somewhere between the low (unfunded)
and high (funded) figures, reflecting partial funding. Method 1 and Method 2 refer to two different methods
of calculation, resulting in slightly different estimates. The worst-case scenario, then, estimates a $15.2
billion liability that would necessitate a $1.2 billion annual required contribution (ARC).35 34 Changes
in the discount rate drastically affect the calculationof the UAAL, with the result that showing the UAAL
without its accompanying discount rate is essentially meaningless and often misleading. This
valuation provides estimates based on two different discount rates: an unfunded rate of 4.25 percent, and
a funded rate of 7.75 percent. These two rates reflect the differing returns on investments governments
can expect if they continue to use a PAYGO method (unfunded), which relies on general government funds with an earning potential limited by strict investment policies, versus establishing an
irrevocable trust to pay for OPEB liabilities (funded). In reality, however, the actual discount rate is
likely to fall somewhere between the low (unfunded) and high (funded) figures, reflecting partial funding.
Method 1 and Method 2 refer to two different methods of calculation, resulting in slightly different estimates. The worst-case scenario, then, estimates a $15.2 billion liability that would necessitate
a $1.2 billion annual required contribution (ARC).35 35Another important assumption besides the discount rate
is the expected rate of increase of the cost of health care. This rate has been so exceedingly high in
recent 34. In this context, the discount rate is "the interest
rate assumption the state is allowed to apply to current assets used to pay future bills" (Promises with a Price,52). 35. The ARC is "The amount of money that actuaries calculate the employer needs to contribute
to the plan during the current year for benefits to be fully funded by the end of the amortization period.
(This calculation assumes the employer will continue contributing the ARC on a consistent basis.) The ARC
is made up of ‘normal cost’ (sometimes referred to as ‘service cost’)—the
cost of benefits earned by employees in the current year—and an additional amount that will enable the government to reduce unfunded past service costs to zero by the end of the amortization
period" (Promises with a Price,
14). Promises with a Price,52). 35. The ARC is "The amount of money that actuaries calculate the employer
needs to contribute to the plan during the current year for benefits to be fully funded by
the end of the amortization period. (This calculation assumes the employer will continue contributing the
ARC on a consistent basis.) The ARC is made up of ‘normal cost’ (sometimes referred to as ‘service
cost’)—the cost of benefits earned by employees in the current year—and an additional
amount that will enable the government to reduce unfunded past service costs to zero by the end of
the amortization period" (Promises with a Price, 14). Promises with a Price, 14).UAAL ARC Discount Rate Method 1 $15.193 $1.193 4.25%$9.172 $0.809 7.75% Method
2 $14.977 $1.169 4.25% $8.666 $0.794 7.75% $15.193 $1.193
4.25%$9.172 $0.809 7.75% Method 2 $14.977 $1.169 4.25% $8.666 $0.794
7.75% Passing the Buck: Maryland’s Unfunded Liabilities
for State and Local Retirees 16 years that a linear increase over the next several years is considered unsustainable. 36 To take account of the high rates of
increase in recent years but still providemeaningful estimates, "standard actuarial practice…is
to assume an initial rate consistent with recent increases decreasing gradually to an ‘ultimate trend,’ which is consistent with the best estimate of GNP growth."37 However, if the rateof increase of health care cost does not stabilize as expected,
current estimates of OPEB liabilities will be understated, perhaps greatly so. This
valuation, for example, provides three estimates, each calculated with a different rate of increase in
health care cost. The $15.2 billion figure assumes a "baseline" rate of increase. If costs rise
more quickly than expected, the UAAL would increase to $16.9 billion; however, if costs rise less quickly
than expected, the UAAL would decrease to $13.7 billion. These three figures all assume the unfunded
discount rate of 4.25 percent. Most actuarial valuations provide a "sensitivity analysis" that
offers adjusted estimates of OPEB liabilities in the event that health care costs rise more quickly than
expected. While these adjusted estimates will not be reported below, they can be found online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp.To provide another data point, compare the information reported in Maryland’s FY
2007 CAFR. The CAFR refers to an earlier actuarial report, prepared for June 30, 2006, and estimates the
state’s actuarial accrued liability (AAL)38 to
be $14.5billion at a 4.3 percent discount rate, and $9.0 billion at a 7.8 percent discount rate.
Thus, while the state’s estimates have increased slightly over the course of a year, they are still
significantly less than the $20.4 billion to $22.9 billion in liabilities estimated by the Cato Institute
and Credit Suisse respectively. Finally, note the size of the ARC. Even under the most liberal assumptions
(a 7.75 percent discount rate), the ARC represents more than a 210 percent increase over
FY 2007’s PAYGO amount, while at a conservative discount rate of 4.25 percent, the ARC represents
a 366 percent increase. An ARC of $1.2 billion would have accounted for approximately 4 percent of FY 2008’s
total expenditures. While 4 percent may not seem very high, to put that number in perspective, consider that Maryland’s public safety–related expenses accounted for 6 percent of FY 2008’s
total expenditures.39 To take account of the high rates of increase in recent years but still providemeaningful
estimates, "standard actuarial practice…is to assume an initial rate consistent with recent
increases decreasing gradually to an ‘ultimate trend,’ which is consistent with the best estimate
of GNP growth."37 However, if the rateof increase of health care cost does not stabilize as expected, current estimates of OPEB
liabilities will be understated, perhaps greatly so. This valuation, for example, provides three estimates,
each calculated with a different rate of increase in health care cost. The $15.2 billion figure assumes
a "baseline" rate of increase. If costs rise more quickly than expected, the UAAL would
increase to $16.9 billion; however, if costs rise less quickly than expected, the UAAL would decrease to
$13.7 billion. These three figures all assume the unfunded discount rate of 4.25 percent. Most actuarial
valuations provide a "sensitivity analysis" that offers adjusted estimates of OPEB liabilities
in the event that health care costs rise more quickly than expected. While these adjusted estimates will not be reported below, they can be found online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp.To provide another data
point, compare the information reported in Maryland’s FY 2007 CAFR. The CAFR refers to an earlier
actuarial report, prepared for June 30, 2006, and estimates the state’s actuarial accrued liability
(AAL)38 to be $14.5billion
at a 4.3 percent discount rate, and $9.0 billion at a 7.8 percent discount rate. Thus, while the state’s
estimates have increased slightly over the course of a year, they are still significantly less than the
$20.4 billion to $22.9 billion in liabilities estimated by the Cato Institute and Credit Suisse respectively. Finally, note the size of the ARC. Even under the most liberal assumptions (a 7.75 percent
discount rate), the ARC represents more than a 210 percent increase over FY 2007’s PAYGO amount,
while at a conservative discount rate of 4.25 percent, the ARC represents a 366 percent increase. An ARC
of $1.2 billion would have accounted for approximately 4 percent of FY 2008’s total expenditures. While 4 percent may not seem very high, to put that number in perspective, consider that Maryland’s
public safety–related expenses accounted for 6 percent of FY 2008’s total expenditures.39 37 However, if the rateof increase of health care cost
does not stabilize as expected, current estimates of OPEB liabilities will be understated, perhaps greatly
so. This valuation, for example, provides three estimates, each calculated with a different
rate of increase in health care cost. The $15.2 billion figure assumes a "baseline" rate of increase.
If costs rise more quickly than expected, the UAAL would increase to $16.9 billion; however, if costs rise
less quickly than expected, the UAAL would decrease to $13.7 billion. These three figures all assume the unfunded discount rate of 4.25 percent. Most actuarial valuations provide a "sensitivity analysis"
that offers adjusted estimates of OPEB liabilities in the event that health care costs rise more quickly
than expected. While these adjusted estimates will not be reported below, they can be found online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp.To provide another data point, compare the information reported in Maryland’s FY
2007 CAFR. The CAFR refers to an earlier actuarial report, prepared for June 30, 2006, and estimates the
state’s actuarial accrued liability (AAL)38 to
be $14.5billion at a 4.3 percent discount rate, and $9.0 billion at a 7.8 percent discount rate.
