Sharing the Pain

The New Year brings both a sense of renewed possibility and a bit of angst. At the federal level, the White House and Congress appear to be on a path that will yield an improving economy and may even begin to address the structural challenges that threaten our long-term prosperity. But those challenges remain and the kinds of compromises that will be required —on taxes, on spending, on entitlements — are only starting to be seriously discussed.

While most of the discussion centers around Washington’s inability to grapple with our fiscal imbalances, there are comparable issues confronting the state and county. In Annapolis, the General Assembly will be working to reduce a structural deficit for the coming fiscal year of as much as $1.3 billion—with less support from federal stimulus funds and fewer places to borrow “temporarily.” The current outlook for fiscal 2013 is no better with an expected deficit under business-as-usual conditions of $1.6 billion as the starting place.

In comparison, Frederick County appears to be somewhat better off with a projected deficit of less than $12 million in the next fiscal year. The last few budget years have been managed as though they represent a cyclical downturn that will be reversed as soon as the economy begins to recover. While history supports that view, there is reason to worry that it may take much longer to recover from the most recent recession than most previous ones given a national housing market where 25 percent of borrowers owe more than their properties are worth, millions of properties are likely candidates for foreclosure and unemployment above 8 percent is likely to persist through at least 2012.

Beyond the immediate shortfalls, state and county budgets face significant unfunded liabilities for their pension and retiree health programs that are largely unrecognized by most citizens and are political time-bombs that have been ignored for years. The state retirement funds cover both state employees and teachers throughout the state and have an unfunded liability of $33 billion (yes, that’s with a “b”). Lawmakers in Annapolis will be tempted to shift some of the responsibility for teachers’ pensions back to the jurisdictions that employ them, adding millions of dollars to county obligations each year. The county’s own plan has an unfunded liability of about $63 million for pensions plus a whopping $111 million unfunded liability for retiree health care (as of July 2009).

All of these problems can be solved, but they have one thing in common: We have not been honest with ourselves about the true costs of the things we demand and the promises that have been made to deliver them.

Somebody is going to pay the price for getting things back under control and establishing a more sustainable fiscal framework. A fair rebalancing will require sacrifices from employees and taxpayers, neither of whom bear primary responsibility for the mess that has been created but have both been complicit by pretending that unaffordable promises can be redeemed.

If 2011 is the year we begin to address these imbalances in a spirit of shared sacrifice, it will be the year we have begun to turn the corner toward a fundamentally better economic future.

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