The Maryland Public Policy Institute
OP-EDS
MAY 26, 2010
E-MAIL THIS
PRINTER FRIENDLY
A new report shows the smoke and mirrors the state employs to hide its true financial standing.
Last week the nonpartisan Chicago-based Institute for Truth in Accounting released Maryland's "Financial State of the State," and the news is not good. It says the state's retirement system is underfunded by $33 billion as a result of overpromising benefits while underfunding obligations. For example, in fiscal 2009 the state set aside $1.3 billion for retirement benefits even though actuaries said a minimum of $2.2 billion should have been deposited.
The result: The state has 49 cents for every dollar promised to state workers. Gov. Martin O'Malley, a Democrat, did not create this problem. Underfunding of the pension plan started in 2002, said R. Dean Kenderdine, executive director of the Maryland State Retirement and Pension System.
But O'Malley has continued to raid funds dedicated to transportation and cleaning the Chesapeake Bay, issue debt to pay for current projects -- and push massive pension obligations into the future, increasing their cost, at the same time he claims fiscal responsibility.
His sleight of hand to balance the budget shows that he is also living in the financial "fantasy land" that his ads accuse former Gov. Robert Ehrlich of inhabiting. As Sheila Weinberg, founder and CEO of the Institute for Truth in Accounting, said, "A state budget is not balanced if the retirement plans are not adequately funded."
IFTA estimates the total debt burden for each Maryland family due to pension underfunding and other commitments is $19,600.
Weinberg recommends creating a dedicated trust fund for retiree benefits that cannot legally be raided to pay other bills.
The institute also supports model legislation, the Truth in Accounting Act, to give legislators and residents a full picture of government operations and budget decisions.
Among its requirements are provisions to recognize burdens placed on unborn state residents and those too young to vote; provide the governor, legislators and residents with the information to see if resources match state obligations; and highlight that borrowing to pay for current expenses violates the intent of balanced budget laws. To read the model legislation and Maryland's "State of the State" go to www.truthinaccounting.org.
For too long Marylanders have been enjoying more government than they can afford in large part because governors and legislators have been hiding the true cost under the guise of balancing the budget. And because no legislation exists to help state leaders get a clear picture of state spending, many probably have been partially ignorant of the havoc they created.
As Weinberg said, "Debt has become our country's drug of choice, personally, in the states and nationally, and until we are honest with ourselves about how much we really owe, we can't begin to solve the problem."
Truth-in-accounting legislation would have prevented the governor and legislators from promising that 2007's massive tax hikes would solve the structural deficit. It would also illuminate that either new taxes or real budget cuts -- not those that eliminate unfilled jobs and take tomorrow's taxes for current projects -- are needed to cover state spending.
At the very least it would make leaders honest about how their actions affect Maryland's long-term health, including the state's coveted AAA bond rating that allows it to borrow -- and spend -- more freely than the state's true financial outlook permits. Maryland's unborn residents should not be forced to pick up the tab for the profligacy of their forbears.
Marta Mossburg is a senior fellow at the Maryland Public Policy Institute. E-mail her at mmossburg@mdpolicy.org.
MARYLAND PUBLIC POLICY INSTITUTE
One Research Court, Suite 450, Rockville, MD, 20850
Phone: (240) 686-3510 | E-mail: info at mdpolicy.org
Copryright 2009 The Maryland Public Policy Institute
All Rights Reserved
NOT A MEMBER? 