Thus, while the state’s estimates have increased slightly over the course of a year, they are still
significantly less than the $20.4 billion to $22.9 billion in liabilities estimated by the Cato Institute
and Credit Suisse respectively. Finally, note the size of the ARC. Even under the most liberal assumptions
(a 7.75 percent discount rate), the ARC represents more than a 210 percent increase over
FY 2007’s PAYGO amount, while at a conservative discount rate of 4.25 percent, the ARC represents
a 366 percent increase. An ARC of $1.2 billion would have accounted for approximately 4 percent of FY 2008’s
total expenditures. While 4 percent may not seem very high, to put that number in perspective, consider that Maryland’s public safety–related expenses accounted for 6 percent of FY 2008’s
total expenditures.39 http://www.mdpolicy.org/research/pubID.215/pub_detail.asp.To provide another data point, compare the information reported in Maryland’s FY
2007 CAFR. The CAFR refers to an earlier actuarial report, prepared for June 30, 2006, and estimates the
state’s actuarial accrued liability (AAL)38 to
be $14.5billion at a 4.3 percent discount rate, and $9.0 billion at a 7.8 percent discount rate.
Thus, while the state’s estimates have increased slightly over the course of a year, they are still
significantly less than the $20.4 billion to $22.9 billion in liabilities estimated by the Cato Institute
and Credit Suisse respectively. Finally, note the size of the ARC. Even under the most liberal assumptions
(a 7.75 percent discount rate), the ARC represents more than a 210 percent increase over
FY 2007’s PAYGO amount, while at a conservative discount rate of 4.25 percent, the ARC represents
a 366 percent increase. An ARC of $1.2 billion would have accounted for approximately 4 percent of FY 2008’s
total expenditures. While 4 percent may not seem very high, to put that number in perspective, consider that Maryland’s public safety–related expenses accounted for 6 percent of FY 2008’s
total expenditures.39 .To provide another data point, compare the information reported in Maryland’s FY
2007 CAFR. The CAFR refers to an earlier actuarial report, prepared for June 30, 2006, and estimates the
state’s actuarial accrued liability (AAL)38 to
be $14.5billion at a 4.3 percent discount rate, and $9.0 billion at a 7.8 percent discount rate.
Thus, while the state’s estimates have increased slightly over the course of a year, they are still
significantly less than the $20.4 billion to $22.9 billion in liabilities estimated by the Cato Institute
and Credit Suisse respectively. Finally, note the size of the ARC. Even under the most liberal assumptions
(a 7.75 percent discount rate), the ARC represents more than a 210 percent increase over
FY 2007’s PAYGO amount, while at a conservative discount rate of 4.25 percent, the ARC represents
a 366 percent increase. An ARC of $1.2 billion would have accounted for approximately 4 percent of FY 2008’s
total expenditures. While 4 percent may not seem very high, to put that number in perspective, consider that Maryland’s public safety–related expenses accounted for 6 percent of FY 2008’s
total expenditures.39 38
to be $14.5billion at a 4.3 percent discount rate, and $9.0 billion
at a 7.8 percent discount rate. Thus, while the state’s estimates have increased slightly over the
course of a year, they are still significantly less than the $20.4 billion to $22.9 billion in liabilities estimated by the Cato Institute and Credit Suisse respectively. Finally, note the size of
the ARC. Even under the most liberal assumptions (a 7.75 percent discount rate), the ARC represents more
than a 210 percent increase over FY 2007’s PAYGO amount, while at a conservative discount rate of
4.25 percent, the ARC represents a 366 percent increase. An ARC of $1.2 billion would have
accounted for approximately 4 percent of FY 2008’s total expenditures. While 4 percent may not seem
very high, to put that number in perspective, consider that Maryland’s public safety–related
expenses accounted for 6 percent of FY 2008’s total expenditures.39 3936. Consider the argument made
in Howard County’s actuarial valuation: "To assume per capita claim trends will continue to
increase indefinitely as they have in the last few years would result in costs that are so large as to
be implausible. Increases of this magnitude cannot be sustained indefinitely because, if they do so, health care expenditures will eventually consume an unacceptable percentage of the gross
national product" (Howard County, GASB 45 Task ForceFinal
Report, 7). Similar statements are to be found in almost every actuarialvaluation
of OPEB liabilities. 37. Howard County, GASB 45 Task Force
Final Report, 7.38. Note that in this case, the AAL and the
UAAL are the same, because there has been no funding set aside. GASB 45 Task ForceFinal Report, 7).
Similar statements are to be found in almost every actuarialvaluation of OPEB liabilities. 37.
Howard County, GASB 45 Task Force Final Report, 7.38. Note that in this case, the AAL and the UAAL are the same, because there has been
no funding set aside. , 7). Similar statements are
to be found in almost every actuarialvaluation of OPEB liabilities. 37. Howard County,
GASB 45 Task Force Final Report,
7.38. Note that in this case, the AAL and the UAAL are the same, because there has been
no funding set aside. GASB 45 Task Force Final Report, 7.38. Note that in this case, the AAL and the UAAL are the same, because there
has been no funding set aside. Maryland’s
State and Local Retirement Benefit Liabilities 17 The legislature balanced the budget by excising "$99.7 million in funds
set aside toward the State’s unfunded retiree health care liability. After this action, the State is appropriating about $100.0 million per year toward this liability in each of fiscal
2008 and 2009.40 Furthermore, according to
the Department of LegislativeServices, The fiscal 2009 proposed budget allocated $207.8
million across all fund types to pre-fund the OPEB liability, which chiefly represents the estimated
value of health insurance subsidies for future retirees. Revenue write downs prompted reductions to this
level of funding and $105.2 million will be appropriated for transfer to an irrevocable OPEB trust,
where the monies will be invested by the State Retirement Agency. Senate Bill 540 (passed) moves $100.0
million from the DPA leaving $100 million as the fiscal 2008 contribution to OPEB pre-funding, thus creating continuity in the State’s approach to addressing this future financial obligation.41 40 Furthermore, according to the Department of LegislativeServices, The fiscal 2009
proposed budget allocated $207.8 million across all fund types to pre-fund the OPEB liability, which chiefly
represents the estimated value of health insurance subsidies for future retirees. Revenue write
downs prompted reductions to this level of funding and $105.2 million will be appropriated for transfer
to an irrevocable OPEB trust, where the monies will be invested by the State Retirement Agency. Senate
Bill 540 (passed) moves $100.0 million from the DPA leaving $100 million as the fiscal 2008 contribution
to OPEB pre-funding, thus creating continuity in the State’s approach to addressing this future financial obligation.41 41‘Continuity’ is achieved by reducing appropriations to half those
originally thought to be necessary. THE COUNTIES AND BALTIMORE CITY HE COUNTIES AND BALTIMORE
CITYIn addition to the OPEB liabilities of state government, it is crucial to consider the liabilities of local governments that, according to Credit Suisse analysts, account for nearly two-thirds of the nation’s total liabilities.42
Senate Bill 945,originally introduced in the Maryland State Senate
on February 25, 2008, includes a fiscal and policy note with estimates of OPEB liabilities for most of
Maryland’s 23 counties and Baltimore City. These estimates were obtained from the Maryland Association of Counties (MACo). Michael Sanderson, MACo’s legislative director, indicated
that MACo obtained these estimates unofficially, essentially by calling each county’s finance office
and asking for an estimate over the telephone. The estimates thus vary widely as to accuracy and age, and
as to whether they include the liabilities of component units such as school boards, libraries, and community colleges. Additionally, MACo’s estimates do not include any information for Baltimore City
and Kent, Somerset, and Talbot Counties. Mr. Sanderson also indicated that MACo had no more recent estimates
of any of the counties’ OPEB liabilities. The most recent CAFR for 22 counties and Baltimore City
provided more upto- date information on each county’s liabilities.43
Almost all of the CAFRs contain 42 Senate Bill 945,originally introduced in the Maryland
State Senate on February 25, 2008, includes a fiscal and policy note with estimates of OPEB liabilities
for most of Maryland’s 23 counties and Baltimore City. These estimates were obtained from the Maryland Association of Counties (MACo). Michael Sanderson, MACo’s legislative director, indicated
that MACo obtained these estimates unofficially, essentially by calling each county’s finance office
and asking for an estimate over the telephone. The estimates thus vary widely as to accuracy and age, and
as to whether they include the liabilities of component units such as school boards, libraries, and community colleges. Additionally, MACo’s estimates do not include any information for Baltimore City
and Kent, Somerset, and Talbot Counties. Mr. Sanderson also indicated that MACo had no more recent estimates
of any of the counties’ OPEB liabilities. The most recent CAFR for 22 counties and Baltimore City
provided more upto- date information on each county’s liabilities.43
Almost all of the CAFRs contain 43
Almost all of the CAFRs contain39.
