Side effect: Pay increases lead to bigger pension bills

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Local,Maryland,Kate Jacobson,Montgomery County,Fairfax County

A consequence of raising employee salaries is that employees' pensions are increased, too.

Montgomery County has about 15,000 employees and retirees in its defined benefit and defined contribution plans, a pension system with about $3.4 billion in net assets as of June 30, according to its fiscal 2012 annual report.

Pensions and employee costs are the biggest drivers of governments' budget problems, said Antony Davies, associate professor of economics at Duquesne University.

Pension shortfalls can't be filled by taxes or cuts to programs -- two maneuvers that activists such as Montgomery County Taxpayers League President Joan Fidler fear are coming.

A contract agreement to raise government workers' salaries 13.5 percent over two years "adds to the base of people's pensions," she said. "I haven't heard any statement from the county executive as to how he plans to pay for that."

The county paid out about $230 million in benefits, refunds and distributions in its three retirement plans in fiscal 2012, a 13 percent increase from the year before.

Experts such as Davies also said increasing employee pay -- especially at a time when the economy is so fragile -- is the opposite of what county governments should do.

Terry Rephann, a regional economist for the University of Virginia, said salary and benefits in Montgomery are about 10 percent higher than in neighboring Fairfax County. And if the cost of living climbs, workers obviously will want more money.

But Rephann also pointed out that Montgomery County is affluent. And though there are vocal naysayers of the county's spending, the average person might not mind higher taxes for bigger returns -- including paying for a trained and more robust county workforce.

"In Montgomery County, I think hiking taxes is going to meet a whole lot less resistance," Rephann said. - Kate Jacobson

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Kate Jacobson

Montgomery County reporter
The Washington Examiner