Md. Lawmakers Weigh Shifting Retirement Taxes to Districts

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Maryland lawmakers may convene for a special session sometime in the next few weeks to consider a proposal to shift the employer's share of Social Security taxes for school employees from the state to local communities.

Such an action would make Maryland one of a small number of states to consider changes in funding Social Security as a means of saving money and grappling with the issue of school-finance equity.

The issue is an important one because states that pay Social Security and other retirement costs spend more money in wealthy areas that can afford to pay their teachers more. Some analysts argue that that counters the broader goal of directing state education funding to poor areas.

Just two months ago, the Michigan Supreme Court cleared the way for lawmakers there to pass the costs of the federal retirement program on to local districts. (See Education Week, Oct. 14, 1992.)

In New Jersey, a law on the books requires school districts to begin paying the taxes as of next school year. The measure is expected to be amended by the legislature before it takes effect, however.

Deficit Strategy

In Maryland, the issue surfaced as early as 1975. Since then, various study groups have explored the idea of shifting the burden to local government, according to V. Thomas Gray, the chief lobbyist for the Maryland State Teachers Association.

The proposal reappeared last month as state leaders struggled to respond to yet another projected budget deficit, this time of $150 million.

In a plan worked out with Gov. William Donald Schaefer and other state leaders, Speaker of the House R. Clayton Mitchell Jr. called for eliminating the state's Social Security contributions to school districts, community colleges, and libraries.

Under the plan, the state would reduce aid to counties in the current fiscal year and ban Social Security contributions permanently beginning in fiscal 1994.

"The Speaker has had growing concern over the years that the local governments have had the freedom of setting local educational personnel salaries without having to take into consideration the attendant amount of Social Security owed as a result of any pay raise,'' said a statement issued by Mr. Mitchell's office.

Initially, the Speaker had planned on calling the special session for this week. But as of late last week, no session had been scheduled, and observers said there was only a slim chance the leadership would be able to round up enough votes by then to pass the proposal.

Meanwhile, alternative plans for dealing with the new deficit are being floated.

A proposal backed by Neal Potter, the Montgomery County executive, calls for reducing state aid for school transportation, libraries, community colleges, and emergency services.

A Hobson's Choice

"Either [plan] is a Hobson's choice,'' Mr. Gray said. "They are equally distasteful. We think the plan being promoted by Montgomery is preferable.''

The wealthiest county in Maryland, Montgomery has the most to lose if the state no longer funds Social Security contributions.

If school districts offset the funding loss by laying off teachers, some 3,200 to 5,000 teachers would be cut, according to the M.S.T.A. Montgomery County's share would be from 487 to 798 teachers.

Supporters of the shift say it is fair to eliminate a form of aid that benefits wealthy areas the most.

"The goals of an overall state-aid program should be to reduce disparities among subdivisions,'' said Del. Timothy F. Maloney. "The effect of a wage-based formula tends to undermine that goal,'' he said.

But Del. Brian E. Frosh, who represents Montgomery County, called the equity argument a bogus issue. While Montgomery County pays more taxes than any other county, he said, it receives the least back per capita.

"If you just look at the Social Security aid, you would be under the impression it is unfair,'' Mr. Frosh argued. "But when you look at it in the context of all the other money the state doles out, it would throw things out of whack to take away Social Security.''

Looming on the Horizon

As the Maryland debate suggests, the issue has been controversial wherever it emerges.

In New Jersey, the threat to Social Security and the teacher-pension fund spurred the New Jersey Education Association to back Republican candidates in the 1991 legislative elections. (See Education Week, Oct. 23, 1991.)

Key legislators have since agreed informally to amend the law to insure the state pays retirement costs.

In Michigan, the supreme court ruled that the state was not required to cover Social Security costs. As a result, observers expect the topic to be addressed during next year's budget discussions.

"It looms on the horizon as one other way the state can save money,'' said Justin King, the executive director of the Michigan Association of School Boards.

Vol. 12, Issue 10

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