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Date: 02/15/11

Between a Rock and a Hard Place

By Rep. Amy Volk

We've all been there. Sometimes, there are no good choices. No matter what decision you make, someone will be unhappy.

As a new legislator, that is exactly where I have found myself. State budgets are always difficult. We all knew going into this legislative session that tough choices awaited us. Difficult cuts were made in the last Legislature, but federal stimulus money cushioned the blow. With stimulus cash all but gone, state governments nationwide are in the same bind - between a rock and a hard place.

How did we get into a situation where we would start the next budget process with an $800-million revenue shortfall? Much of it has to do with Mainers' generosity - or more specifically, with the generosity of past administrations.

Maine has some of the most lenient income limits for enrolling in our Medicaid system, known as MaineCare. The enrollment has reached 300,000, an all-time high, and costs have exploded well beyond $2 billion a year. Many of those dollars are federal matching funds, but hundreds of millions come directly out of the pockets of Maine people and Maine companies.

Doctors and hospitals who lose money on MaineCare patients (due to low reimbursements) make up those losses by charging the rest of us more, driving up the cost of private health insurance. These facts are indisputable. Unfortunately, the federal Affordable Care Act (commonly called ObamaCare) freezes Maine in a state of perpetual generosity, essentially robbing us of the flexibility to make effective changes or cuts to this bankrupting system.

Previous political leaders also made pension promises to state workers and teachers that were unsustainable. Almost as soon as the ink dried on the contracts, legislators failed to set aside enough money to fund the retirement system. They also depended on an 8 percent annual investment return for most of the system's total intake. Instead, it lost more than $2 billion in the stock market crash of 2008.

The mismanagement of the pension system is unfair to those we made promises to, and it's also unfair to all of us who work hard, pay our taxes and keep our promises. Here we are in 2011, a small state of 1.3 million people, owing $4.4 billion to our state workers. That is a big debt!

Did I mention that, based on an amendment to the Maine Constitution, we have only 17 years to get it paid? Next year's payment is $450 million - 15 percent of General Fund spending. That is $190 million more than we spend annually on the university and community college system. In 2017, the bill comes to $678 million, more than we spent on MaineCare in 2008. In 2018, the debt payment rises to $737 million, enough money to repave 75 percent of all state and local roads. In 2021, the payment hits $849 million - 25 percent of all General Fund spending; that is roughly what the state spent last year in General Purpose Aid for Local schools.

By the time the debt is retired, in 2028, Maine taxpayers will have paid back $8.9 billion. We must repay not just the principle but also the investment income the pension system would have received if it had been fully funded all along.

Massive spending on pension debt will severely squeeze other vital state programs. Many states are wrestling with the same issue, but Maine's weak economy will make it particularly difficult for us to meet our obligations.

In a word, our situation is dire. So what can be done?

Governor LePage's budget proposal gives us some hope. His pension plan increases the amount that teachers and state workers must pay to 9.65 percent of their income - up from 7.65 percent. He would raise the retirement age from 62 to 65 for people not yet vested. He also would freeze pensions for three years, and thereafter limit cost of living increases to 2 percent a year.

These pension changes will save taxpayers $524 million over the next two years and an estimated $6.48 billion between 2012 and 2028. They will keep the system solvent over the long haul. This is an expensive fix for teachers and state workers, but at least their pensions will be there when they need them. ###

State Rep. Amy Volk (R-Scarborough) serves on the Legislature's Committee on Labor, Commerce, Research and Economic Development