Maryland Department of Budget and Management, FY 2009 Budget Highlights. , FY 2009 Budget Highlights.40. Ninety-Day Report, The Department of Legislative Services 2008, A-13.41. Ibid., A-32.42. You Dropped a Bomb on Me, GASB, 3.43. The only county for which I could not obtain a CAFR was Somerset County. Ninety-Day Report, The Department of Legislative
Services 2008, A-13.41. Ibid., A-32.42. You Dropped a Bomb on Me, GASB, 3.43. The only county for which I could not obtain a CAFR was Somerset County. Ibid., A-32.42. You Dropped a Bomb on Me, GASB, 3.43.
The only county for which I could not obtain a CAFR was Somerset County. You Dropped a Bomb on Me, GASB, 3.43. The only county
for which I could not obtain a CAFR was Somerset County. Passing
the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 18 at least a passing mention of the OPEB liability
issue, and a statement on the implementation of GASB 45; counties are also required to disclose the amount
of money spent during the year on a pay-as-you-go basis for the provision of OPEB. Some
CAFRs contain detailed statements regarding OPEB liabilities, including estimates of the total UAAL and
the necessary annual required contribution to fully fund the UAAL over a period of time, typically 30 years. Because of the legal distinction between a county government and its component units, entities
such as school boards, libraries, and community colleges are required to produce their own CAFRs. Recognizing
that appropriations for school boards often make up nearly half of a county’s budget, and that school
boards are often one of the largest employers in a county, the most recent CAFRs for 14 counties’ school boards and the Baltimore City Public School System were needed. Those 14 counties include
all 10 counties originally estimated by MACo to have OPEB liabilities exceeding $200 million. Finally,
many counties have contracted to have actuarial valuations performed to assess their OPEB liabilities.
These valuations, while public information, are usually not made easily accessible but are available under
the Maryland Public Information Act (MPIA) for the 10 counties that were originally estimated by MACo to have OPEB liabilities exceeding $200 million, and for Baltimore City. The actuarial
valuations for Dorchester and Garrett Counties were available without filing MPIA requests. Of the 11 MPIA
requests sent, all were fulfilled within the 30-day window required by Maryland law. MACo’s
estimates for 20 counties already approach $11 billion, and do not include Baltimore City, which Credit
Suisse analysts estimate to have a $2.7 billion liability alone. Just as the cost of providing OPEB for
state government retirees has been dramatically increasing, the cost of providing OPEB for local government retirees has also been increasing. Table 3 indicates the rising cost of OPEB for two counties
and Baltimore City over the past several years. From 2002 to 2007, the pay-as-you-go expenditures of Baltimore
City, Montgomery County, and Prince George’s County increased by 85 percent, 77 percent, and 89 percent
respectively, while during the same length of time, the number of beneficiaries only increased by
27 percent, 30 percent, and 25 percent. Table 3 – OPEB Pay-As-You-Go
Funding for Two Counties and Baltimore City Source:
County CAFRs Entity 2002 2003 2004 2005 2006 2007 Baltimore
City PAYGO $63,321,000 $70,747,000 $55,230,000 $102,791,000 $120,646,000 $116,923,777 Beneficiaries 19,434
19,556 20,114 20,415 19,976 24,761 Montgomery PAYGO $13,481,000 $13,970,000 $17,763,240 $16,512,900 $21,587,860
$23,924,080 Beneficiaries 3,685 3,900 4,105 4,270 4,493 4,790 Prince George's PAYGO
$10,400,000 $12,400,000 $14,300,000 $16,000,000 $18,000,000 $19,700,000 Beneficiaries 2,619 2,743 2,857
3,043 3,179 3,279 Maryland’s State and Local Retirement
Benefit Liabilities 19 Directly comparing the OPEB liabilities of Maryland’s counties is difficult. Some actuarial
valuations contain estimates for the primary government as well as all of its component units (school boards,
community colleges, libraries, et cetera), whereas other valuations only contain information for the primary
government.44 44This is problematic because a school board’s liabilities alone may easily dwarf the rest
of a county’s liabilities. The discount rates and health care cost trend assumptions vary from county
to county, and in several instances are not provided. With these limitations in mind, however, Table 4
offers a summary of the most recent estimates for 12 of Maryland’s counties and Baltimore City. Where
multiple discount rates were used, the resulting multiple estimates have all been included. Table 4 – OPEB Liabilities and ARC for 12 Counties and Baltimore City * The discount rate is unknown. Source: County Actuarial
Valuations and County CAFRS 44. Sometimes it is unclear whether
the estimates provided are only for a primary government, or include component units. In these cases, I
assumed the estimates only included the primary government. Ent
i ty UAAL ARC Discount Rate County School Col lege Library Anne Arundel $2,341,238,155 $179,422,000 4.00%
X X X X $1,679,962,532 $139,825,000 6.00% X X X X $1,270,024,474 $117,573,000 8.00%
X X X X Bal t imore $1,765,553,000 $148,893,000 7.88% X X X X Bal t imore Ci t y $2,149,800,000
$164,600,000 6.70% X X Carrol l $161,006,000 $15,609,000 4.00% X $130,235,824 $12,949,370
5.20% X $98,197,000 $10,277,000 7.00% X Charles $159,294,000 $15,162,000 4.00% X $73,905,000 $7,980,000 8.00% X Dorchester $19,302,364 $1,732,488 4.50% X Frederick
$292,278,000 $23,331,000 4.00% X $148,969,000 $13,858,000 7.75% X Garret t $40,987,000
$3,814,000 4.50% X X X X $31,576,000 $2,851,000 7.00% X X X X Harford $264,193,000 $25,820,000
4.00% X $126,613,000 $14,198,000 8.00% X How ard $897,300,000 $91,500,000 4.00% X X
X X $476,600,000 $53,200,000 7.50% X X X X Montgomery $2,080,618,000 $173,449,000 4.00%
X $1,086,143,000 $103,401,000 8.00% X $2,600,000,000 $240,000,000 * X X X X Prince
George's $762,335,239 $66,158,240 7.00% X X $708,171,354 $63,077,351 7.50% X X St
. M ary's $111,845,000 $8,664,000 4.00% X $50,135,000 $4,617,000 7.75% X Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 20 The few estimates
that are directly comparable to MACo’s estimates in Senate Bill 945 paint a very different picture.
