State, Local Agencies Face $118 Billion in Retiree Health Costs
California's state and local governments face an unfunded liability of at least $118 billion over the next 30 years to fund health care benefits for current and future retirees, according to a report released Monday by the Public Employee Post-Employment Benefits Commission, the AP/San Francisco Chronicle reports (Lawrence, AP/San Francisco Chronicle, 1/7).
The 12-member commission was convened last year by Gov. Arnold Schwarzenegger (R) to find solutions for reining in retiree health care costs (Chan, Sacramento Bee, 1/8). The panel surveyed nearly 1,200 public agencies for the report (Mendel, San Diego Union-Tribune, 1/8).
The commission urged the state and local governments to begin setting aside funds to reduce the liability (AP/San Francisco Chronicle, 1/7). The recommendation follows new accounting rules by the Government Accounting Standards Board that require public agencies to disclose unfunded health care liabilities for retirees (Sacramento Bee, 1/8).
About 22% of public agencies surveyed by the commission have begun to set aside money for future costs. The state, meanwhile, pays for retiree health benefits on an annual basis and faces an unfunded liability of about $48 billion over the next three decades (San Diego Union-Tribune, 1/8).
The commission recommended that California set aside $1.2 billion in the fiscal year 2008-2009 budget to begin reducing the liability. Such a move, however, would add to the state's projected $14 billion budget deficit over the next 18 months.
State Treasurer Bill Lockyer (D) agreed that the budget should include funding for future retiree benefits, adding, "Prefunding and investment earnings will save the state billions of dollars in unnecessary over-expenditures in the next three decades" (AP/San Francisco Chronicle, 1/7).
The report contained 34 recommendations, including:
- Improving governance and transparency standards;
- Reducing fraud;
- Creating a state actuarial advisory panel; and
- Providing workers incentives to enroll in Medicare.
The commission did not recommend a specific strategy for raising the necessary funds (Sacramento Bee, 1/8).
Schwarzenegger praised the commission's "diligent work," saying, "I will be reviewing the findings and submit a formal plan to address this issue in the next 30 days" (AP/San Francisco Chronicle, 1/7).
Former Assembly member Keith Richman criticized the report for not addressing "retirement benefit levels or retirement age" (Sacramento Bee, 1/8).
Richman, who formed the California Foundation for Fiscal Responsibility, plans to refile a ballot initiative that would increase the retirement age for public workers from 50 to 55 for police and firefighters and from 55 to 65 for others (San Diego Union-Tribune, 1/8).
The proposed measure would need enough signatures by April in order to qualify for the November 2008 ballot (Sacramento Bee, 1/8).
Richman also was dubious of the commission's projections on the rate of inflation for health care costs.
The report assumes that health care costs for state workers will increase an average of about 4% over the next 30 years. However, a 2006 report by the California HealthCare Foundation projected a rate that is more than double the commission's estimate (Halper, Los Angeles Times, 1/8).
CHCF publishes California Healthline.
Capital Public Radio's "KXJZ News" on Tuesday reported on the commission's report. The segment includes comments from commission Chair Gerald Parsky (Russ, "KXJZ News," Capital Public Radio, 1/8).
A transcript and audio of the segment are available online.
In San Diego, the city council on Monday was scheduled to weigh a proposal that would reduce its $1 billion unfunded liability for retiree health care to $700 million, KPBS' "KPBS News" reports.
Jay Goldstone, the city's CFO, said the city should reduce the liability by increasing payments to an irrevocable trust held by the state's pension fund. Goldstone proposes a gradual increase in payments from the current $23 million annually to $75 million annually by 2010 (St. John, "KPBS News," KPBS, 1/7).
A transcript and audio of the segment are available online.