Commission Kicks Off Statewide Hearings on Retiree Health Costs

A state commission on Friday held the first of several meetings to address the cost of health benefits and pensions for retired public employees in California, the Los Angeles Daily News reports (Sheppard, Los Angeles Daily News, 3/9).

Gov. Arnold Schwarzenegger (R) in December 2006 signed an executive order to create the 12-member Public Employee Post-Employment Benefits Commission. The governor and Democratic legislative leaders appointed the panelists, including union leaders, investment firm advisers, economics professors and law enforcement representatives (Huff, Oakland Tribune, 3/10).

The commission by Jan. 1, 2008, will offer proposals to the governor and Legislature (Los Angeles Daily News, 3/9).

New federal accounting rules require California and other public agencies to disclose unfunded health care and pension liabilities for current and future retirees. Most agencies, including the state, fund retiree costs on a pay-as-you-go basis and do not consider future liabilities.

The Legislative Analyst's Office estimates that the state's liabilities for current and retired state employees range from $40 billion to $70 billion (Oakland Tribune, 3/10).

A report prepared for the commission found annual retiree health costs for public agencies increased from less than $300 million in 1998 to more than $1 billion in 2006 (Hecht, Sacramento Bee, 3/10).

Gerald Parsky, chair of the commission, said retirement benefits already promised to state employees will be protected but said the panel must consider options to reduce future costs (Los Angeles Daily News, 3/9).

Marcia Fritz, vice president of the California Foundation for Fiscal Responsibility, on Friday proposed raising the retirement age from 55 to 65 for regular state employees and 50 to 55 for public safety employees. The group believes the plan would save the state millions of dollars (Los Angeles Daily News, 3/9).

Fritz said, "The retiree health care crisis occurred because (public) employers and employee groups agreed to benefits without having any idea of what it would cost" (Sacramento Bee, 3/10).

The Rockefeller Institute of Government also proposed:

• Raising taxes, cutting other spending or using surpluses to prefund liabilities;
  
• Issuing bonds to reduce existing liabilities; and
  
• Reducing benefits for employees, such as increasing co-payments and deductibles, and extending the eligibility period (Oakland Tribune, 3/10).
  

"It is my hope that [the commission] will propose legislation to increase the retirement age for new (state) employees," former Assembly member Keith Richman (R-Granada Hills), founder of the California Foundation for Fiscal Responsibility, writes in a Sacramento Bee opinion piece.

Richman details his organization's proposal that retirement ages be pushed back, a change he says would reduce retiree health care costs by about one-third and pension costs by "at least 50%."

Beyond any action taken by the Legislature, Richman writes that a "citizens' initiative is needed to spur action on a fiscally responsible solution and to serve as a financial backstop should political leaders fail to deliver one of their own" (Richman, Sacramento Bee, 3/11).