To comply with new accounting rules, Howard County's next executive must put aside $50 million for retiree health benefits - more money than the entire local budget grew this year.
The county's total liability is estimated at $400 million and growing, County Council members learned last week.
The choices - paying the bill or eliminating the benefits - appear stark, but county officials are gathering information on the issue, said Sharon Greisz, the county finance director.
State officials face the same situation, and they are looking at an estimated $20 billion bill.
"There is still mostly sketchy data out there, but we all see this as a pretty big issue that reaches a real head in the next few years," said Michael Sanderson, legislative director of the Maryland Association of Counties.
Union leaders are watching.
"I'm conscious of it, but I don't understand it," said Dale R. Chase, president of Local 3085 of the American Federation of State, County and Municipal Employees.
Why the county suddenly must put so much money aside is hard to fathom, he said.
"We're concerned about it, but we don't know much," said Ann DeLacy, president of the Howard County Education Association.
Police union Secretary Dan Besseck expressed confidence in County Executive James N. Robey. "Right now, the numbers are just preliminary and could fluctuate," he said. "I'm not worried about it right now."
Greisz said the Governmental Accounting Standards Board will force governments in 2007 -as private business had to do in the 1990s - to list unfunded benefits as liabilities. If the county does not create a multiyear-funding plan, Howard's AAA bond rating could suffer, Greisz said. That means higher interest rates for bonds and millions more in borrowing costs.
"It's the next executive's first budget that has to deal with it," Greisz said, though putting money aside earlier in a trust fund could lower the bill.
Robey said that is his intention.
Robey, who has a year left in office, said he will put some money aside in his last budget next spring.
School Superintendent Sydney L. Cousin said school officials also are studying the problem.
Local governments bear a bigger burden from the change than state government because thousands of teachers work for local, not state, governments, Sanderson said.
Until now, Howard County has paid health insurance premiums for retirees as the bills come due. This fiscal year, the county budgeted $5.5 million for that purpose. But the new standard requires the county to count as a liability the entire amount owed for the retirements of thousands of still-working teachers, police, firefighters, community college instructors and general county employees.
"It requires us to calculate what the liability is," Greisz said, though she told County Council members last week that the new rules don't require the county to provide the benefits.
"The reality is, in the private sector, you don't have [retirement health benefits]," Greisz said. "It becomes too costly."
Of the $50 million required to be set aside in fiscal 2008, Greisz said, $14 million of that would cover general county workers and $36 million would be for school employees. By comparison, Howard's locally funded education spending increased $28 million this budget year.
The increased annual payment under the new rules would equal a 15 percent increase in county property taxes - not something elected officials want to hear - especially with an election next year.
The council members struggled to understand the dimensions of the seemingly huge new debt.
"We had to know this was going to catch up with us," said Councilman Christopher J. Merdon, an Ellicott City Republican running for county executive.
Council Chairman Guy Guzzone, a North Laurel-Savage Democrat, said the county's fiscal condition has not changed. "The only thing that's changed is the way you account it," he said.
But Greisz warned that if the county does not fund the school board's budget for the benefits, "they would have to get it elsewhere."
"Elsewhere? A bake sale?" Merdon said. "This is huge. This is huge. A huge financial impact."
Guzzone had the final word, though, eliciting a general chuckle over his recent decision not to run for county executive.
"I think, bottom line here, is my timing is impeccable," he said.