LAO: Calif. Should Weigh Options for Retiree Health Care Funding
Measures in Gov. Jerry Brown's (D) fiscal year 2015-2016 budget proposal that aim to address unfunded liability in the state's retiree health care program could place constraints on the state's fiscal flexibility and force some workers to pay for benefits they would never receive, according to a report released Monday by the Legislative Analyst's Office, Capital Public Radio's "KXJZ News" reports (Adler, "KXJZ News," Capital Public Radio, 3/16).
In January, Brown released his $113.3 billion FY 2015-2016 budget proposal.
Brown's office in a release noted that unfunded liability in the state's retiree health care programs currently is an estimated $72 billion. To address the unfunded liability, the budget plan proposes that "the state and its employees ... share equally in the pre-funding of retiree health benefits, to be phased in as labor contracts come up for renewal."
The budget estimates that such a move would result in savings of nearly $200 billion over the next 50 years (California Healthline, 1/26).
Details of LAO Report
The LAO report stated that Brown's plan "could constrain future state fiscal flexibility and require some employees to pay for benefits they will never receive" (LAO report, 3/16).
In addition, the report found that Brown's plan could result in higher costs to the state over time. For example, when the state raised employee pension contributions in 2013, it offset those costs by increasing employees' compensation, according to LAO (Lin, AP/Sacramento Bee, 3/16).
LAO recommended that "the policy committees of the Legislature hold hearings to discuss the Governor's proposal -- as well as other options to address retiree health liabilities -- with actuaries, employee groups, policy experts and the public" (LAO report, 3/16).
Brown previously indicated that he wanted the issue to be settled through union negotiations, rather than legislative hearings (Ortiz, "The State Worker," Sacramento Bee, 3/16).
However, the report concluded, "While these deliberations could delay a prefunding plan's implementation, we think it is important to get the plan right."
During such hearings, the report suggested that lawmakers consider whether Brown's proposal would:
- Negatively affect employee recruitment and retention;
- Push costs to future generations;
- Reduce unfunded liabilities and fund normal costs;
- Result in pressure to increase state employee compensation; and
- Take all funding sources into account.
LAO suggested that lawmakers also consider options other than Brown's proposal, such as using debt payments under Proposition 2 -- which created a state rainy day fund -- to address retiree health care costs (LAO report, 3/16).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.