The unspoken deficit

September 26, 2006

Maryland faces a $20 billion budget deficit, but you wouldn't know it from any of the candidates running for public office this fall. Small wonder. The only way to solve the problem is to raise taxes or cut benefits to government employees, including public school teachers. Neither move is the kind of thing politicians like to broadcast in an election year - but like most fiscal emergencies, this one will get worse the longer it's ignored.

Here's the problem: New standardized accounting rules require state and local governments to look at retiree health care costs quite differently than they have in the past. Instead of calculating them as a year-to-year expense, governments must begin looking at their total unfunded liability for retiree health care much as they do employee pensions. That leaves Maryland with a $20 billion shortfall - that's the estimated total cost of retiree health care benefits for current and future retirees for the rest of their lives. And paying that burden down could cost taxpayers $1 billion or more each year.

Governments have at least another year to take corrective action, but whomever Maryland voters select as their next governor or to serve in the General Assembly will eventually have to make some hard choices. Most likely, it will require a cut in benefits - the state can't afford so generous a retiree health benefit. Private employers are cutting them, after all. But unless lawmakers are willing to scrap health benefits for career employees entirely (and that seems highly unlikely), taxpayers are going to feel the pinch, too.

How much is $1 billion in new taxes? It's the equivalent of a 1.5-cent increase in the state's sales tax or a 15 percent hike in the state income tax. Neither is a particularly attractive choice.

Other states are facing the same problem. New York and California are tops with shortfalls of $54 billion and $70 billion, respectively. But Maryland's $20 billion deficit is right behind them.

This year, Gov. Robert L. Ehrlich Jr. and the General Assembly set aside $100 million toward resolving the deficit, but that is a modest start. A bipartisan commission that is supposed to offer solutions has yet to have its first meeting. Mr. Ehrlich, Mayor Martin O'Malley and the other candidates for public office can't wait for them; they need to make their positions clear now.

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