Pension reform underway in Maine

From the July 14th edition of the York County Coast Star.

By Representative Kathy Chase (District #147 Wells Maine)

The first session of the 125th Legislature is over. However, impacts will be felt long after the ringing of the final session bell has faded. I served on the Appropriations and Financial Affairs Committee, which is responsible for the final version of the biennium budget. It passed June 16 by an overwhelming two-thirds vote in both the Senate and House — and was signed into law by the governor on June 20. The focus of this column will be the first of the three major components of the budget: pension reform, tax reform and welfare reform.

Pension reform was proposed primarily to address the unfunded liability that had grown to an unmanageable amount. The reasons for the increase: past legislatures bringing groups into the pension system without funding them, borrowing from the fund, postponing debt payments, and the 2008 stock market crash that caused a loss of $2.1 billion in the pension fund. These were coupled with a mid-90s constitutional mandate requiring that the pension debt must be paid off by 2028 and that experience losses (market loss) must be paid off within 10 years of loss. This created a looming fiscal disaster.

Had we done nothing, Maine taxpayers were projected to pay almost $11.3 billion to the Maine Public Employees Retirement System Pension by the 2028 date with annual payments reaching nearly $600 million by 2018 — and growing. That growth could've potentially impacted every part of our budget, forcing deep cuts in vital state programs such as education, aid to elderly and disabled, roads and bridge repair and the stability of our pension system.

What our budget pension reform package did was reduce the unfunded liability nearly in half, save $338 million in pension costs this biennium alone, and create NO additional employee contributions.

The new plan as passed has a three-year freeze on COLA, or cost-of-living adjustments, with the COLA indexed benefit cap beginning after the third year at up to 3 percent of the first $20,000 in pension; creates a new "cascade" transfer for three years (2012-2014) of up to $15 million from surplus funds to the pension fund for designation by the Legislature for payment of non-accumulative cost-of-living adjustments for the three years while the pension COLA is frozen; changes the non-vested and new hires (only) retirement age to 65; freezes salaries for two years for active employees with no additional contributions required; and ends state shutdown days (representing approximately a 4-percent pay increase to employees).

The secondary reason for reform — based on the dislike of the portability and the reduction in Social Security payments as a result of being in this pension system — is to design a new retirement plan. It will close out the current defined benefit plan and replace it with a retirement benefit plan — supplemental to Social Security — implemented no later than June 2015 and that will apply to all first-hired state employees and teachers as of that date.

One of the good impacts felt from the work of the 125th Legislature this year.

Understanding the basics of the state budget

Understanding the basics of the state budget

By Rep. Kathy Chase

As the Legislature takes up Governor LePage’s $6.1 billion budget proposal, the State House has been packed by union members, teachers and other public sector employees concerned about changes to the pension system. Consequently, we are seeing more media attention than usual, and I’ve been asked by many constituents about the details of how the process works.

As a member of the budget-writing Committee on Appropriations and Financial Affairs, I will try to explain some of the basics.
The State of Maine budgets its finances on a two-year plan known as the biennial budget. It’s created by the governor, and for each of the two fiscal years it shows all proposed expenditures, interest, debt, redemption charges, capital expenditures and the estimated revenues to fund all of those expenditures and obligations.

Although it’s referred to as “the governor’s budget” and advances his program priorities and objectives, it’s submitted to the Legislature the same as any other bill. The governor cannot implement the budget by himself. It must navigate through the legislative committee process and then be passed by both the House and Senate – twice each – before it can be signed into law by the governor.

Despite all the hype, rhetoric, spin, outrage or delight you may currently read in the papers or see on the news about Governor LePage’s budget, rest assured that by the time it goes through the full process and eventually becomes law, it will be a different document.

Why is that? Because there are two mandates that neither the governor nor the Legislature can avoid. The budget must balance and the budget must pass.

The governor presents the initial balanced budget based on his chosen priorities. Any changes, even the smallest, alter the balance.

