Maryland's debt bomb

Forget the federal fiscal cliff, the state has financial problems of its own

December 04, 2012|Marta H. Mossburg

State media keep talking about the fiscal cliff as if it will obliterate Maryland's wealth if Congress does not reach a compromise on debt talks. The truth is, cuts are far down the road if they happen, and Maryland will continue to thrive as an extension of Washington's bureaucratic complex.

There is an imminent financial crisis in Maryland, however: state debt.

According to the nonpartisan nonprofit State Budget Solutions, the total debt of Maryland is almost $82 billion. (www.statebudgetsolutions.org/publications/detail/state-budget-solutions-third-annual-state-debt-report-shows-total-state-debt-over-4-trillion) That works out to $36,821 per taxpaying household in the state, based on IRS data. Using Census data, on a per-capita basis it's more than $14,000. State Budget Solutions does not include other sources of debt, including planned but unfunded transportation projects, making the figure a conservative estimate.

No one would know that, however, because of the lack of transparency in how the state reports its finances. Maryland law requires a balanced budget each year, but it conveniently allows lawmakers to leave out massive obligations like pensions and other post-employment benefits for state retirees in a ruse that would be like not including a home mortgage in an assessment of household debt.

State Budget Solutions estimates that Maryland's pension obligations to state employees are about $48.2 billion and other benefits about $16.4 billion. And given that Maryland's 10-year return on pension investments is way below its target rate of 7.75 percent, the state will basically have to earn double the return set as the benchmark each year to not fall further behind.

So when state leaders say the budget is balanced, don't believe them. And don't believe them when they say that casino revenue or higher taxes on those making more than $100,000, passed earlier this year, will solve chronic budget deficits.

They are just burnt offerings for an insatiable fire that will require bigger and bigger sacrifice.

Maryland is not alone in dealing with the problem. Every resident in every state owes thousands to pay off looming retirement benefits for state employees. But Maryland is among the top-20 worst offenders among the states. Its per-capita debt burden is similar to those of Louisiana, Kentucky, Nevada and Oregon, all of which burdened each of their residents with more than a $14,000 bill for state employee benefits and other promises.

Probably the scariest thing about State Budget Solutions' data is that it shows how pervasive the debt problem is — and what a sham balanced budget laws are because every state except Vermont requires a "balanced budget." Alaska residents, for example, owe more than $31,000 per person, while residents in New Jersey and Hawaii follow close behind by owing more than $29,000 apiece. Each person in Connecticut owes more than $27,000, and Ohio residents owe almost $21,000 per person.

Governments cannot tax themselves out of that kind of debt without severe economic consequences, including mass migration out of high-tax states to those with more economic opportunity. That is already happening on a grand scale in California and New York and to a lesser degree in Maryland.

If we are to address the problem, residents have to see it to believe it. So far they have been left in the dark and treated like sacrificial sheep for the entitlement state.

Comptroller Peter Franchot, the "No" man on state spending in his role on the Board of Public Works, seems the perfect person to speak out on the need for budgetary transparency. Mr. Franchot's spokesman, Joseph Shapiro, said the comptroller "is very troubled by the amount of debt that state has taken on and plans to take on in the coming years. That's why he voted against a debt limit increase at the last Capital Debt Affordability Committee." He did not say if he thinks pension and other post-retirement benefits should be included in the budget process, however.

Gov. Martin O'Malley, in the midst of launching a national political campaign, would be the last person to want a real record of his time in Annapolis.

But the bad news is not going to go away. State retirees should be the first ones to start asking questions because they are among those with the most to lose. We are all in this together, however, and are going down as "one Maryland" — to use a favorite phrase of the governor.

Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute and a fellow at the Franklin Center for Government and Public Integrity. Her column appears regularly in The Baltimore Sun. Her email is marta@martamossburg.com.

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