For example, MACo estimated Anne Arundel County’s total liability for all major component units to
be approximately $1.3 billion. However, MACo did not specify the discount rate for this estimate. By referring to the actuarial valuation from which this estimate is taken, we can see that the
$1.3 billion figure was calculated using an 8 percent discount rate, i.e., assuming full funding. This
is unrealistic, and Anne Arundel County’s actuarial valuation states as much.45 A more realistic discount rate of 6 percent increasesthe
county’s liability to about $1.7 billion, while a very conservative rate of 4 percent puts the liability
at approximately $2.3 billion. We encounter the same problem with MACo’s estimates of Howard County’s total liability. The $477 million figure assumes a generous discount rate of 7.5 percent. If
the liability is calculated with a 4 percent discount rate, it nearly doubles to $897 million. As noted
above, the actual liability is likely to fall somewhere in between these two figures. These two examples
clearly show why any estimate of OPEB liabilities without an accompanying discount rate is likely to be
misleading. Only five counties have provided estimates for both the primary government and
all major component units. In some cases, other sources provide estimates of the liabilities of other component
units, typically school boards. However, it is improper to combine these estimates with the estimates for
the primary government, either because different actuarial assumptions were used to calculate them, or it is unknown what actuarial assumptions were used. Estimates from other sources for other
component units are therefore provided in Table 5. 45 A more realistic discount rate of 6 percent increasesthe county’s liability
to about $1.7 billion, while a very conservative rate of 4 percent puts the liability at approximately
$2.3 billion. We encounter the same problem with MACo’s estimates of Howard County’s total liability. The $477 million figure assumes a generous discount rate of 7.5 percent. If
the liability is calculated with a 4 percent discount rate, it nearly doubles to $897 million. As noted
above, the actual liability is likely to fall somewhere in between these two figures. These two examples
clearly show why any estimate of OPEB liabilities without an accompanying discount rate is likely to be
misleading. Only five counties have provided estimates for both the primary government and
all major component units. In some cases, other sources provide estimates of the liabilities of other component
units, typically school boards. However, it is improper to combine these estimates with the estimates for
the primary government, either because different actuarial assumptions were used to calculate them, or it is unknown what actuarial assumptions were used. Estimates from other sources for other
component units are therefore provided in Table 5. 45. "[I]t
is unlikely that the County’s OPEB liability will be able to be fully funded for FY2008. It is more
likely that some ‘blended’ rate of return will be dictated by the GASB rules. This blended
rate will likely be closer to the ‘true’ rate of about 6.0% than either the ‘unfunded’
or the ‘funded’ rates" (Anne Arundel County, GASB
45 Task Force Final Report, 16). GASB 45 Task Force Final Report, 16).Maryland’s State and Local Retirement Benefit Liabilities 21 Table 5 – OPEB Liabilities and
ARC for Some Component Units * The ARC is specified as
12.6 percent of general payroll. 12.6 percent of FY 2008's compensation expenditures is $133,512,322. ** The discount rate is unknown. Source: County Actuarial Valuations and County CAFRs By referring to Tables 4 and 5, we see that for the four counties with separate estimates for the primary government and public schools (Charles, Harford, Prince George’s,
and St. Mary’s Counties), in each case the OPEB liabilities of the public school system significantly
exceed the OPEB liabilities of the primary government. This is to be expected, as the public school system
typically employs significantly more people than the primary government. Unfortunately, this means that for all of the counties in Table 4 whose estimates do not include the public school system,
we should expect OPEB liabilities for these school systems that are at least as high, and probably much
higher, than the reported OPEB liabilities of their county’s primary government. A more accurate
assessment of the school systems’ liabilities will require obtaining those systems’ actuarial
valuations or waiting until the schools disclose the liabilities in their CAFRs. Table
6 contains data revealing the amount that each of Maryland’s counties (except Somerset) and Baltimore
City spent to provide OPEB on a pay-as-you-go basis in FY 2007. The counties are required to disclose this
information in their CAFRs. For counties that provide historical CAFRs, the PAYGO amount for FY 2006
is also reported. Between 2006 and 2007, of the 14 counties for which there are data, the PAYGO amount
increased in 11 and decreased in three. Year to year decreases in the PAYGO amount are inconsistent with
historical trends, and may be the result of an unusually high PAYGO amount in 2006. Entity UAAL ARC Discount Rate Charles County Public Schools $122,900,000 $11,300,000
* * $110,900,000 $10,100,000 * * Harford County Public Schools $361,962,000 $34,905,000
6.75% $305,466,000 $31,180,000 8.00% Prince George's County Public Schools $1,500,000,000
* * * St . Mary's County Public Schools $160,684,000 $14,390,000 4.00% $81,154,000
$7,991,000 7.75% St . Mary's County Library $3,246,000 $277,000 4.00% $1,707,000
$169,000 7.75% St . Mary's County Metropolitan Commission $9,459,000 $1,013,000 4.00% $4,232,000
$506,000 7.75% Wicomico County Public Schools $30,475,000 $2,432,000 7.50% Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 22 Table 6 – OPEB
PAYGO for 22 Counties and Baltimore City * Includes primary
government and all major component units ** Includes primary government, community college, and library Source: County Actuarial Valuations and County CAFRs In
an attempt to make clear the difficulty for counties to fully fund their ARC, Table 6 also expresses the
ARC as a percentage of 2007’s PAYGO amount for each county for which data are available. The ARC
ranges anywhere from about one and a half to 11 times a county’s 2007 PAYGO amount, presenting an
extremely heavy financial burden. Many counties and some of their component units have
taken steps to offset the effects of implementing GASB 45 by setting aside money for an OPEB trust. An OPEB trust, much like a pension trust, would invest its assets with the intention of paying
for OPEB out of the investment returns, instead of diverting more and more taxpayer money from the general
fund each year, as is currently the practice with pay-as-you-go. The money for OPEB "prefunding,"
as it is called, typically is designated from a previous year’s budget surplus. With
the passage of Senate Bill 945 in May 2008, local governments are now authorized to create these OPEB trusts.
Table 7 indicates the amounts that various counties have set aside for the prefunding of OPEB trusts. It
also expresses the Entity PAYGO 2006 PAYGO 2007 ARC as a Percentage
of PAYGO 2007 Allegany $749,310 $765,608 Anne Arundel* $34,225,840 $39,072,057 301% Baltimore $25,100,000 $25,400,000 Baltimore City $120,646,000 $116,923,777 141% Calvert
n/ a $647,670 417% Caroline n/ a $125,576 Carroll $1,674,165 $1,746,590 588% Cecil*
* $50,515 $52,425 Charles $845,633 $983,056 812% Dorchester $249,007 $241,955 716% Frederick $2,531,589 $2,624,502 528% Garrett n/ a $403,074 Harford n/ a
$1,244,031 1141% Howard $1,678,917 $1,921,775 Kent* n/ a $367,788 Montgomery
$21,587,860 $23,924,080 432% Prince George's $18,000,000 $19,700,000 320% Queen
Anne's n/ a $403,037 St. Mary's $1,248,602 $1,338,914 345% Talbot n/ a $317,612 Washington $333,146 $171,867 Wicomico n/ a $648,863 Worcester n/ a $640,077 Maryland’s State and Local Retirement Benefit Liabilities 23 OPEB trust prefunding
as a percentage of a county’s ARC. This provides some insight into what the various prefunding figures
actually mean. Note that this is not an exhaustive list; just because a county is not listed here does
not mean that it has not designated any money for prefunding of an OPEB trust. Furthermore, since
many of these figures are taken from annual reports, they do not necessarily represent the entire balance
of any prefunding; for example, Baltimore City’s actuarial report states that FY 2008’s funding
is $76 million, indicating that there may be additional prefunding that has been set aside in previous
years. Table 7 – Prefunding of OPEB Trusts * The ARC is unknown. Source: County Actuarial Valuations
and County CAFRs It is important to note that unless OPEB trust
prefunding has actually been placed into an irrevocable trust, it is not secure. Prefunding that has been
"designated" for an OPEB trust from a previous year’s budget surplus can easily be designated for another purpose in the next year.46 For this reason, GASB 45 onlyallows funds that have been set aside in an irrevocable trust to count
as assets against OPEB liabilities. Montgomery County has been playing similar games
with its $3 billion retiree health care liabilities. In the county, which has promised to pay $3 billion
in 46 For this reason,
GASB 45 onlyallows funds that have been set aside in an irrevocable trust to count as assets against
OPEB liabilities. Montgomery County has been playing similar games with its $3 billion retiree health
care liabilities. In the county, which has promised to pay $3 billion in 46. For example, in order to cover budget shortfalls, the State of Maryland recently drew
$100 million from a fund that had been "designated" to pay for OPEB liabilities (AFSCME MD, Voice Spring 2008, 7). In another instance,
HowardCounty’s FY 2006 CAFR states, "The County… has designated $30 million from the
FY 2006 surplus for this liability." The FY 2007 CAFR, however, states, "The County… has
designated $15 million from the FY 2007 surplus for this liability." It is unclear what happened to
the original $30 million earmarked for OPEB liabilities. Voice Spring 2008, 7). In another instance, HowardCounty’s
FY 2006 CAFR states, "The County… has designated $30 million from the FY 2006 surplus for this
liability." The FY 2007 CAFR, however, states, "The County… has designated $15 million
from the FY 2007 surplus for this liability." It is unclear what happened to the original $30 million
earmarked for OPEB liabilities. Entity Prefunding
Prefunding as a Percentage of ARC Anne Arundel $5,000,000 4% Baltimore $156,300,000
105% Baltimore City $76,000,000 46% Calvert $647,670 24% Carroll
$3,000,000 29% Frederick $6,530,983 47% Harford County Public Schools $12,126,000 39% Howard $15,000,000 28% Prince George's $25,000,000 40% St. Mary's
$10,000,000 217% Talbot $6,350,000 * Wicomico $210,000 9% Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 24 health care benefits
to retirees, government officials accepted the advice of consultants who urged the county to nearly quadruple
the amount it sets aside to cover this commitment. Nevertheless, the county council voted to delay this
full funding for five years. Now the council, which claims wide legal latitude, is considering whether
to postpone it for another three years. "The biggest issue is the lack of standards in regards to
government pensions," said Timothy L. Firestine, Chief Administrative Officer in Montgomery County.
