Maryland and the Stimulus: Responsibility Deferred

George Liebmann
2009-03-12

Few states can have used the benefits accruing to them in the Obama administration’s stimulus bill as irresponsibly as Maryland. We may pass in review the bill’s effect on Maryland public policy:

Pension and Retirement Systems

The Calvert Institute and the Maryland Public Policy Foundation recently published a study of Maryland’s public pension and retiree health systems indicating combined state and local funding deficits approaching $50 billion, and that figure did not consider the impact of the recent stock market crash. It further pointed out that the O’Malley administration and legislature had reduced to $100 million annual contributions toward the accrued deficit for health insurance subsidies.

In April 2006, the General Assembly created a Blue Ribbon Commission to Study Retiree Health Care Funding Options, which was to report by Dec. 31, 2008. In 2008, the legislature, quavering with fear at the probable contents of the report, postponed its due date until Dec. 31, 2009, two weeks before the start of the 2010 legislative session, thus postponing action on its recommendations past the 2010 election. The commission has now quietly released a required interim report, which is instructive both in what it records and in what it omits.

The commission declares that the state has unfunded retiree health liabilities to its employees of $15.2 billion, or $3,000 for every Marylander.

At present, the state funds such obligations on a "pay as you go" basis, now costing $314 million a year, a sum traditionally obscured in state budget documents by being scattered among agencies. If left unchecked, this cost will escalate to $600 million by 2014 and $1 billion a year by 2023.

Fully funding this deficit would require added state appropriations of $500 million a year. The last three budgets did not propose the required $1.5 billion in appropriations but only $410 million, of which only $148 million was actually appropriated. The actuarial deficit is thus only 1 percent funded.

What will the taxpayers of the state get for these huge future commitments? Seventy-six percent of the benefits go to retirees over the age of 65 who are already eligible for both Medicare and the new Medicare prescription drug program. The state program relieves middle-class state retirees who already enjoy Social Security and pensions much larger than private sector pensions of the deductibles and co-payments that Congress has determined are appropriately borne by ordinary retired taxpayers. Even more shockingly, 59 percent of the cost of the program goes to relieve retirees of prescription drug costs. The state program remains unchanged even though under the new Medicare Part D the maximum annual exposure of any retiree is only $3,150 more than under the existing Maryland plan.

The premise of the benefit program, as stated in the interim report's introduction, is that "retiree benefits are an important component of the state's overall strategy for attracting the best possible employees to public service." This premise is totally unexamined. How many 25-year-olds are tempted into state service by an unfunded promise that 40 years hence they may be relieved of a maximum of $3,150 per year liability for prescription drug costs? Few, if any. For this reason, half the nation's private employers with retiree health programs have abandoned them in recent years.

The state's retiree health obligations derive not from recruiting needs but from political cowardice. Private sector employers with variable income flows know that improvident retirement promises quickly affect profit and loss statements and impair the tenure of the responsible executives. Term-limited public officials, by contrast, have an irresistible temptation to punt problems past the next election. Rather than pay salaries needed to recruit, benefits are promised for which the bills do not fall due until the governor leaves office or secures re-election. The result is an unambitious and immobile work force.

In Maryland, the bills are now falling due, since there are new governmental accounting standards and the bond rating houses have made it clear that arrangements must be made within the next several years to reduce or fully fund future obligations. They have left open, however, a short window of opportunity for further procrastination, and the O'Malley administration and legislature seem to be enthusiastically embracing it. The Deputy State Treasurer told the Maryland Troopers’ Association in November that "healthcare benefits are not part of the defined pension benefit and as such are subject to adjustment. . . While it has not been proposed at this point, it is possible that they may adjust the percentages to reduce the State’s liability going forward." With the advent of the Obama administration stimulus package, any thought of this was abandoned by the O’Malley administration–a classic example of ‘hit and run’ government.


