AUGUSTA – Current state workers and teachers would have to contribute an additional 2 percent of their salaries to the retirement system as part of a major restructuring that’s proposed in the new two-year budget.
More details emerged Friday on what’s in the $6.1 billion, 600-page spending plan announced by Gov. Paul LePage on Thursday. The budget, which now heads to the Legislature for review and approval, is larger than the current $5.7 billion state budget.
Part of the reason is this budget includes money the state gives to cities and towns, said Department of Administrative and Financial Services Commissioner Sawin Millett. Past state budgets didn’t account for those funds.
That accounts for $180 million of the increase, he said.
“When you look at an apples to apples comparison, we’re talking about a budget that is largely flat-funded,” he said. “But it makes a few new investments and makes some strategic moves with long-term priorities.”
Those long-term priorities include changes to the Maine Public Employees Retirement System, both to help fund current services and to reduce the state’s long-term debt. The state faces a $4.4 billion unfunded government employee pension liability that must be paid off by 2028.
LePage’s proposed changes are projected to reduce that liability to $2 billion by 2028, and they save $524 million over the next two years, most of which would go to the state general fund.
Among the pension system changes:
• Freeze cost of living increase for retirees for three years.
• Reduce the cap on annual increases after that from 4 percent to 2 percent. Historically, annual increases have averaged 2.8 percent, according to the retirement system.
• Increase the retirement age from 62 to 65 for new state employees and those with fewer than five years of service.
• Increase the amount that current employees are required to contribute to the retirement system from 7.65 percent of salary to 9.65 percent.
The Maine State Employees Association continued to express concerns about the proposals, saying that while private sector workers have the option of increasing contributions to their retirement when they can afford it, state workers are required to by the budget.
“In this day and age, I think employees would want that money in their paycheck,” said Chris Quint, the association’s executive director. “What they are saying is, we’re just going to require you to put 2 percent in, regardless of whether you can afford it or not. That’s very problematic for us.”
Also, the budget seeks to address a shortfall in retiree health care — pegged at $2.3 billion — by requiring that employees work longer to qualify for benefits, and for future retirees to pay an increased share of their health insurance. It also amends the retiree health benefit for new and recent hires to create a phased-in benefit based on the number of years of service.
“We are proposing that people who retire after Jan. 1 of 2012, will pay a portion of their health insurance if they retire at an age below 65,” Millett said. “Currently, that’s where our greatest state share of cost occurs.”
The state also is offering a new retirement incentive program that gives a $5,000 payout. Employees must have reached normal retirement age and 25 years of service to be eligible, he said.
LePage said on Thursday that his budget “has no mass layoffs,” but it does eliminate 81 state jobs, 12 of which are filled.
Most of those are in the Fund for a Healthy Maine program that’s under the Department of Health and Human Services. The affected workers were notified Friday, Millett said.
Millett said while there are no furlough days in the budget, the administration is planning to continue merit and longevity pay freezes instituted by Gov. John Baldacci.
In the area of K-12 education, the budget allocates $22 million more in the first year of the budget and $41 million more in the second. Stephen Bowen, LePage’s education policy adviser who is expected to become his nominee for commissioner, said districts also have $30 million in federal funds left over that can be spent in 2012.
LePage’s budget directs additional state funds to schools to help make up for the loss of federal stimulus money, Bowen said. In the current fiscal year, the state has received $59 million in stimulus money that it will no longer receive in future years, he said.
In the current fiscal year, state education spending and federal stimulus money for education totaled $931 million. The new budget proposes to spend $925 million in state funds in fiscal year 2012 and $914 million in 2013.
There are no cuts to higher education and two new education initiatives, Bowen said.
One is an additional $332,000 each year to the Jobs for Maine’s Graduates program, which helps reduce the dropout rate. More than 500 teens are expected to be helped.
Also, $730,000 each year has been directed to a new program at Good Will-Hinckley in Pittsfield to create a charter school for at-risk youth. In addition to passing the budget, the Legislature will need to enact a law to allow charter schools in Maine for the program to move forward, Bowen said.
The budget also assumes $25 million in unspecified savings in the second year, an amount that will have to be identified by a working group the budget calls for establishing.
Senate President Kevin Raye, R-Perry, said this budget represents a major change from recent budgets that included cuts to the disabled, elderly and mentally ill.
“The governor deserves enormous credit for addressing the insolvency of the pension system and that he’s proposing a way to address it by making changes for newly hired employees and future employees by protecting their retirement,” he said.
“Current pension checks are not going to be cut.”
MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at: scover@mainetoday.com
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