December 18, 2010

Help us protect public schools and services

Please contribute now to help STOP TRANSFER OF PENSIONS

Help us plan public events and organize support for sensible policies.

Transferring pension obligations to the counties and cities would devastate local economies, hurt public schools, prevent needed maintenance, and delay or deny new projects by overburdening our local governments. We have better choices–untapped potential revenues Please support our efforts! Contribute to STOP and contact us to get involved. (PayPal is the safer, easier way to pay online without revealing your credit card number. Contributions to STOP are not tax deductible.) See our website:

Some background: During the Glendenning years, Maryland adopted the “corridor” formula which was not actuarially sound and therefore underfunded the pension systems. The recession–with the stock market and real estate shocks–depleted the value of assets in the pension trust funds. Also, poor investment decisions led to lower-than-expected return on investments. These three factors combined to leave the pensions underfunded.

STOP agrees Maryland must address this shortfall, but we propose real solutions to the underlying problems. If the state dumps some or all of these pensions obligations onto localities, the results will be disastrous. When the state stopped paying for Social Security for teachers some years back, class sizes increased dramatically and school construction ground to a halt. Students attended school in too-hot or too-cold trailers instead of classrooms.

Transferring pensions does nothing to address real problems.

It would merely pass the buck–really billions of bucks–in a way that would exacerbate local fiscal problems. The same crunch Maryland faces on the state level is also hurting localities, leaving budgets overstressed and putting jobs and services on the chopping block. The counties and Baltimore City cannot afford to shoulder the pensions burden. Shifting that burden will not make it any smaller or easier to bear.

Shifting pensions obligations would hit Montgomery County particularly hard, but all local jurisdictions will suffer. MoCo has a restrictive revenues formula, making it very difficult to increase revenues. If the counties and Baltimore have to pay for pensions, they will lose many of the best teachers, and have to slash public services, layoff workers, and close facilities including schools, libraries, and county offices.

We’ve seen this problem coming for some time. reported in January 2009: “[Montgomery County Executive Ike] Leggett plans to make sure that Montgomery County does not get stuck with the state’s bill for teacher pensions. The pensions [transfer] would add another $100 million to the county’s current fiscal shortfall of approximately $500 million.” Quoting Leggett’s analysis of the problem, “I don’t think that was some kind of conspiracy,” says Leggett, “It’s just simply a reflection of some of the errors and negligence that occurred at the state level.”

Fast forward to September 2010, and reported the same concerns. “[Ike] Leggett projects a more than $200 million shortfall for fiscal year 2012, or more depending on income tax returns and whether the state shifts more costs to the county. [Former] County Council President Nancy Floreen says it’s too early to say where cuts should come. ‘The other things on the table this year are what’s going to come out of Annapolis,’ Floreen says. One of the big questions is whether state lawmakers will require counties to pay for teacher pensions. Currently, the state pays teacher pensions.” See: (2009 article) and (2010 article).

STOP agrees Maryland lawmakers must take decisive action to address this shortfall, but we propose real solutions to the underlying problems, not treating the pension obligations like a hot potato. Last year, then-Delegate, current State Senator Roger Manno filed HB 10 to protect education and public services by fully funding pensions on the state level. He called for combined reporting, progressive taxation, and other state-level revenues to shore up the pensions trust funds. Combined reporting would close a loophole some corporations use to avoid paying all or part of their taxes on income earned in Maryland. Other states have enacted combined reporting, and found that it’s a fair and effective method to accurately determine how much corporations should pay to states. The formula is precise and detailed, leading some to claim it’s “too complicated.” The complexity is required to accurately assess tax burdens. See:

An article prepared by the New Rules Project explains combined reporting: “Many retail chains earn profits at stores nationwide, but have developed an accounting scheme to evade paying their full share of state corporate income taxes. Tax experts believe the practice is costing states billions of dollars in lost revenue. It has also given chains an advantage over locally owned businesses, which must pay state income tax on all of their earnings. Twenty-one states are not vulnerable to these tax-evasion schemes, because they have enacted a policy known as combined reporting.” The article lists corporations using loopholes to avoid taxes in Maryland and other states including The Gap, Home Depot, Ikea, Kmart, Kohl’s, Limited Brands (which owns Bath & Body Works, Victoria’s Secret, The Limited, Payless Shoes, and other chains), Staples, and Wal-Mart as companies that escape taxes, but which would be forced to pay their fair share under combined reporting.

Also from the New Rules Project: “As of November 2010, twenty-three states have adopted combined reporting. These states are: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Illinois, Kansas, Maine, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New York, North Dakota, Oregon, Texas, Utah, Vermont, West Virginia, and Wisconsin.” By contrast Maryland is one of the states that “have not adopted combined reporting and are vulnerable to chains escaping their state tax obligations by shifting income to subsidiaries.” See:

Maryland can and should close this loophole, and STOP believes Maryland should use those and other revenues to address the pensions short fall–as outlined in HB 10. STOP remains open to any and all proposals that actually address the situation while protecting public schools and local services.

We need your help. Support public schools and local services. Please contribute to STOP. (PayPal is the safe way to pay online without revealing your credit card number. Contributions to STOP are not tax deductible.)