B&T Adopts Alternative to Brinkley-Pipkin Plan

In a Friday afternoon voting session, the Senate Budget and Taxation Committee adopted an alternative plan to establish a new formula for the state and local sharing of education retirement costs.

Over the past three years, states costs to support the retirement program of local boards of education, community colleges and libraries have rapidly spiraled upward.  The FY09 state payments of $676 million to the teacher retirement system have now increased to $928 million in FY11.

Legislators have questioned the rationale for this program since all of the decisions with regard to salary levels and benefits are made at the local level but the state is left picking up the tab for the retirement payments.  Senators David R. Brinkley and EJ Pipkin proposed in their budget plan (Senate Bill 1004) a phase-in of a 50/50 state-local split for education retirement costs.

While the specifics of the Brinkley-Pipkin proposal were rejected by the committee, an alternative plan offered by Senator Richard S. Madaleno, Jr., that still initiates cost-sharing with the counties was adopted by the committee. The key feature of the Madaleno plan is the return of the Social Security payments into the mix of the state-local share.

County leaders and local budget staff have long memories of the rough transition when social security payments for local educators were switched from state to county liability during the William Donald Schaefer administration. The Madaleno proposal adds the Social Security and retirement contributions together and then calculates a 50/50 split of the total.

Implementation of the new formula is deferred for one year and then phased in over three years.  Currently, the Social Security is 7.65% and the retirement contribution is 14.34% of the salary wage base. The phase-in will require counties to increase their share on top of the Social Security amount by 1% in FY12, 3% in FY13 and 5% in FY14 & FY15. Beginning in FY16, the state and local contributions will be adjusted annually based upon the estimated required contribution for the state and local share to remain at 50%.

The committee also adopted budget language to require the Joint Committee on Pensions to conduct an extensive study of all items that have a material impact on the funding status of the state retirement systems.  The report shall consider the “comparability, competitiveness, affordability, and sustainability of state funded retirement benefits in relation to the System’s long-term outlook.” The findings and recommendations of the report are due to the budget committees by January 1, 2011.

The adopted Madaleno plan will be presented on the Senate floor this Monday night as part of Senate Bill 141 – Budget Reconciliation and Financing Act.