For the Legislature, the budget process begins in the Appropriations and Financial Affairs Committee. This 13-member panel is responsible for review of the budget through a series of public hearings, followed by committee workshops. All of the Legislature’s 15 policy committees appear before Appropriations with reports and concerns regarding their sections of the budget. Proposals for changes are negotiated, participation by legislators is encouraged and adjustments are made to keep the budget balanced.

This is an intense and lengthy process spanning more than six weeks. It’s the responsibility of the Appropriations Committee to deliver a fully vetted, reviewed and recreated budget. The committee itself votes on the final product and then passes the document to the full Legislature.

There are two ways the budget can pass. A so-called simple “majority budget” that occurs rarely, and the most common, a 2/3’s majority. Difficulties arise because all 186 legislators have their own ideas about what should or should not be in the budget and feelings can run hot.

Either way, it means that of the 186 legislators, at least 76 House members and 18 senators – plus the governor – must agree to pass the budget.

It is an incredible experience, and serving on the Appropriations Committee is a great honor for me and one of the best educations I have ever had.

State Rep. Kathy Chase (R-Wells), a third term legislator, serves on the Appropriations and Financial Affairs Committee

Response to Governor Baldacci's last weekly address

Greetings and Happy New Year! This is Kathy Chase, state representative from Wells.

This coming week marks the start of a new era for the citizens of Maine. On Wednesday, Paul LePage will be sworn in as governor at the Augusta Civic Center. The next day, the Legislature will convene at the State House to witness the swearing-in of three new constitutional officers – the Attorney General, the Treasurer and the Secretary of State. And there will be a new look to the Legislature itself. For the first time in decades, Republicans hold the majority in the House and Senate. When Mainers went to the polls on November 2nd, they voted for a clean sweep and a fresh start.

In the transition phase between then and now, the State House has been a busy place. Incoming legislators have been briefed on the basics of their new jobs. Staff members have been moving around and adjusting to new responsibilities. Representatives and senators have been assigned to one or more of the 16 policy committees that form the internal structure of the Legislature. And over everything hangs a sense of hope that new policies can point Maine in the right direction – towards a stronger economy with a better business climate and more jobs for our citizens.

If Republicans collectively could make a New Year’s resolution, it would be devoting our energies to bringing about a lasting economic revival in our state. Government can’t create jobs, but it can set the conditions that make life easier for entrepreneurs and other employers. That effort is already under way with action to identify regulations and enforcement tactics that needlessly punish employers and impede economic expansion. Clearly, some regulations are necessary to protect our common well-being, but enforcement too often becomes hostile and adversarial. It would be much better to work in a mutually beneficial fashion and exercise common sense.

As a new member of the Appropriations Committee, I understand that Republicans are coming to power in Maine at a time of great challenges. The question isn’t whether to change direction; the question is how to change direction to bring about the best results. We don’t really have a choice about taking action. With a revenue shortfall estimated at more than $1 billion, the state no longer has the money to maintain the political status quo.

The list of problems we face is a long one and solving them will take hard work and creativity. Our health care costs are among the highest in the country, making private insurance rates extraordinarily expensive. The Obamacare bill passed by the Democratic Congress is already driving costs even higher, with no relief in sight. For employers, the extreme cost of covering their workforce means slower growth and fewer employees. This fundamental problem must be addressed for Maine to move forward and generate more jobs. Changing Maine’s insurance mandates to a mainstream position is one approach. That would bring more insurance companies into the state, increasing competition. Another approach is allowing individuals to buy insurance policies in other states, where rates are much lower for identical coverage. We can buy life insurance and auto insurance across state lines. Why not health insurance?

There are other issues that must be addressed, as well. We have a $4.4 billion unfunded debt to the public employees pension system and a separate unfunded debt of more than $2 billion for retiree health insurance. Other states facing similar problems are changing benefit packages for teachers and state workers, and it’s time for Maine to explore systems that we can afford over the long haul. The state’s overall debt, by the way, is more than $10 billion.

