The Maryland Public Policy Institute
MPPI IN THE NEWS
Regarding your [online] editorial "The elephant in the room" (Aug. 21), the bill for Maryland's generous healthcare retirement benefits is finally coming due.
Last year, I authored a study for the Maryland Public Policy Institute (available at http://mdpolicy.org/research/detail/passing-the-buck) that examined these liabilities, only to find that the issue is not on the legislative radar. While the General Assembly did create a commission to study the issue in 2006, they have delayed its final report until the end of this year.
Nevertheless, the state's financial reports reveal that fully funding these retirement benefits will require over $1 billion annually - about $700 million more than the state currently spends.
Bond rating agencies have already stated that a state's approach to funding these liabilities will be an important factor in credit ratings. While Maryland has taken the step of establishing a trust fund, there is simply not enough money to properly fund it.
Lawmakers are finally being forced to accept that these generous retirement benefits will have to be paid for. We've also discovered that raising taxes on millionaires won't solve our revenue problems. This means that middle class Marylanders can expect tax increases in the future.
The problem is compounded when you look at local governments, which have their own healthcare retirement benefit liabilities that add up to another several billion dollars.
While most of these benefits are statutory obligations, meaning that legislators can modify them if necessary, I doubt we can expect our lawmakers to stand up to the state employees' and teachers' unions. Should they find the nerve, however, they ought to consider switching to a defined-contribution pension plan and cutting back on the generous non-pension benefits such employees are receiving.
Gabriel J. Michael
Mr. Michael is a doctoral student in political science at The George Washington University and a Visiting Fellow at The Maryland Public Policy Institute.