- The Washington Times - Monday, October 10, 2005

ANNAPOLIS (AP) — An accounting-rule change that could force Maryland to set aside huge sums of money for health care benefits for future retirees may make a big dent in the state budget surplus that has resulted from an improving national economy.

The rule imposed by the Government Accounting Standards Board, a nonprofit agency, has attracted little attention, but could have a big impact on state governments, especially the few states like Maryland that have a AAA bond rating.

“What rating agencies have said is they don’t expect us immediately to address this issue … but, ultimately, we will need to save money to pay for that health care,” Cecilia Januszkiewicz, state budget secretary, told the Baltimore Sun.

No one knows the impact of the change in accounting standards. A committee of state lawmakers will meet Nov. 3 to begin discussions with the Ehrlich administration on how to handle the change, which takes effect for the budget year that begins July 1, 2007.

Maryland is one of 41 states that provide some kind of health insurance for retirees and one of 30 that handle those costs on a pay-as-you-go basis instead of putting money aside while employees are still working to pay for future health care.

With the economy growing at a quick pace, Maryland is collecting much more money from taxes than had been expected, and the state ended fiscal 2005 on June 30 with a surplus of about $600 million.

State Comptroller William Donald Schaefer, a Democrat, has predicted a surplus of more than $1 billion by the time fiscal 2006 ends next June 30.

Gov. Robert L. Ehrlich Jr., legislative leaders and special-interest groups already have begun to talk about ways to spend the additional funds.

Mr. Ehrlich, a Republican, wants to use some of the money to reduce the state property-tax rate that he increased to help close a budget deficit his first year in office.

Mr. Schaefer says the surplus should be used in part for a pay raise for state employees. He has joined many legislative leaders in urging the governor to restore $7 million that Mr. Ehrlich cut from the budget that had provided health care for pregnant legal immigrants and their children.

Those plans could be shoved aside if the state has to spend millions of dollars to prepay future health insurance costs.

Perry Young, a director in the public finance department of Standard & Poor, a New York bond-rating house, told the Sun that analysts will be watching to see how states handle the new rules, which will require them to fully fund the future insurance costs or carry the liability as red ink on the balance sheet.

“It’s going to be a big hit” if they pay in advance, he said.

But Warren Deschenaux, the legislature’s chief fiscal adviser, said Maryland does not have to do everything the bond-rating agencies request and that the hit may not be as great as some people fear. He said Maryland just needs to keep pace with other AAA-rated states.

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