And then there’s welfare. Over the past few decades, Maine has built one of the largest, most generous and most lenient welfare systems in the country. Enrollment has grown by 70 percent since 2003, now embracing 29 percent of our population. We have 300,000 residents on MaineCare – our version of Medicaid – receiving free medical and dental care. That’s one quarter of the state. One recent study concluded that Maine is the now the most welfare-dependent state in the entire nation. Considering our budget shortfall, we need to reform these programs to reduce enrollment and encourage independence and personal responsibility. We can’t afford to sink into a permanent welfare culture.

The new Legislature has plenty of work to do. Republicans are committed to positive change, and we welcome Democrats to join us. We’re all in this together. This is Kathy Chase, wishing you a great new year.

Public pension debt looms as budget buster

Public pension debt looms as budget buster

By Rep. Kathy Chase

Maine faces a deepening crisis in its public pension system, as burgeoning costs threaten to squeeze out other government programs and vastly complicate the process of putting together the next state budget.

The root of the problem is the “unfunded actuarial liability” (UAL) in the accounts that pay pensions to retired teachers and state workers. The $4.4 billion shortfall, which was announced in July, has set off alarm bells in the State House. Budget experts are now pondering the impact of pension payment obligations that have soared in recent months and are scheduled to become even more unmanageable in the near future.

Considering the daunting magnitude of the problem, some sort of changes look inevitable. Bills already submitted for the next Legislature could affect the retirement income of the roughly 76,000 plan participants, including those already retired and those still active.

How did we get into such a predicament? Most of the blame goes to politics and irresponsible government. Throughout the 1970s and ‘80s and into the ‘90s, the unions representing teachers and state employees lobbied to enlarge the size of their pensions to compensate for salaries that were, at the time, relatively low. Their allies in the Legislature actually changed the laws to “enhance” the pension payouts, but then neglected to fully fund them. The cost was simply pushed into the future, leaving somebody else to deal with the fallout.

A couple of years ago, the unfunded liability stood at $3 billion, but with large investment losses in the stock market crash of 2008 and 2009, the shortfall has jumped to some $4.4 billion. The funds depend on investment income for 60 percent of their total intake. When investments turn sour, the taxpayers of Maine are forced to cover the gap.

Maine is not alone in this crisis. Public pensions have suddenly become front-page news from coast to coast. The explosive cost of retirement packages for state employees and teachers has emerged as a major issue at a time when state tax revenues are depressed and federal stimulus money is running out. The recession has laid bare a harsh truth: states have made retirement promises they no longer can afford without savaging schools, Medicaid, roadwork and other critical state functions.

Nationwide, the combined unfunded liability in public pension funds is estimated at between $1 trillion and $3 trillion. So serious is the situation that the New York Times ran an article on August 6 entitled “Battle Looms over Huge Costs of Public Pensions.” The story discusses a “class war coming to the world of government pensions,” pitting pensioned teachers and state workers against the taxpayers who have to pay for those retirement checks.

As the Times’ article says of the taxpaying public: “Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of these people will be paying higher taxes or getting fewer services as their states put more money aside to cover those pension checks.”

Here in Maine, the problem escalated from serious to critical in July. That’s when we learned that taxpayers will have to fork over $916 million in the next biennial budget, for fiscal years 2012 and 2013, to cover pension obligations. That will include approximately $210 million to cover “normal” pension costs, which represent the state’s routine monthly contribution of 5.5 percent of payroll. (State employees contribute 7.65 percent of their incomes to the trust fund, a percentage fixed by law.)

The big financial nut for the next budget is the $706 million in mandatory payments towards the UAL, an increase of more than $220 million from the amount paid in the current budget.

