Maine Gov. LePage Looks to Reform for Balanced Budget

Governor Paul LePage and Maine have skirted the public attention present in Wisconsin, Ohio, and Michigan that have proposed budget reform bills. Maine has proposed legislation to combat budget woes and public employee unions that has not received inordinate amounts of media coverage or protests. Even without the publicity, Governor Paul LePage of Maine decided to take the bull by the horns in tackling his state’s deficit. Maine joins the vast majority of other states that have dangerously unfunded pensions, health care, and non-pension benefits. These unfunded liabilities will only increase without a change in appropriations of taxpayer dollars.

To address the state’s budget woes, Governor LePage has proposed budgets cuts and legislative reform to expand worker freedom. The fiscally responsible changes will help promote workplace rights and ease budget deficits. Liberal detractors question LePage’s reforms. They reject plans to regain fiscal solvency, even though Maine’s deficit is increasing. Instead, they choose to kick the can down the road.

Governor LePage has proposed several reforms to combat the runaway deficit, including:

  • Requiring state employees to pay 2 percent more on top of the 7.65 percent they already contribute from paychecks to their pensions;
  • Increasing the retirement age for new hires, and workers with fewer than five years of service, from 62 to 65;
  • Freezing and capping cost of living adjustments for state retirees;
  • LD 309, “An Act To Make Voluntary Membership in a Public Employee Labor Organization in the State”; and
  • LD 788, “An Act To Prohibit Forced Payment of Labor Union Dues or Fees by Workers.”

These reforms would save the state an estimated $524 million over the next two years. The long term benefits of the budget reforms will reduce the unfunded pension liabilities by an estimated $2.5 billion and reduce the retiree health liabilities by an expected $1 billion.

These savings are significant because the budget reforms not only save money, but they also starve the debt: no new bonds will be issued, no borrowing, or deferred payments will be incurred through the reforms.

More importantly, the citizens of Maine will save on average $10,700 dollars in taxes over 16 years if LePage’s reforms are enacted.

The reforms are pertinent to state employees as well; these reforms circumvent the need for draconian cuts, massive layoffs of state employees, and assure that retired workers will still receive their pensions and benefits. Last but not least, the proposed reforms will keep an estimated $7 billion in Maine’s private sector through 2028.

The opposition’s objection to the reforms and budget cuts are far from well-grounded and are near-sighted arguments. David Wakelin, former 20-year board member of Maine’s retirement system, describes the pension troubles as “a temporary cash flow problem” and “[Republican elected officials] are scaring retirees.” Maine’s pension system has $4.3 billion in long term debt.

A deficit of that size cannot be considered a temporary cash flow problem. The Census Bureau reports Maine’s total tax revenue in 2009 was $3.5 billion, even though Maine has the 5th highest taxes in the country. The heavy tax burden limits the ability of local government to increase taxes further to pay for unsustainable state employee contracts.

However, this does not deter progressives from grumbling that the middle class and government employees are shouldering the burden of the state’s deficit, even when Maine presently spends 10 cents of every taxpayer dollar on state employee pensions. Wakelin proposes to eliminate the 2028 deadline and move to a 20-year rolling average payment schedule. This would be the proposal from the 20-year board member who watched Maine accrue significant debt from pensions and retirement benefits. This kind of financial strategy has been compared to a family taking out a second mortgage to pay for groceries.

Wakelin’s proposal is fiscally destructive; according to a Pew study concerning state pension deficits, “Similarly, barring any change in benefit structure, Maine’s $94 million annual payment in 2009 would grow to $151 million a year in 2015.” Wakelin’s pitch to push back the payment schedule would increase these numbers, and excessive borrowing and issuing of bonds would be needed to pay for pensions and benefits of state employees. This would create further deficits and would lessen economic progress because of uncertainty.

LePage includes increasing the retirement age for state employees to receive their pension and retirement benefits. This is a reform that must be implemented nationwide for state employee pensions and Social Security to remain solvent. Because of the advances in medicine and healthcare since the creation of the retirement age, the expenses associated with Social Security have similarly increased (even more so with respect to Medicare).

Therefore, common sense would tell you that individuals need to work longer, receive less, or contribute more toward their retirements. The pension system currently implemented in Maine cannot continue without restructuring or a complete loss of benefits.

The state’s prior solution to the pension system and dealing with state employee retirement is contrary to becoming financially secure. According to the Pew study:

In tough times, governments often offer incentives to encourage early retirement to reduce the size of the workforce. In 2009, this action was taken by Vermont, Maine and Connecticut. While this may cut personnel costs in the short term, the positions often end up being filled again, while the retirement system ends up with increased expenses over time. Special early retirement programs turn pension plan enrollees into beneficiaries sooner than expected or may offer additional benefits as an enticement to leave. This disrupts actuarial assumptions and adds years of retirement benefits for each individual who signs up.

LePage’s reforms include two bills regarding public employee unions. Union-backers call the bills blatant attempts at “union busting.” The two proposed bills are straightforward.  LD 309 — “An Act To Make Voluntary Membership in a Public Employee Labor Organization in the State” — states that no state worker in Maine can be forced to join a union. This is not “union busting” so much as it is an increase in individual freedom and the rights of government employees.

LD 788, similar to LD 309, has little room for interpretation. The name of the bill speaks for itself, “An Act To Prohibit Forced Payment of Labor Union Dues or Fees by Workers.” Why the left tries to portray this as “union busting” is unclear. Consider living in a neighborhood and a country club is built nearby, resulting in an increase in the value of your home and property. Since the club was the cause for the increase in value, they decide to charge you membership dues even though you are not a member. The question: would a law prohibiting the club from charging you dues without membership be considered “country club busting” or a reasonable defense of individual and property rights?

Overall, the two reform bills protect worker freedom, disallow forced unionism, and prohibit employers from deducting fees from nonunion employees. These bills lead to a business-friendly state, where organizations will not need to worry about contract negotiations and a union demanding an unsustainable contract.

Maine’s citizens should be ecstatic their governor is at the forefront of the problem and is trying to address the deficit. Many states are facing more serious financial dilemmas than Maine. The reality for Maine and all states is that they need to control government spending and promote free enterprise, both of which LePage is proposing in his budget reform bill. The government does not create revenue or profit; consequently, states in fiscal dire straits need to unleash the creativity of the marketplace. Simply, greater business investment in Maine produces the jobs and tax revenue that pave the way to debt reduction. None of this can be done as long as government employee’s unsustainable pensions and benefits remain the same.