ANNAPOLIS -- Maryland Treasurer Nancy Kopp on Tuesday stressed the need to move away from a system that has chronically underfunded state pensions, a concern of credit-rating agencies that have given the state its coveted AAA bond rating.
Kopp testified in favor of a House bill to require the state to phase out a faulty funding system within 10 years and would potentially eliminate the $21 billion unfunded liability within 25 years.
Kopp is scheduled to meet with the three major bond-rating agencies Thursday.
"It will be a great pleasure to tell them on Thursday the issue's before the legislature," she told the House Appropriations Committee.
The ratings agencies had pointed out the underfunding as a cause for concern in July 2012, the last time Maryland asked to issue bonds. Moody's Investors Service called it a "credit challenge," but all three agencies still granted Maryland the highest possible AAA rating, which means lower interest rates.
In rosier fiscal days in the early 2000s, when Maryland's pension system was almost fully funded, the state instituted the so-called corridor method of funding pensions that didn't require the state pay the full amount it owed every year, since the financial markets were soaring. It was meant to eliminate erratic jumps in what taxpayers put into the system, but as the economy fell apart, the method left the state owing billions more than what it put into its pension system.
The legislation would phase out the corridor method over the next 10 years, requiring the state to start paying everything it owed the pension system by 2023.
Maj. Morris Krome, who represents police pensioners on the state's retirement system Board of Trustees, is the only member still around from when the corridor method was established. He reminded the House Appropriations Committee that the retirement board opposed the corridor method when it was introduced.
"If the bill isn't enacted, either now or in the very near future, then some terrible things are going to happen down the road," he stressed Tuesday, pointing out that police employees would be footing 100 percent of the bill for their pensions by 2020 if the current system remained.
The bill, sponsored by Del. Melony Griffith, D-Prince George's County, would also refinance the $21 billion debt with the goal of paying it all off by 2038. The committee took no vote Tuesday.