An amendment to the Maine Constitution passed in 1995 mandates that the UAL be paid in full by 2028. A back-loaded amortization schedule sets the amounts required to retire the debt. With the UAL’s increase from $3 billion to $4.4 billion, the state’s biennial payments have surged much higher. From $706 million in the next budget, the amount hits $772 million in the 2014-2015 budget, then goes to $848 million in the following biennium. The payments explode upward in the “out years,” reaching $1.4 billion in the 2027-2028 budget cycle.

Taxpayers will end up paying $8.9 billion to retire the $4.4 billion debt, because the trust funds must be paid not just the principal they are owed but also the investment income they would have earned if they had been fully funded all along.

Obviously, these payments will heavily impact a budget that stands at $5.5 billion for the current biennium. To mitigate the financial stress, State Rep. Rich Cebra (R-Naples) has submitted a bill to suspend for six years the annual cost-of-living adjustments paid to retired teachers and state workers. His bill also would increase the employee contribution rate from 7.65 percent of income to 8.65 percent, also for six years. The hope is that the trust funds’ investment income returns to normal levels as the economy rebounds from this seemingly endless recession. An investment recovery would automatically lower the UAL and the state payments required to cover it.

Teachers and state workers count on their retirement system, and as legislators we want to make sure it’s there for them when they need it. But there is a limit to how much the state and the taxpayers can afford.

State Rep. Kathy Chase (R-Wells) is the ranking Republican on the Maine Legislature’s Taxation Committee

”Restoring Honor Rally” in Washington DC

Last weekend I had the incredible experience of attending the ”Restoring Honor Rally” in Washington DC. Like many of the 500,000 plus people attending, I traveled by bus organized by local people who took the initiative to do it. There were several bus groups from Maine and ours was put together by Jeff Scully. That scenario was repeated by others across the country. We met people from Michigan, Arkansas, Washington, Arizona, Georgia, Rhode Island, New York, and other Mainers and saw buses from all over the USA.

If you have never been in a crowd of more than a half a million people before it is hard to imagine the enormity and logistics of moving that many from outside of Washington DC in to the Mall between the Lincoln Memorial and the Washington Monument—and having them all there by 10 a.m. on a Saturday. It was accomplished smoothly, simply due to the respectful attitude of those attending the rally. In the hour and a half wait --in lines that filled the train terminal and wound outside down the street --just to purchase the Metro Train tickets to get near the mall, people were polite, did not get angry and helped each other in the digital ticket process that few were familiar with. Our Metro Train was filled to capacity before the 4th of 10 stops to get to the nearest Mall exit, yet passengers joked about being packed in “like sardines in a can” and called out recommendations about the best stop to get off and how to get to the Mall.

On the Mall, families, groups of friends, military members, and individuals of all ages and ethnic background gathered on blankets or small folding chairs, sitting and eventually all standing as the crowd grew larger and the time for the Rally grew near. There were no protest signs-- no signs at all that I saw—only thousands of American flags and some State flags being waved. The only “chant” I heard the entire time was “U. S. A., U. S. A.!!!”

The Show itself, was as inspiring as the crowd watching it. As promised, it was not political, but American. A moving and stirring tribute to and reminder of where our Country came from, the ideals that brought us together , the recognition of the great minds that put it all together and the strength of conviction Americans have always held for freedom, faith, individual rights and love of country. Current military heroes were introduced, honored and their stories told. Soldiers past and present were thanked for their service and honored for their willingness to protect Americans. Medals were given to three people who best represented the ideals of Faith, Hope and Charity. Martin Luther King’s niece paid tribute to her uncle in recognition of the anniversary of his “I Have a Dream” speech given there at the Lincoln Memorial 47 years before and his honored position in American Civil Rights History.

The call to action for the rally was to bring attention to our country’s original vision and mission. A “reawakening” call to the ideals of freedom, protection of our families, individuals rights, unity among states, responsibility as a people, Faith, and most importantly- together we are Americans. In the darkest hours of our history Americans have proudly stood shoulder to shoulder for the good of our country. Saturday I felt as honored as anyone recognized on that stage to be “shoulder to shoulder” with 500,000 patriotic Americans who were there because they believed in our Forefathers’ mission and vision, did not hold back their faith, proudly saluted our flag and were respectful to each other. Luckily for all of us, I believe they represented only a “tip of the iceberg” of good Americans in our great Country.