"You can make up your assumptions as you go.’"47 47The Council thereupon agreed to
stretch the amortization from five years to eight, thus, according to County Executive Leggett, "free[ing]
up tax supported resources that can be invested in preserving existing services."48 This is a euphemismfor ‘kicking the can down
the road.’ In Montgomery County, "pension and health care costs are already higher than the
combined budgets for the departments of transportation and human resources."49 Baltimore City for its part in2007 set aside only $15
million as an annual contribution toward the City’s $2.9 billion retiree health deficit, and confided
its management to the Employees Retirement System, the least capable of the City’s two pension boards.50 48 This is a euphemismfor ‘kicking the can down the road.’ In Montgomery
County, "pension and health care costs are already higher than the combined budgets for the departments of transportation and human resources."49 Baltimore City for its part in2007 set aside only $15 million as an annual contribution toward the
City’s $2.9 billion retiree health deficit, and confided its management to the Employees Retirement
System, the least capable of the City’s two pension boards.50 49 Baltimore City for its part in2007
set aside only $15 million as an annual contribution toward the City’s $2.9 billion retiree health
deficit, and confided its management to the Employees Retirement System, the least capable of the City’s
two pension boards.50 50MUNICIPALITIES UNICIPALITIESIn addition
to the OPEB liabilities of the various county governments and their component units,
Maryland’s municipalities will have their own OPEB liabilities. Excluding Baltimore
City, there are 156 incorporated municipalities in Maryland. Table 8 provides the
2007 PAYGO amounts for the four largest municipalities other than Baltimore City,
each estimated to have between 50,000 and 60,000 residents. Table
8 – OPEB PAYGO for Four Municipalities Source: City
CAFRs 47. "The Other Retirement Nightmare," May 11,
2008, available at: www.financialarmageddon.com/the_retirement_system. 48. FY 2009 Recommended
Operating Budget, County Executive, p. 9. 49. David Cho, "Growing Deficits Threaten Pensions: Accounting
Tactics Conceal a Crisis for Public Workers," The Washington
Post, May 11, 2008, p. A-1.50. S. Janis, "City faces
$2.9 billion gap in retiree health benefits," BaltimoreExaminer, June 14, 2007, p. 8. The Washington Post, May 11, 2008, p. A-1.50. S.
Janis, "City faces $2.9 billion gap in retiree health benefits," BaltimoreExaminer, June 14, 2007, p. 8. BaltimoreExaminer, June 14, 2007,
p. 8. , June 14, 2007, p. 8.Entity PAYGO Beneficiaries City of Frederick $1,491,000 375 City of Gaithersburg
$193,453 27 City of Rockville $60,723 14 City of Bowie $8,896 2 Maryland’s State and Local Retirement Benefit Liabilities 25 Of these four municipalities,
only Gaithersburg’s CAFR provides any detailed information about the implementation of GASB 45. Gaithersburg
estimates its OPEB liability to be $9,788,000 at an 8.0 percent discount rate. The city established a trust fund for OPEB in April 2007 and made an initial contribution of $2,552,050 to the
fund. While Gaithersburg has clearly been proactive in addressing the implementation of GASB 45, as a whole,
the progress of Maryland’s municipalities in addressing their OPEB liabilities is unclear and warrants
concern. CONCLUSION ONCLUSIONMaryland’s
OPEB liabilities must be addressed at all levels of government: state, county, and
municipal. The issue is likely to garner more attention over the next year because
GASB 45 will require entities with annual revenues in excess of $100 million to report
their OPEB liabilities for the first time in FY 2008’s CAFRs. While some governments
have been proactively addressing the issue, even for those governments that have
set aside prefunding for an OPEB trust, the amounts so designated are typically paltry
when compared to the estimated ARC. While some politicians might think it more palatable
to simply continue funding OPEB on a pay-as-you-go basis, the long-term costs of
this approach are extremely high. Furthermore, as previously noted, not addressing
OPEB liabilities is likely to adversely affect a government’s bond ratings,
making it more expensive for that government to borrow money. One way to reduce OPEB liabilities is to reduce the benefits offered to employees and retirees. First, governments can cut back on the OPEB offered to new employees,
which many governments have in fact already done. Second, governments can establish
cost-saving measures in their provision of OPEB, which may mean reducing the OPEB
being supplied to current and future retirees. For example, most governments do not
pay the full amount of a retiree’s health insurance premium, but instead pay
a portion prorated over the number of years of that retiree’s service. These
pro rata schedules could be adjusted to reduce the government’s portion of
the cost. However, employees need to know about this change while they are still
employed, so that they can adjust their retirement planning. The legal viability
of this second approach will vary from one government to another. Some governments
have made it clear that in their opinion, non-pension retirement benefits are not
guaranteed. For example, Prince George’s County states in its FY 2007 CAFR:
"Retirees have no vested rights to these benefits, which are subject to modification
during the budgetary process or by collective bargaining agreement."51 However, depending upon the way in which the benefits
wereenacted, the provision of OPEB might be considered a contract, which could create legal
difficulties in modifying the benefits. Moreover, the lack of vested rights 51 However, depending upon the way in which the benefits wereenacted,
the provision of OPEB might be considered a contract, which could create legal difficulties in modifying
the benefits. Moreover, the lack of vested rights 51. Prince
George’s County, 2007 Comprehensive Annual Financial Report, 67. 2007 Comprehensive Annual
Financial Report, 67.Passing the Buck: Maryland’s Unfunded Liabilities for State and Local Retirees 26 introduces considerable uncertainty
and risk for employees, severely reducing the OPEB’s value as compensation. Some
governments may be hesitant to establish irrevocable trusts to fund OPEB liabilities because of the legal
implications of such trusts. In Anne Arundel County’s actuarial valuation, for example, it is asked
if establishing an OPEB trust might create a contractual or property right for employees and retirees to
these benefits.52 Furthermore,
as the Pew report notes, "government officials wonderwhat will happen to money that has been ‘irrevocably’
dedicated to retiree health care if the federal government passes some kind of universal health insurance."53 52 Furthermore, as the Pew report notes, "government officials wonderwhat will happen to money
that has been ‘irrevocably’ dedicated to retiree health care if the federal government passes
some kind of universal health insurance."53 53In July 2006, the Maryland General Assembly created
the Blue Ribbon Commission to Study Retiree Health-Care Funding Options. Active since 2007, the purpose
of the Commission is to obtain an actuarial valuation of the state’s OPEB liabilities and to examine
the legal obligations of the state regarding these benefits. The commission, chaired by State Senator Edward
J. Kasemeyer and Delegate Melony G. Griffith, met twice in 2007, though no minutes of those meetings were kept. The commission is required to produce an interim report by the end of 2008, and a final
report by the end of 2009. Michael Rubenstein of the Office of Policy Analysis, also a staff member of
the commission, stated that this year’s interim report is unlikely to contain any substantive information,
and instead will likely be a simple overview of the commission’s activities thus far. There are currently no drafts of this interim report available; however, one of Delegate Griffith’s staff
members stated that the commission is scheduled to meet at least once before the end of the year. In a time when governments are seeking to trim budgets wherever possible, funding for OPEB
liabilities is rarely high on the list of priorities. For example, on October 15 Governor Martin O’Malley’s
office indicated that the state will not be making any additional contributions towards OPEB liabilities,
thus saving $46 million. But while this is a savings in the short term, in the long term it simply increases the cost of OPEB that the state, and ultimately taxpayers, will have to bear. When
OPEB liabilities are recognized in financial statements this fiscal year, state and local governments that
take the shortsighted position of refusing to fund such liabilities are risking downgraded bonds, an increased
cost of borrowing, and severe budgetary difficulties in the coming years. 54 54—Gabriel J. Michael is a 2008 intern at the Maryland Public Policy Institute and a graduatestudent
at Yale University. Gabriel J. Michael is a 2008 intern at
the Maryland Public Policy Institute and a graduatestudent at Yale University. 52. Anne Arundel County, GASB 45 Task Force Final Report, 13.53. Promises with a Price, 50.54. The Appendix for this report may be found online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp. GASB 45 Task Force Final Report, 13.53. Promises with a Price, 50.54. The Appendix for this report may be found online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp. Promises with a Price, 50.54.
The Appendix for this report may be found online at http://www.mdpolicy.org/research/pubID.215/pub_detail.asp. http://www.mdpolicy.org/research/pubID.215/pub_detail.asp. THE MARYLAND PUBLIC POLICY INSTITUTE HE MARYLAND PUBLIC POLICY INSTITUTEFounded in 2001, the Maryland Public Policy Institute is a nonpartisan
public policy research and education organization that focuses on state policy issues.
Our goal is to provide accurate and timely research analysis of Maryland policy issues and market these findings to key primary audiences. The
mission of the Maryland Public Policy Institute is to formulate and promote public
policies at all levels of government based on the principles of free enterprise,
limited government, and civil society. The institute is a member of the State Policy
Network. In order to maintain objectivity and independence, the institute accepts
no government funding and does not perform contract research. The Maryland Public
Policy Institute is recognized as a 501(c)(3) research and education organization
under the Internal Revenue Code. THE CALVERT INSTITUTE HE
CALVERT INSTITUTEThe Calvert
Institute for Policy Research is a non-partisan, educational institution dedicated
to the research and propagation of solutions to Maryland state and local public-policy
concerns based upon the principles of free markets and personal responsibility. It
is a tax-exempt 501(c)(3) organization. The institute is named for George Calvert,
founder of the Maryland colony and the author of its experiment in freedom of conscience.
