Wednesday, December 19, 2007

Maryland's Looming Employee Benefits Deficit

In a commentary in the Baltimore Sun on August 30 of this year, I warned that, despite Maryland’s looming budget deficit of $1.5 billion, “almost no attention has been paid to unfunded health benefit liabilities for government employees that will cost the state billions of dollars into the future.”

Now comes the Washington Post story on December 19 reporting on a new study conducted by the Pew Charitable Trust Center for the States which calculates the unfunded liabilities owed by the states for retirement and health care benefits for state employees.

Note this at the outset of the story:

“Maryland, which has about 90,000 state employees, is facing a particularly high liability for its health insurance promise, $14.5 billion, compared with the $2.3 billion that Virginia owes its 100,000 employees, according to the report released yesterday. The difference is that Maryland is more generous to its retirees than Virginia is, researchers said.”

With roughly the same number of employees, the difference in the size of the liability for benefits between Maryland and Virginia is huge, and not in the direction that inspires confidence in Maryland’s fiscal discipline. The General Assembly just completed a special session to deal with the state’s budget deficit without taking any meaningful steps to address the huge projected budget liability attributable to benefits promised to public sector employees.

A state official is quoted in the Post story to the effect that the Pew study failed to account for $100 million the state put away this year to cover public employee benefit expense. This is $100 million is a small fraction of the estimated $14 billion in liability.

The official is also quoted to the effect: “We’re trying to figure out what we should do,” noting that retiree benefit cuts are likely to be seen as part of a solution.

The governor and General Assembly do need to begin to take seriously the task of figuring out what they should do about this huge unfunded liability. The figuring will require a commitment to fiscal discipline, especially on the spending side of the equation, which, more often than not, has been lacking in Annapolis.