The potential for serious discussions about Social Security reform in 2007 appears to be increasing, and Coalition to Preserve Retirement Security officials say that means that state and local workers could again be threatened with forced coverage.

After a divisive debate in 2005 in which President Bush failed to push through a reform plan that included personal investment accounts, Social Security was widely thought to be a dead issue until at least the next presidential administration. That may have changed, however, now that Democrats have taken over Capitol Hill and are looking to make their mark, and Bush is looking for a legacy besides the less-than-successful Iraq war. The White House, in fact, has indicated that Bush is not ruling out including tax increases in a reform plan, a stark change from his first six years in office.

Bush's insistence in 2005 on personal accounts funded by carve-outs from Social Security taxes was a deal-breaker for Democrats, who refused even to discuss the issue until such accounts were taken off the table. If Bush is backing off that position and creating a possible starting point for discussions - most likely, the raising of the cap on wages subject to Social Security taxes - then a compromise is possible. That could be good for state and local workers - if Social Security were on solid financial footing, the threat of mandatory coverage would probably disappear - or it could be very bad.

"We could be in danger when it comes down to them needing that last, little percentage," Tom Lussier, president of CPRS administrator Lussier, Gregor, Vienna & Associates, said.

Forcing all newly-hired public employees to participate in Social Security would increase Social Security revenues by $44 billion over five years. That small, temporary boost to the program's finances, though, would come from state and local governments, possibly creating fiscal hardships that could lead to increased taxes, cuts in vital government services and the destabilization of public pension plans.

CPRS officials are planning to educate lawmakers in early 2007 about the negative effects of mandatory coverage at the state and local level and hope to get coalition members to reach out to their representatives and senators, as well.

Another area of concern for CPRS is the pledge by Democrats to return Congress to "pay-as-you-go" (commonly referred to as PAYGO) funding rules. PAYGO requires new spending or tax cuts to be offset by revenue increases or spending reductions. Mandatory coverage would provide a multi-billion dollar pot of money that could be used to offset new spending, whether as part of a Social Security reform package or not.

"It could threaten everything," CPRS Board Member Geraldine Madrid-Davis said.