K-12 Education

Prior to the stimulus package, the O’Malley administration had planned to defer the portion of the Thornton plan appropriating funds based on a geographic cost of education index. These appropriations were a bone tossed to wealthier subdivisions to secure enactment of the Thornton plan. The $37.9 million involved included $9.2 million for Montgomery County, $11.8 million for Prince George’s County. $6.8 million for Baltimore City, $2.5 million for Anne Arundel County, $1.9 million for Frederick County, $1.6 million for Baltimore County, $1.5 million for Harford County and nothing for the state’s poorest subdivisions, including Allegany, Caroline, Cecil, Harford, Somerset, Talbot, Washington, Wicomico, and Worcester Counties. On January 27, 2009, the O’Malley administration celebrated the advent of the stimulus package by rescinding the cuts to this generally regressive program.

On February 20, 2009, the O’Malley administration continued its carnival of extravagance by announcing that $329 million of the federal stimulus funds would be dedicated to avoiding any change in the teachers’ pension program which was extravagantly sweetened in the last year of the Ehrlich administration on the false premise that this needed to be done to preserve competitiveness with other states. See Abell Foundation, Is It Time to Rethink Pensions in Maryland,(http://www.abell.org/publications/detail.asp?ID=123) The program ever since has exceeded its projected cost because of an alleged actuarial error. On the same day, the administration announced that contrary to earlier plans, it would fully fund the inflation adjustment in the Thornton plan, thus expending an additional $185 million.

Finally, and even more scandalously, the administration dedicated $260 million of the new federal money to the state’s school construction program, which thus will have received more than $1 billion in three years. There is no demonstrated association between the use of these funds and improvement in educational results. For good measure, any school built as part of the program will cost significantly more than a locally constructed school as a result of the O’Malley administration’s insistence in extending the prevailing wage law to school construction projects, a gift of $100 to $150 million over a three-year period to the administration’s faithful supporters in the construction unions. The buildings resulting from this binge have the effect of relieving subdivisions from the costs of sprawl zoning. Nor has this misbegotten state program, which has exploded from the $22 million level to which it was reduced by the end of the Hughes administration, been a gift to the fine arts. The O’Malley administration school buildings bear a greater resemblance to single-story meat warehouses than to the

Parthenon, owing a greater debt to the neo-kickback and riot modern architecture of the late 60s than to any models inspired by classical antiquity.

Although the administration has given lip service to improving STEM (science, technology, engineering and math) education, not a dime of the funds available to it has been dedicated to providing salary supplements for science and math teachers, although this has been recommended by a host of national and state commissions. The state, without let or hindrance from Governor O’Malley and Superintendent Grasmick likewise will continue to maintain teacher certification requirements mandating a year of education courses, thus excluding about 90% of the state’s scientifically trained manpower from the teaching force. In New Jersey, by contrast, 20% of the state’s new teachers are recruited through alternative certification programs, as against 1% in Maryland, and the performance of the alternatively-certified teachers on certification (NTE) tests was markedly higher than that of teachers presenting a year of education courses. L. Klagholz, Growing Better Teachers ibn the Garden State (Thomas Fordham Foundation, 2000).

Although Governor O’Malley and Superintendent Grasmick like to claim that Maryland has the best public schools in the country, one study on which they rely is concerned only with the percentage of students taking and passing advanced placement examinations, a self-selected cohort that could be expected to be high in a state with one of the nation’s highest incomes and one at the top in the percentage of 25-64 year olds with bachelor’s degrees: 37% as against a national average of 29%.. "Maryland is the top state in student performance on Advanced Placement tests, but only fair proportions score well on college entrance exams." National Center for Public Policy and Higher Education, Measuring Up: 2008: The National Report Card on Higher Education. The rating was compiled by the College Entrance Examination Board, producer of the Advanced Placement Tests.



Broader-gauged studies present a radically different picture. Maryland’s average composite SAT score in 2008, 1001, compared with a national average of 1017 and ranked 40th in the nation. Its mean SAT scores fell during the period 1988-2008, placing it 45th in the nation in its trend relationship.

