Like states across the country that had been accounting for retiree health care costs in a pay-as-you-go system, Maine is now looking at a very large number under new federal rules that require it to recognize a liability when it is incurred rather than when it is paid. The Baldacci administration reported its new, larger numbers Monday, and demonstrates a fair commitment to meeting this challenge.

Under a proposal by the administration, the new figure for “other post-employment benefits” (OPEB), where health benefits reside, would be $3.2 billion – compared with the old figure for this benefit of $1.2 billion. It is important to note that the amount paid to retirees doesn’t change because of the new accounting rules and the number listed is a liability, but not a debt in the sense that Maine must make regular payments at a specific time. Think of it as the money you promised to stick away for your kids’ college funds rather than, say, your monthly mortgage payment.

The changed accounting method, through the Governmental Accounting Standards Board Statement 45 (GASB 45), forces states to anticipate costs many years in advance. And because the fiscal health of states is judged comparatively by bond houses, all states are likely to work on lowering their liabilities. States aren’t likely to be excited about the new rules, but should accept that they will produce better fiscal practices.

According to Governing magazine, states are trying a variety of means to lower their OPEB liability, with some taking money from their general funds, others bonding for the amount and some cutting benefits or extending the time required for an employee to be vested. Gov. John Baldacci has proposed establishing a trust at the Maine State Retirement System that, over 30 years, would fully fund the health-care benefit for state retirees.

The plan depends on an initial $80 million contribution and then annual payments of needed contributions plus 10 percent more to catch up to the needed level of funding. As with the pension system, these figures could change over the years. Some of the variables that could affect when the system is fully funded are the overall cost of health care, number of claims, return on the trust’s investments (estimated at 7.5 percent by the administration) and the level of subsidy by working-age state employees into the coverage system.

What Maine’s creditors and the public ought to look for is a sustainable, consistent effort by state government to reduce the liability, and not, as has been done with the pension system in the past, to view the trust payments as optional. By making state finances more transparent, GASB 45 could serve state retirees and the public well in the coming years.