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Maryland's Deferred Liabilties to State Employees: Dimensions of the Problem

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by George Liebmann

The combined actuarial pension deficits of the State and Baltimore City, Montgomery

County, Howard County, and Prince George’s County amount to

about $13 billion. The state health benefits deficit and the combined local health

benefits deficits are each around $15 billion. Recent estimates of the state’s health

deficit by Credit Suisse and the Cato Institute are $5 billion to $7 billion higher

than the state’s estimate of $15 billion. Amortization of these combined deficits of

more than $45 billion could require annual sums equal to 12 percent of the

present state budget, more than twice Maryland’s total state public safety expenditures.

The need for alteration at least for new employees of the retirement health

programs and the need for converting the defined benefit pension programs into

defined contribution programs is manifest. The consequences of such changes are

benign: de-emphasis of fringe benefits in favor of salaried compensation will provide

a less immobile state work force, with fewer "time servers" and more opportunities
for new entrants.

At the least, both state and local governments must adopt credible formulas for

funding both health and pension deficits and must adhere to them. Failure to confront

such problems potentially induces not merely inflation, but hyper-inflation.

Some European and Latin American countries have seen democracy swamped by

the political consequences of inflation unleashed by improvident and unredeemed

promises by the state. The way Maryland’s elected state and local officials deal

with these issues is a sure litmus test of their political morality as individuals. Hit

and run politics will not suffice.