In 2007, the performance of its students on the internationally recognized NAEP grade 8 tests placed it 12th in math and 20th in reading. For grade 4, Maryland was 26th in math and 12th in reading. Overall, Maryland schools were ranked 20th in the nation, the three leading states being Minnesota, Vermont, and Massachusetts. In per-pupil spending, however, Maryland was 12th in the nation. American Legislative Exchange Council, Report Card on American Education, A State by State Analysis (15th ed.2008). High school completion in Maryland is 90%, as against 95% in the top 5 states and 88% in the nation. The percentage of 18-24 year olds enrolled in college is 32% in Maryland as against 34% nationally and 44% in the top 5 states. National Center for Public Policy and Higher Education, Measuring Up: 2008: The National Report Card on Higher Education.

Governor O’Malley and Superintendent Grasmick cite a second study, produced by Education Week, Quality Counts 2008 which also gives Maryland schools a number 1 rating. When the study is actually read (Superintendent Grasmick has sedulously refrained from posting it on her website in full text) a much less flattering picture emerges. Maryland’s test results are middle-of-the pack, 25th, 14th, 17th and 21st; its high school graduation rate is 19th; its rating for K-12 achievement, tied with Massachusetts for first place, derives from ‘soft’ criteria like year to year improvement. Its overall first place rating is due to its high ratings on other ‘soft’ criteria like "Transitions and Alignment" and to its Thornton extravagances, causing it to be rated behind only seven states and tied with three in the "School Finance" category. With respect to "Standards and Assessment" about which Superintendent Grasmick never ceases to boast, Maryland is rated behind 22 states and tied with two others. As for "Teaching Profession" which generally assesses incentives for teachers, Maryland is behind 23 states and tied with six others. None of the criteria assess such things as science achievement or incentives for recruitment of science teachers.

The detailed Education Week tabulations are attached as an appendix. (http://www.edweek.org/media/ew/qc/2008/18shr.md.h27.pdf) To say that the No 1 rating has been over-hyped is an understatement. Governor O’Malley may not know better; Superintendent Grasmick certainly does. The "Standards and Assessment" and "Teaching Profession" standings as well as the "hard’ achievement results are an indictment of her ten-year tenure in one of America’s richest states.

Higher Education

Governor O’Malley’s initial approach to the state’s budgetary problems was to drastically cut the state’s subventions to community colleges, while leaving the appropriations to the state’s four-year schools inviolate. This was proposed to be done notwithstanding that the recession has produced an explosion of enrollment in community colleges. The reason for this choice is quite simple: the four-year colleges have politically articulate alumni bodies and faculty; the community colleges, relying heavily on adjunct teachers, do not.

The advent of federal largesse has led to the rescinding of proposed cuts to community colleges.

Although recent studies have demonstrated the ineffectiveness of the state’s traditionally black colleges, their budgets are sacred cows. The percentage of enrollees graduating after six years is 17% at Coppin, 39% at Morgan,42% at UMES, and 43% at Bowie. The corresponding figures for the remaining public colleges are 56% at Frostburg, itself a remarkably low figure; 64% at UMBC, 69% at Towson, 72% at Salisbury and 80% at UMCP.

Any high school with a performance like Coppin’s would be closed as an ineffective institution. A recent article indicated that its entrance standards were such that 50% of its students required remediation in math and 50% failed freshman English. Its record is a function of the inadequate preparation of its students, but its condition feeds on itself and cannot be cured with more money. Qualified faculty do not want to teach under-qualified students; the recent Toll Report on Coppin revealed that the school could not recruit even its authorized complement of remedial reading instructors. For the class entering in 2006, the 25th percentile of the class had mean SAT reading scores of 390 and math scores of 380, (http://www.eduers.com/University/Maryland/Coppin_State_College.html)

suggesting that a large percentage of the students are not prepared for college work (http://www.baltimoresun.com/news/education/college/bal-md.gap11mar11,0,2948229.story). This strongly suggests that either the institution should be explicitly turned into a remedial institution to prepare students for college, or that it should be turned into a two-year college or community college rather than pretending to be a university. At present, the cost to the state per graduate exceeds that at elite private institutions and much of the funds expended would be better used in trying to run a good two-year college rather than a bad four-year one.

