- The Washington Times - Friday, February 1, 2008

ANNAPOLIS — Maryland is $16.2 billion short in payouts for future retiree health care benefits, according to state budget analysts.

“That is a ticking time bomb,” said Delegate Murray D. Levy, Southern Maryland Democrat. “If we do nothing, we’re going to have a huge problem.”

To avoid a major financial problem, Maryland will either have to start paying at least $500 million more annually into the retiree fund in the coming years or cut retiree benefits, according to a further analysis by The Washington Times.

In addition to the state problem, Baltimore and the state’s 23 counties are $12 billion to $14 billion behind in the payments,local budget analysts say.

Mr. Levy has been working on a task force since 2006 to find ways to fix the problem.

He said cuts in spending or tax increases are possible, which would follow $1.4 billion in tax increases approved in November by the Democrat-controlled General Assembly. Or lawmakers could cut benefits for retirees. Or they could make some mix of the two.

The panel will submit its report to the Assembly and Gov. Martin O’Malley, a Democrat, at the end of the year.

Right now, the state has a $991 million annual commitment to retired workers and their families. Mr. O’Malley included $514 million for retiree health care in his fiscal 2008 budget, leaving the state $477 million short.

The problem has not attracted as much attention as the issue of capital punishment, homosexual “marriage” and illegal aliens have in the 2008 Assembly session, despite Comptroller Peter Franchot’s warning in his State of the Treasury speech last month.

“While I am pleased with the steps that we have taken to ensure the financial security of our retirees, I remain concerned that current contributions are insufficient to fund our long-term obligations to state employees,” he said.

The shortfall is the result of collective-bargaining commitments that state and local leaders made with government employees more than 20 years ago, analysts say.

State officials promised to pay for health care benefits for employees and their families after they retired, but paid only for the existing costs without budgeting for future costs, expected to balloon to the $16.2 billion.

Private analysts hired by the state to evaluate the problem say the shortfall will grow with the increasing costs of life insurance and health and dental care.

Maryland last year paid other post-employee benefits (OPEB) to 142,500 former employees and their families.

Though states have long planned for employee pensions, investing tens of billions of dollars through well-established systems, only recently have they begun dealing with OPEBs.

Nationwide, states have guaranteed $381 billion in OPEBs, but only budgeted for $11 billion, according to a report by the Pew Center on the States.

Six states — Arizona, North Dakota, Ohio, Oregon, Utah and Wisconsin — have provided for their retiree commitments. But the majority of states, including Maryland, have long-term liabilities in the tens of billions of dollars.

Maryland lawmakers increased state spending and passed the tax increases in November during a special Assembly session called by Mr. O’Malley to help close a budget shortfall of at least $1.5 billion.

Republican leaders say the state should not have increased spending on new programs when they knew the retiree health care problem was looming.

“I believe it was completely irresponsible on behalf of the governor and the legislators that adopted this plan,” said House Minority Leader Anthony J. O’Donnell, Southern Maryland Republican. “They are bound and determined to run this state into the ground, or at best put it at great peril.”

The Assembly’s chief budget analyst says the problem is not imminent but must be fixed over the next few years.

“Over time, we can work this plan out,” said Warren G. Deschenaux, director of the Office of Policy Analysis.

In 2004, the Governmental Accounting Standards Board — a private group that sets accounting guidelines for state and local governments — suggested local leaders nationwide begin keeping tabs on the OPEBs they had guaranteed for retired workers.

The group directed governments to hire private accountants to estimate their liability. And the results shocked many governments: unfunded liabilities in the billions of dollars.

“That’s a ‘b’ not an ‘m’,” one official said, referring to the magnitude of the problem.

“How are we going to deal with this long-term problem?” asked Michael Sanderson, legislative director for the Maryland Association of Counties.

Unions representing state workers say they are eagerly watching how the state will handle the issue.

“The retiree health insurance is a valuable recruitment tool to get people to work for state government,” said Sue Esty, assistant director of Maryland AFSCME, which represents 30,000 state workers.

BENEFIT SHORTFALL

Maryland budget analysts say the shortfall for payouts on retiree health care benefits will likely reach $16.2 billion if left unchecked. The state now spends $514 million annually on the benefits, $477 million less than needed to meet its commitment.

Fiscal 2008 (budget ending in June)

Current payments: $314 million (31.7%)

Investment: $200 million (20.2%)

Shortfall: $477 million (48.1%)

Total: $991 million

Fiscal 2009 proposed

Current payments: $358 million (33.8%)

Investment: $210 million (19.8%)

Shortfall: $491 million (46.4%)

Total: $1.059 billion

Source: Maryland Department of Legislative Services

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