Kathy Chase, Wells Maine

State Rep. Kathleen Chase Posts Strong Pro-Business Voting Record

State Rep. Kathleen Chase Posts Strong Pro-Business Voting Record

AUGUSTA – State Rep. Kathleen Chase has had a very strong pro-business voting record in the 124th Legislature, according to an analysis by the Maine Economic Research Institute (MERI). Her rating of 90 out of a possible 100 puts her in the top rank of legislators who voted consistently in favor of a strong Maine economy. Rep. Chase (R-Wells) said she supported bills that would help create jobs, improve Maine’s economic climate, and enable businesses to survive the economic downturn.

MERI, based in Augusta, is a nonpartisan organization that grades lawmakers on their votes on bills affecting job creation, health insurance, taxation and other important economic issues. There were 10 such bills in this latest analysis, which took into account the First Regular Session of the 124th Legislature.

The bills rated by MERI covered a wide range of topics. One bill MERI opposed was L.D. 1264, “An Act to Stabilize Funding and Enable DirigoChoice To Reach More Uninsured.” This bill passed the House 84-58, the Senate 19-15, and was signed by the Governor. It imposes a new 2.14% tax on health insurance claims to fund the DirigoChoice program. This tax replaces the savings offset payment that was used to fund DirigoChoice.

MERI also opposed the broad package of tax changes instituted in L.D. 1495, “An Act To Implement Tax Relief and Tax Reform,” which passed the House 84-61, the Senate 20-15, and was signed by the Governor. It raises sales taxes on a wide variety of goods and services and restructures the income tax in a way that provides tax relief to some Maine families. The effective date of this legislation has been suspended pending the outcome of a people’s veto, which is expected to be on the ballot in June 2010.

The Second Regular Session of the 124th Legislature convenes in January of 2010. The Second Regular Session is shorter and more limited in focus. One of the first orders of business is expected to be a supplemental budget to address Maine’s growing budget shortfall.

Rep. Kathy Chase (R-Wells, District #147) Announces Intersection Reconstruction in Wells

Maine - House of Representatives

December 4, 2009

Rep. Kathy Chase (R-Wells, District #147) Announces Intersection Reconstruction in Wells

AUGUSTA – According to State Rep. Kathy Chase, a key intersection in Wells is on deck for a
major rebuilding project that will expedite traffic flow, ease turning for large trucks and enhance safety for pedestrians. The project, at the intersection of Route 1 and Route 109, is expected to begin in March, with completion scheduled for November.

Rep. Chase met on December 2 with Shawn Smith, a project manager for the Maine Department of Transportation (MDOT), at the Wells Town Hall. Also at the meeting were Wells Town Manager Jane Duncan and Edgar Moore, the town’s director of public works. They finalized details of the project, including a summer work shutdown to ease traffic congestion during the tourist season and the structuring of the construction contracts.

The project is expected to cost about $1.3 million, according to Smith, with 80 percent provided by the federal government as part of standard federal highway aide. State and town funds will round out the work, including the installation of granite-curbed sidewalks around the intersection.

"This project has been on the MDOT list for several years, but funding issues always intervened," said Rep. Chase. "Now it is under way, and the work will be going out for bid in January. This is a major intersection in Wells, and one of the biggest problems was inadequate turning room for tractor-trailers turning right onto Route 1 South."

The project is expected to close down for the months of July and August, but the bulk of the construction should be completed by the June 25 planned summer closure date. The final phase will begin on September 13.

Anyone with questions about this project can contact Shawn Smith at shawn.smith@maine.gov or Rep. Chase at kathydhchase@hotmail.com.