The O’Malley administration’s response to this condition was to appropriate $100 million for a new physical education building at Coppin. Its response to similar but less dramatically bad conditions at Bowie was an appropriation of $34 million for a new fine arts building. Building college buildings for students not prepared for college work is not a prudent use of state funds, particularly at a time when the state’s community colleges need added funds. Given the opportunities now available at institutions not "traditionally black" (in Maryland, the dropout rates of black students from such colleges are no greater than the average dropout rate), it is clear that the main function of the black colleges is to make four-year college entrance available to students who would otherwise be excluded from it on academic grounds. This has an adverse effect on the incentive of students to take their high school work seriously and the incentive of high schools to properly prepare their students.

As presently constituted, Coppin is not operated for the primary benefit of its students but rather for its staff and for the construction unions. In 2008, it was found that in the Maryland university system "forty-two percent of blacks graduate within six years, compared with seventy-three percent of whites–one of the largest gaps in the nation." National Center for Public Policy and Higher Education, Measuring Up: 2008: The National Report Card on Higher Education

This gap is due almost entirely to Maryland’s failure, unlike many of the southern states (most recently Georgia), to phase out its traditionally black colleges.

Transportation

The O’Malley administration, notwithstanding its increase in virtually every other tax and notwithstanding a fallback in gasoline tax revenues, has refrained from proposing any increase in gasoline taxes, or any substantial recourse to road pricing, time-of-day pricing, or tolling measures other than some modest increases in EZ Pass charges. Its approach to transportation funding has featured raids on the general fund, the deferral or skipping of necessary preventive maintenance, and the avoidance of any significant road improvements in growing areas of the state like Harford, Frederick, Charles and Wicomico counties which suffer from a surfeit of traffic congestion and a shortage of Democratic voters. Rather than seek added state revenues , the State by its own admission, has deferred $2.1 billion in planned projects in 2009-14, including many projects necessary for "system preservation". The stimulus funds of $638 billion will fund only about 30% of these deferred projects. See http://www.marylandtransportation.com/Planning/Economic_Recovery/FactSheet_022309.pdf

The O’Malley Administration’s use of federal stimulus funds has been entirely dedicated to postponing the evil day when facts must be faced about the need for new revenue sources for the transportation fund.. Virtually all the stimulus funds, with the exception of about $60 million for new buses, are devoted to resurfacing of existing roads and other deferred maintenance. When the stimulus funds disappear, the transportation deficit will reappear, though in more virulent form, given plummeting gasoline use resulting from the recession and the increased prevalence of hybrid and fuel-efficient cars. Those expecting significant permanent improvements to transportation infrastructure from hundreds of millions of dollars in stimulus funds are going to be sorely disappointed. The funds instead are going to be used essentially for janitorial work–to get the Governor to the next election without having to face fiscal realities. Nor is it any accident that $141.8 million of the initial $365 million tranche of funds are being used for mass transit and $144 million for highway maintenance in the Baltimore and Washington areas, leaving only about $80 million for the highway needs of the rest of the state, including its growth corridors. The breakdown is at http://www.marylandtransportation.com/Planning/Economic_Recovery/Documents/Phase%20_I_Transit_and_Highway_Recovery_Projects_022809.pdf