The institute seeks to replicate his vision of a Maryland where a diversity of views
is encouraged and disseminated. We invite you to visit us or attend an event or read or order
a publication. Most recent publication:  | |
The End of Exceptionalism
by George W. Liebmann  The United States, we have been told by the President and by many defenders if American foreign policy, is an exceptional
nation. It seeks no hegemony or empire, and has no history of so doing. Its institutions are self-correcting; the publication
of scandal should be a cause of self-congratulation, for in other, unspecified, nations, such information would be repressed.
To the extent that new government practices are without precedent, this is explained by the fact that the challenges to which
they respond are without precedent, graver than any that our nation, or by inference any other, has faced in the past.
In this scheme of things, only sentimentalists will be concerned with
international treaties or conventions, or the complaints of agencies like the International Red Cross or Amnesty International.
This is so even though the Geneva Conventions received more than lip service in a number of conflicts far more sanguinary
than that we now face. The competence of a judiciary without 'expert' knowledge of foreign threats and conditions
is derided, even by some of its own members. Inconvenient statutory language limiting detentions of citizens without trial
is held irrelevant, being directed at past 'civilian' abuses and not justified in light of today's compelling
'military' needs. This is so even though we and our allies are not threatened with invasion or occupation, as we have
been in the past, by the enormous armies of a modern state, nor by internal terror like that twice visited on the City of
London and on a myriad of German industrialists and Italian politicians by the I.R.A., the Red Army Faction, and the Baader-Meinhof
gang. The exceptionalism that is celebrated, however,
rests in no small measure on the institutional restraints created by men who entertained no illusions about human nature,
including the nature of homo americanus. Mr. Jefferson, who in his view of political behavior was one of the more optimistic
among the founders, once expressed the hope that the "books ...used for teaching children to read shall be such as will
at the same time make them acquainted with Grecian, Roman, English and American history. History... will enable them to know
ambition under whatever guise it may assume, and, knowing it, to defeat its views." The exceptional structure of government that was created, as Justice Brandeis memorably
said, was designed "not to avoid friction, but by reason of the inevitable friction incident to the distribution of the
governmental powers... to save the people from autocracy." These strictures have been held to have relevance even during the exigencies of war. Mr. Justice Jackson, who thought
more deeply about wartime problems than any other modern justice, nonetheless declared in the Youngstown case involving a
steel strike in the midst of the Korean emergency, that "when the President takes measures incompatible with the expressed
or implied will of Congress, his power is at its lowest ebb... men have discovered no technique for long preserving free government
except that the Executive be under the law, and that the law be made by parliamentary deliberations." As for the courts,
Jackson observed in two other opinions that "emergency powers are consistent with free government only when their control
is lodged elsewhere than in the Executive that exercises them ." "[P]rocedural due process... must be a specialized
responsibility within the competence of the judiciary on which they do not bend before political branches of the government,
as they should on matters of policy." The late
Philip Kurland, one of the more careful students of the modern Constitution, noted that in his time, respect for federalism
and the separation of powers had been swept aside in America. In his view, all that was left of the original safeguards was
the rule of law, the notion that "government not act except according to preestablished rule, that it apply the rule
according to preestablished procedure, and that the same rule be applicable to all." Under this analysis, the administration's failing, two years on from September
11, is not merely found in disregard of the non-detention statute relating to citizens that was inspired by the Japanese relocation
cases, nor in failure to extend to long-term detainees, in the British manner, some procedural protections . The failure to
provide for defined administrative review of any kind for those detained far from battlefields is a serious transgression;.
defined procedures were not to be expected in the days following the shock of 9/11, but two years on, excuses have run out.
But the worst offense is found in the impugning of treaty rules and the subsequent failure to provide any publicly declared
rules of conduct at all, for the victors or the vanquished . 'Night and fog' has descended on the detention camps,
with consequences that are plain for all to see. It is not the absence of constitutional law, but the absence of even administrative
law, that has given rise to this transgression. When one inspects the administration's Supreme Court briefs in the Hamdi
and Padilla cases and in the Guantanamo case, one finds references to no published guidelines, treaties, and regulations.
Instead, we are told only of internal military reviews, conducted by unidentified and unspecified officials, and described
only in snatches of speeches and press releases. Small
wonder it is that uneducated troops in the field consider that they are governed by no rules save those deriving from force
and generated by vengeance and fear. From them, we have learned of what Justice Frankfurter called "the generative force
of unchecked disregard of the restrictions that fence in even the most disinterested assertion of authority." As Justice
Holmes said in a different context "When the ignorant are taught to doubt, they know not what they may safely believe."
There will be much caterwauling about and myriad investigations designed to identify the particular military intelligence
or military police general who will be made to sacrifice his or her career in atonement for what has occurred. As a lawyer,
I find myself not much interested in the fate of these persons. Those who should walk the plank are the Attorney General of
the United States and the General Counsel of the Department of Defense. George W. Liebmann is a member of the Baltimore bar, is the author of a number of books on law and public
policy, most recently Neighborhood Futures: Citizen Rights and Local Control (Transaction Books, 2004). |
| |
© 2003 American Conservative Union Foundation 1007 Cameron Street, Alexandria, VA
22314 Tel: 703.836.8602 |
Governor Palin’s pension partyBy George W. Liebmann
Guest Columnist 11/2/08 This writer has long taken an interest in Maryland’s pension funds. Recently,
while investigating the adventures of Gov. Martin O’Malley, who recently acquiesced in the removal of any percentage
limit on the compensation of hedge fund managers, I came upon pension fund adventurism in Gov. Sarah Palin’s Alaska.
Alaska has an $8.6 billion defined benefit pension deficit, arising from a plan since abolished. This is astonishing for
a small state —about $10,000 for each Alaskan. Palin was not responsible either for the deficit or for Alaska’s
wise shift to defined contribution plans. However, she in April signed a plan by which the state will try to gamble its way
out by issuing $5 billion in pension bonds. The first tranche of these bonds comes to market next month, safely after the
election. The way governors and presidents deal with liabilities like pension and Medicare deficits says whether they
are hit-and-run politicians or men and women who plan for the future; whether they are shallow opportunists or persons with
a thought- out political and fiscal philosophy. Pension bonds have been characterized by Gov. Jon Corzine of New Jersey
as "the dumbest idea I’ve ever heard. It’s speculating the way I would have speculated in my bond position
at Goldman Sachs." Various readers of the Juneau Empire paid their respects to the proposal while it was before Gov.
