This story was originally published at 3:22 p.m. Tuesday, Oct. 31, 2017.
One of the questions on next Tuesday’s statewide ballot asks voters to approve a constitutional amendment to change the debt repayment schedule in the retirement system for state workers and public-school teachers.
It hasn’t garnered much attention, even though payments to the system totaled $320 million last year — more than the total budget for the courts and the Legislature combined. Supporters of the proposed change say it will bring more stability to the system.
First, some history. Once upon a time, Maine’s state pension system was in trouble — it only had enough money coming in to cover less than one quarter of the amount needed to ensure payment of benefits. And the Legislature was granting retirement benefits to individuals without fully paying the cost.
“It was one of the worst-funded plans in the country,” says Sandy Matheson, executive director of Maine PERS, the retirement system for state workers and public-school teachers.
Matheson says the Legislature responded by putting forth a constitutional amendment that would allow any loss of investment income caused by a downturn in the economy to be made up over 10 years. Voters approved the change, and it worked.
She says the retirement system is now one of the best-funded in the nation, with a trust fund that has grown from $3 billion to $11 billion. But there’s a catch.
“That 10-year amortization, which was so helpful 20 years ago, is now harmful, because it makes the annual losses, if there is a market loss, twice as big as they need to be,” Matheson says.
By doubling the repayment schedule, supporters of the change say taxpayers will benefit.
“Instead of spreading those losses over 10 years, which is what the constitution requires now, Question 4 would make it so the losses have to be spread over 20 years,” says Democratic state Rep. Aaron Frey of Bangor, who serves on the Appropriations Committee. “That means less taxpayer dollars have to be come up with in the short term to cover these losses.”
Supporters say, in a way, it’s like spreading the cost of your winter oil bills over all 12 months to avoid having to write big checks during the coldest months.
The Appropriations Committee unanimously approved the amendment after testimony from experts and state worker unions, endorsing it as a win-win measure that benefits both state workers and state government.