Drugs and Corrections

Although the stimulus bill contained only limited funds for law enforcement and corrections, it should be noted that Maryland’s capacity to meet the educational and transportation needs of its citizens and the demands of its work force is significantly constrained by the level of its spending on incarceration and corrections. The policy of the O’Malley administration has been to resist relaxation of Maryland’s version of the ‘Rockefeller drug laws’ with their minimum sentence provisions even though they are in the process of being repealed in New York, the state of their origin, and have been significantly relaxed in other jurisdictions, including such improbable states as Texas and Kansas. Thus Governor O’Malley vetoed a bill sponsored by Delegate Curtis Anderson which passed both houses in the 2008 session, his veto message being distinguished by its spectacular incoherence. The Governor does not have the excuse of political pressure to be ‘tough on crime’, since both his Republican opponent in his Mayoral race, David Tufaro and his opponent in the gubernatorial race, Robert Ehrlich held moderate and enlightened positions on criminal justice issues.

Maryland ranks eleventh in the nation in corrections as a percentage of general fund expenditures in 2007, such expenditures accounting for 7.6% of the general fund and amounting to 1.084 billion dollars.. For every dollar it spends on higher education, it spent in 2007 74 cents on corrections, a ratio placing it 14th in the nation. As of January 2008, it incarcerated 23,342 prisoners. 636 of every 100,000 Marylanders was behind bars in 2005, an average rate for American states, but one higher than that in any foreign country, the highest rate in a foreign country being 628 per 100,000 in the Russian Federation. Pew Center on the States, One in 100: Behind Bars in America 2008.

Health and Welfare

Maryland spent some $4.7 billion on its Medicaid program in 2004,and $5.3 billion in the current year of which $2.5 billion represented state funds. The current administration has expanded dental care coverage, creating what amounts to a new entitlement program for providers, as well as expanding eligibility for the basic medicaid program. It has been less interested in curbing medicaid fraud, legislation which would have added resources for this purpose failing in the 2008 General Assembly, partly by reason of industry arguments that most of the recoveries that might be obtained would inure to the benefit of the federal government and not the state. The state has also done little to promote care-giving by relatives as an alternative to medicaid nursing homes, and has done nothing to liberalize its accessory apartment laws or provide incentives for the creation of second kitchens in single family homes, even though 70% to 80% of medicaid spending is for nursing home care. Its efforts to discourage emergency room use by encouraging primary care clinics in inner-city areas have been intermittent and inadequate, nor has it done much to enhance the role of nurse practitioners. There are estimates that Maryland may receive between $1 billion and $1.4 billion in health care funds from the stimulus funds over a two year period, leading some to predict an 18% increase in medicaid spending and others to propose extending the program to some childless adults. How these increases will be sustained if and when the temporary appropriations are ended is little discussed.

Maryland has done a credible job in implementing the 1996 federal welfare reform legislation, although its implementation of time-limit provisions is weak and its sanctions regime is mediocre. One survey credits it with the best overall implementation of the law among the 50 states. Its caseload reduction over a ten-year period was 78.9%, the eleventh largest in the country, and it also made good progress in reducing its poverty rate and teen birth rate and in enforcing work requirements. See G.Macdougal et al, State Welfare Report Card 2008: Welfare Reform After Ten Years (Heartland Institute, 2008).The stimulus bill provides incentives to relax restrictions, raising the danger that any relaxation will outlast the funds providing an incentive for it.

Conclusion

Nothing about the O’Malley administration’s approach to the stimulus package suggests that a responsible, future-oriented approach is being taken. Rather the administration has chosen to use the newly available funds to avoid taking necessary measures that would offend what it regards as its core constituencies: state employees, unionized teachers, construction unions, and the local governments of areas that reliably vote Democratic. There is similar reluctance to face up to the facts about the future funding requirements of the transportation system, to curb the growth of medicaid nursing homes, or to cease demagoging the crime and drugs issue and embark on reform of sentencing and corrections statutes. Funds that should have been used creatively to provide public works and institutions of enduring value and to improve the state’s colleges and its teaching force are instead being poured down the usual rat-holes, to the detriment of the interests of the state.

APPENDIX

http://www.edweek.org/media/ew/qc/2008/18shr.md.h27.pdf