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Retirement debt is real debt

Last week, the Maryland House of Delegates and a Senate panel approved Gov. Larry Hogan's fiscal 2016 budget proposal, with modifications. While the proposed budget reduces agency spending by 2 percent and cuts pension spending, the budget does not address Maryland's current retirement debt, which represents 64 percent of the state's actual debt.

According to The Star Democrat, an Easton newspaper, "Hogan criticized the previous administration for 'being on track to spend $700 million that we did not have' and putting the state 'on a path to financial peril.'" But many lawmakers and Marylanders may not know that the state is already in "financial peril." In fact, Maryland has $20 billion in hidden retirement and pension debt, and 72 percent of Maryland's retirement debt is not clearly disclosed on its balance sheet.

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This raises the question: Which is worse — debt or undisclosed debt? In my opinion, undisclosed debt is the greater of the two evils.

Imagine not counting the balance owed on your credit card as personal debt or not including the remainder of your student loans on your tax forms. The government holds its citizens, corporations and businesses accountable for disclosing this financial information, but the government does not hold itself to the same standards of transparency.

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At Truth in Accounting (truthinaccounting.org), we are dedicated to educating and empowering citizens with understandable, reliable and transparent government financial information. We believe citizens need this data in order to make informed decisions at the polls. We also believe legislators need this data in order to cast informed votes. That's why we issue regular studies that analyze government financial reporting, and in our most recent Maryland study, we found that nearly three-quarters of Maryland's retirement debt is not clearly disclosed on its balance sheet.

When this $20 billion of retirement debt is included, Maryland's state debt actually amounts to $44 billion. According to our study, the state has $16 billion in available assets, leaving behind a $28 billion bill for future taxpayers. If this cost were divided among current taxpayers, each taxpayer's share would be approximately $13,400.

The Baltimore Sun reported that Governor Hogan "frequently railed against former Gov. Martin O'Malley's use of 'gimmicks' to balance the budget." But, Governor Hogan is continuing to use one of these "gimmicks," which is a direct result of the $20 billion hidden retirement debt. The gimmick Governor Hogan continues to use is an outdated accounting method called "cash accounting."

Cash accounting uses short-term cash basis numbers when calculating long-term commitments, like pension benefits. This means elected officials can claim balanced budgets while accumulating additional debt.

Instead, the Maryland state government should be using accrual accounting practices. Accrual accounting will not let governments postpone retirement payments until a later, undetermined date and forces them to budget for retirement benefits now.

While I applaud Governor Hogan for cutting pension spending and submitting his proposed budget in a timely manner, he must work with the General Assembly to address the hidden debt before Maryland sinks even further into debt.

I encourage Governor Hogan to implement his campaign promise to "change Maryland" and work with the General Assembly to hold it to the same accounting standards he was held to as a business owner.

The General Assembly only meets for 90 calendar days each year, and time is running out. I encourage the delegates and senators to address Maryland's debt, state budget and the government's use of antiquated accounting methods this legislative session. These issues are too important to fall by the legislative wayside. Your children and grandchildren's fiscal security is at stake.

Sheila Weinberg is a certified public accountant, and the founder and CEO of Truth in Accounting, a Chicago-based think tank that analyzes government financial reporting. Her email is sweinberg@truthinaccounting.org.

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