Palin for signature: "When you are in debt borrowing more money to gamble with is not an adult way to deal with your
financial obligations"; "this smells of Enron, no?"; "a state as rich as Alaska with huge budget surpluses
shouldn’t be playing this shell game"; "makes me think of the sub-prime mortgage mess, given the volatility
of the world markets makes me grit my teeth"; "the fund managers will make money regardless." Pension
bonds rest on the notion that funds can out-gamble the market, while paying underwriting fees and commissions to fund managers,
and can make large profits to fund existing obligations, while also paying off the bonds, with interest. Several governments,
including New Jersey under Gov. Christine Todd Whitman, have cause to regret their use. To be sure, every defined benefit
fund makes investments. But it does so out of flows of contributions, not from the proceeds of borrowing. Trying to fund deficits
through borrowing is essentially a game of double or nothing. Even conventional pension funds are weighted down by hordes
of rent-seekers: Brokers; advisers obtaining commissions, both fixed and contingent (annual commissions of 2 percent of capital
and 20 percent of earnings are common for hedge fund managers); advocacy groups like Jesse Jackson’s Wall Street Project
seeking preferences; campaign contributors seeking investments in in-state projects; neo-conservatives seeking boycotts of
disfavored foreign countries (Gov. Palin in her debate boasted of her submission to these pressures). For this reason, America
already has several hundred billion dollars in unfunded pension liabilities. Some funds provide examples of ‘crony
capitalism’ that has been the curse of Russia and of Mexico. Alan Greenspan observed of proposals for direct federal
investments in private markets, "with such financial leverage at the government’s disposal, I could readily imagine
the abuses that might occur." The Alaska fund has recently invested $229 million in 41 parcels of agricultural land in
15 states, including orange groves in Florida, farmland in 15 states, and pistachio groves in California. There may be a piece
of Alaska near you. Such investments lack liquidity, accountability, and transparency, nor do their managers work for free. Alaskan
public finance has a third-world flavor. The state distributes surpluses derived from energy taxes in per-capita payments,
largesse falling equally on local patriots and benefit migrants, the sober and the inebriated. The pension deficit has not
inhibited these festivities, Gov. Palin casting herself in the role of Lady Bountiful, or, as she put it in her inaugural
speech, Nanook of the North. Yet Alaska is a high-cost oil producer whose production peaked in 1988; price fluctuations
can leave it high and dry. Its rainy-day Permanent Fund does not approach in magnitude those of Norway and Alberta, who have
wisely paid down pension obligations. When Gov. Palin goes to the casino, she uses mighty large chips. Not for her is
the fiscal conservatism of a Robert Taft, who, when he departed the Ohio legislature for Washington, left behind a system
of bond referenda that made Ohio a low-debt, low-tax state for decades. It is said that Sen. Taft’s favorite recreation
was not moose-hunting or shooting wolves from aircraft but rather family picnics, at which five-cent chocolate bars were distributed
as favors. The favors to be distributed at Gov. Palin’s pension party are apt, alas, to be more lavish. George Liebmann is volunteer executive director of the Calvert Institute for Policy Research in
Baltimore and co-author of “Maryland's Unfunded Liabilities for State and Local Retirees,” recently released
by the Maryland Public Policy Institute and the Calvert Institute. 0
Comments
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Anti-Terror To Pro-Liberty
by George Liebmann
Issue 119
- November 5, 2008  The present financial crisis should prompt the reflection that the greatest dangers to America arise not from external threats
but from what we do to ourselves. Although both presidential candidates have sounded uncertain trumpets, there must surely
be an end to our fixation on ‘Islamic terrorism’ as the major national problem rather than an irritant, but if
addressed with a sanity heretofore often absent, only an irritant. With the campaigns safely over, it is now safe to say that
the much greater threat is to our own liberties.
In the immediate aftermath of 9/11, a former member of
the Reagan administration remarked to me that the late President’s reaction would probably have been to emphasize the
protection of liberty rather than security as the highest goal. Our leaders instead chose the opposite course, in the process
propagating a ‘great fear’ with their ‘red, yellow, green’; alert system, acquiescing in and encouraging
the fortification of even mid-size office buildings in provincial cities, and permitting an event staged by twenty suicide
bombers with box-cutters, five years in the planning, to rearrange the American budget, foreign policy, and Constitution. The broad extent of the measures taken might have been justified had the attacks come from a resurgent Russia
or Germany. As a response to a plot hatched by isolated fanatics in caves in Afghanistan they were, to put it mildly, wildly
disproportionate. The illusion that these measures have ‘kept us safe’ ignores the purposes
and aims of terrorism. Terrorism is a weapon of the weak. Properly dealt with, it isolates them further by exciting moral
disapprobation and denying them sympathizers. Terrorism succeeds only if its targets allow themselves to be terrorized and
alter their behavior in important ways. A cardinal principle in dealing with terrorists is not to make martyrs of them, thereby
gaining them sympathizers. A second principle is not to assist them in reaching their objective: a weakened economy and a
brittle, unpopular, and vulnerable centralized state Martyrs we have produced in quantity: the naked prisoners
of Abu Ghairab; the victims of torture and prolonged detention who have made belated appearances in American courts; two million
Iraqi refugees and five million persons displaced within Iraq. Our European friends, often much derided,
have understood the basic principles. The British endured decades of terrorism from an Irish Republican Army indistinguishable
from the rest of their population, and thereafter from native Muslims in the London transit system. They have forsworn prolonged
detention without trial, having learned in Northern Ireland that it is counter-productive. Their Conservative party resisted
efforts to extend periods of executive detention beyond 28 days. Their courts, unlike ours, have released numerous individuals
found to have been improvidently accused; that some go on to commit bad acts is accepted as a normal consequence of a functioning
justice system; their appellate courts, unlike ours, have not become citadels of delay and procrastination. The Germans have
kept the system of provincial control of criminal justice that we insisted on in the post-war occupation, and did not panic
in the face of a program of systematic assassinations of political leaders and industrialists carried on by the Baader-Meinhof
Gang and Red Army Faction. No British or European politician has proclaimed a purpose of the fight against
terrorism to democratize the Middle East by force. None entertains the illusion that democracies are more pacific than dictatorships;
there is too much in their own history to the contrary. They have not sought, openly or by stealth, to further centralize
their policing institutions; unlike the American administration’s attempts, repudiated by Congress, to facilitate federalization
of the National Guard and eliminate Senate influence over the choice of U.S. Attorneys. No European government has promulgated
a series of morbid executive orders relating to succession to public office in the event of calamity, recognizing that the
ability of local and provincial leaders to step into any breach is one of the features that give free governments strength.
Neither the British nor the Germans have forgotten the central principle of Magna Charta and the due process clauses of the
fifth and fourteenth amendments: that ‘liberty’ in the constitutional sense does not mean abortion rights or ‘gay
rights’, or even a particular definition of property rights, but freedom from arbitrary confinement by the executive
. As former Chairman Greenspan recently put it, "to be largely free of fear of a secret police arbitrarily hauling us
off for interrogation for ‘crimes’ we never knew existed is something not to be taken for granted." Let us hope that the new president founds national strength not on military action abroad and excessive executive
power at home but on self-control abroad, law at home, and on the improvement of the education of the people. Let us hope
that he fosters what De Tocqueville called "that salutary fear which makes men keep watch and ward for freedom, not ...
that infirm and idle terror which depresses and enervates the heart." George W. Liebmann, a Baltimore
lawyer, is volunteer executive director of the Calvert Institute for Policy Research and the author of Diplomacy Between the
Wars: Five Diplomats and the Shaping of the Modern World (Palgrave Macmillam, 2008).
|
|
© 2008 American Conservative
Union Foundation 1007 Cameron Street, Alexandria, VA 22314 Tel: 703.836.8602 |
Maryland’s
School Follies by George W. Liebmann (Baltimore Examiner, April 14, 2005, pg.25:
The overriding of Gov. Ehrlich’s veto of legislation
thwarting the State Board of Education’s
takeover of a dozen Baltimore schools leaves both the State and City without a legislated strategy for educational improvement.
For the last ten years, there have been two strategies for school progress.
The State Department of Education’s strategy, like that of the ‘No Child Left Behind’ Act sponsored by the
Bush administration, was a blueprint for ‘top-down’ reform. Students were to be tested, using centrally-prepared
tests. Teachers and schools were to be threatened with takeovers and other sanctions by higher levels of government where
satisfactory results were not obtained. The threat of these sanctions was supposed to produce improvement.
In Maryland,
this approach was enthusiastically implemented by Supt. Nancy Grasmick. . The introduction of any new testing program, whether
for geometry or basket-weaving, produces several years of dramatically rising test scores, celebrated by the testers. In the
first year, no one knows anything about the test, and sometimes, as with MSPAP, nothing about what is tested.. In the second
year, teachers ‘teach to the test’. In the next two or three years, scores improve, then stagnate.
The game then resumes, with a new set of tests. The Superintendent has been at this for a dozen years, and on any fair reading,
school performance, measured by external criteria like SAT scores, is no better than when she took office. This does not mean
that the tests lie. Baltimore schools are as bad as the tests say they are. But the testing regime does not improve schools.
The second strategy is that of the teachers’ unions,
aided and abetted by such political ‘leaders’ as Gov. Glendening, Senate President Miller, Speaker Busch, and Mayor
O’Malley, supplemented by the efforts of two judges who
are neither humble nor well informed. This involves pouring more money into the schools, vast amounts of money. The Baltimore
‘school reform’
legislation, together with the Thornton Plan have more than doubled per capita pending in Baltimore
City, and have more or less ‘equalized’ spending as between subdivisions. The cost of the state school construction program
has risen more than tenfold since the end of the Hughes administration. A new unfunded mandate has been enacted to improve
teachers’ pensions.
What
this has bought is a large increase in the number of teachers, and hence of union members, and somewhat smaller class sizes.
The teachers, however, by grace of the state’s certification
rules, tend to be drawn in disproportionate measure from the weakest graduates of the weakest colleges. Hiring more of them
requires dipping deeper into a dubious barrel. The federal court’s
efforts on behalf of special education have resulted in the mandated hiring of a profusion of record-keepers who do not enter
the classroom at all. The state school construction program relieves suburban developers of infrastructure costs and, by grace
of the prevailing wage law imposed on schools by the Glendening administration, subsidizes the construction unions. The new
pension improvements are retroactive, and disproportionately benefit teachers who have retired, or are just about to. Their
effect on the recruitment of new teachers is minimal; since the plans are defined benefit plans, younger teachers see no growing
pot of savings and are little influenced by promises of ‘pie
in the sky when you [are about to] die’.
The two sets of policies in combination have toxic effects.
The state mandates deprive the best teachers
of creativity and discretion, rendering them subject to the latest vogue in testing or curriculum design. In the elementary
schools, reading and math teachers are today’s ‘flavor of the month’; the others are marginalized. MSPAP stressed techniques; other tests stress information. Phonics and rote memory
reading programs come and go, as do the ‘old’ and the ‘new’ math. Teachers are treated as marionettes on a string, not responsible
professionals. They rapidly learn to play ‘the old Army
game’ and burn out quickly.
The union-Democratic agenda for its part sops up every dollar that might be employed for a useful purpose, like extra pay
for science and math teachers. The requirement of nearly a year of education courses for teachers, two years for principals,
and three years for superintendents excludes from the teaching force liberal arts graduates, career-changing professionals,
returning housewives, retiring military officers and civil servants, college teachers with a concern for the high schools,
and scientists who decide that research is not their vocation. Seniority systems with ‘bumping rights’ and
automatic annual pay increments insure that the most experienced and highly paid teachers wind up in the least troublesome
schools, and that under-rewarded younger teachers who are acquiring children and mortgages leave the teaching force in droves.
Huge county-wide systems proliferate administrators and guarantee that roofs are not promptly repaired, nor textbooks promptly
delivered, and that parent and civic volunteers are repelled as public menaces and threats to the union structure.
Yet the charade goes on. The Pattersons and Grasmicks have buildings named after them, while even once-distinguished schools
like City, Poly, and Western are denied their own governing boards, lack the salary supplements to hire computer science teachers,
of whom they have none, and are subjected to a relentless levelling-down process.
However, though few Marylanders
know it, there is a third path for school improvement. It was mapped out by a recent state commission, following foreign examples.
It is a program for bottom-up reform. It urges differential pay for scarce disciplines and unusual skills; an end or drastic
reduction in seniority-based pay and assignment structures; an opening of schools and school leadership to liberal arts graduates,
private-sector managers, retirees, and others with relevant experience; adequate means to purge bad teachers; greater parent
and community involvement in building-level governance; defined-contribution portable pensions; and a really adequate charter-school
law, one looking toward a system like that of several foreign countries where all schools are governed as charter schools.
Its chairman was not Ehrlich nor O’Malley,
nor Copeland or Grasmick, still less Miller or Busch. The public needs to hear about the recommendations of the Steele Commission.
Let us hope its leader finds his voice.
George W. Liebmann, a Baltimore lawyer, is the
volunteer executive director of the Calvert Instuite for Policy Research, Inc.
’s School Follies by George W. Liebmann (Baltimore Examiner, April 14, 2005, pg.25:
The overriding of Gov. Ehrlich’s veto of legislation thwarting the State Board of Education’s takeover of a dozen Baltimore schools leaves
both the State and City without a legislated strategy for educational improvement.
For the last ten years, there
have been two strategies for school progress.
The State Department of Education’s strategy, like that of the ‘No Child Left
Behind’ Act sponsored by the Bush administration, was
a blueprint for ‘top-down’ reform. Students were to be tested, using centrally-prepared
tests. Teachers and schools were to be threatened with takeovers and other sanctions by higher levels of government where
satisfactory results were not obtained. The threat of these sanctions was supposed to produce improvement.
In Maryland,
this approach was enthusiastically implemented by Supt. Nancy Grasmick. . The introduction of any new testing program, whether
for geometry or basket-weaving, produces several years of dramatically rising test scores, celebrated by the testers. In the
first year, no one knows anything about the test, and sometimes, as with MSPAP, nothing about what is tested.. In the second
year, teachers ‘teach to the test’. In the next two or three years, scores improve, then stagnate.
The game then resumes, with a new set of tests. The Superintendent has been at this for a dozen years, and on any fair reading,
school performance, measured by external criteria like SAT scores, is no better than when she took office. This does not mean
that the tests lie. Baltimore schools are as bad as the tests say they are. But the testing regime does not improve schools.
The second strategy is that of the teachers’ unions,
aided and abetted by such political ‘leaders’ as Gov. Glendening, Senate President Miller, Speaker Busch, and Mayor
O’Malley, supplemented by the efforts of two judges who
are neither humble nor well informed. This involves pouring more money into the schools, vast amounts of money. The Baltimore
‘school reform’
legislation, together with the Thornton Plan have more than doubled per capita pending in Baltimore
City, and have more or less ‘equalized’ spending as between subdivisions. The cost of the state school construction program
has risen more than tenfold since the end of the Hughes administration. A new unfunded mandate has been enacted to improve
teachers’ pensions.
What
this has bought is a large increase in the number of teachers, and hence of union members, and somewhat smaller class sizes.
The teachers, however, by grace of the state’s certification
rules, tend to be drawn in disproportionate measure from the weakest graduates of the weakest colleges. Hiring more of them
requires dipping deeper into a dubious barrel. The federal court’s
efforts on behalf of special education have resulted in the mandated hiring of a profusion of record-keepers who do not enter
the classroom at all. The state school construction program relieves suburban developers of infrastructure costs and, by grace
of the prevailing wage law imposed on schools by the Glendening administration, subsidizes the construction unions. The new
pension improvements are retroactive, and disproportionately benefit teachers who have retired, or are just about to. Their
effect on the recruitment of new teachers is minimal; since the plans are defined benefit plans, younger teachers see no growing
pot of savings and are little influenced by promises of ‘pie
in the sky when you [are about to] die’.
The two sets of policies in combination have toxic effects.
The state mandates deprive the best teachers
of creativity and discretion, rendering them subject to the latest vogue in testing or curriculum design. In the elementary
schools, reading and math teachers are today’s ‘flavor of the month’; the others are marginalized. MSPAP stressed techniques; other tests stress information. Phonics and rote memory
reading programs come and go, as do the ‘old’ and the ‘new’ math. Teachers are treated as marionettes on a string, not responsible
professionals. They rapidly learn to play ‘the old Army
game’ and burn out quickly.
The union-Democratic agenda for its part sops up every dollar that might be employed for a useful purpose, like extra pay
for science and math teachers. The requirement of nearly a year of education courses for teachers, two years for principals,
and three years for superintendents excludes from the teaching force liberal arts graduates, career-changing professionals,
returning housewives, retiring military officers and civil servants, college teachers with a concern for the high schools,
and scientists who decide that research is not their vocation. Seniority systems with ‘bumping rights’ and
automatic annual pay increments insure that the most experienced and highly paid teachers wind up in the least troublesome
schools, and that under-rewarded younger teachers who are acquiring children and mortgages leave the teaching force in droves.
Huge county-wide systems proliferate administrators and guarantee that roofs are not promptly repaired, nor textbooks promptly
delivered, and that parent and civic volunteers are repelled as public menaces and threats to the union structure.
Yet the charade goes on. The Pattersons and Grasmicks have buildings named after them, while even once-distinguished schools
like City, Poly, and Western are denied their own governing boards, lack the salary supplements to hire computer science teachers,
of whom they have none, and are subjected to a relentless levelling-down process.
However, though few Marylanders
know it, there is a third path for school improvement. It was mapped out by a recent state commission, following foreign examples.
It is a program for bottom-up reform. It urges differential pay for scarce disciplines and unusual skills; an end or drastic
reduction in seniority-based pay and assignment structures; an opening of schools and school leadership to liberal arts graduates,
private-sector managers, retirees, and others with relevant experience; adequate means to purge bad teachers; greater parent
and community involvement in building-level governance; defined-contribution portable pensions; and a really adequate charter-school
law, one looking toward a system like that of several foreign countries where all schools are governed as charter schools.
Its chairman was not Ehrlich nor O’Malley,
nor Copeland or Grasmick, still less Miller or Busch. The public needs to hear about the recommendations of the Steele Commission.
Let us hope its leader finds his voice.
George W. Liebmann, a Baltimore lawyer, is the
volunteer executive director of the Calvert Instuite for Policy Research, Inc.
|
|
by David E. Bernstein. Chicago: University of Chicago Press, 2011. 208pp. Cloth. $45.00 ISBN: 9780226043531. E-book. $7.00
to $45.00. ISBN: 9780226043180.
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