Retiree health cost disclosed
Sacramento Bee 5/8/07
If the state starts setting aside $2.6 billion a year in an investment trust, however, taxpayers could cut their contribution to $31.3 billion and meet all benefit payments to retirees, Chiang said.
Without any action by lawmakers and Gov. Arnold Schwarzenegger, he noted, the tab for taxpayers would mount to $3.6 billion annually. Chiang and government financial officers around the nation are tallying future obligations for retiree health care because of new accounting rules.
"These are big numbers, but they are not insurmountable," Chiang told members of the Sacramento Press Club on Monday. "If we act, we won't have a crisis 30 years from now."
Chiang's analysis, prepared by a Chicago-based actuarial firm, falls within last year's estimate by the Legislative Analyst's Office.
The LAO projected the state's long-term cost would range from $40 billion to $70 billion for more than 370,000 state workers and retirees.
Currently, the state pays nearly $1.4 billion annually for retiree health benefits, but Chiang said the state would have to pay an additional $2.2 billion annually in the long run.
Because of new accounting rules, states and local governments across the nation must start disclosing publicly the future cost of medical care for retirees over three decades.
Most governments pay the health care tab for only the current year's retirees and don't earmark additional money to meet future obligations. Those obligations, however, are ballooning as medical costs escalate and a wave of baby boomers heads into retirement.
Without a plan to address these skyrocketing costs, states and local governments risk a poor bond rating and could wind up paying more to borrow money.
Despite the big numbers, Chiang said the state's credit or fiscal status won't be affected on Wall Street "unless we do nothing."
Some experts say the unfunded liability nationwide could top $1 trillion and put a further squeeze on already tight government budgets. The result could lead to contentious labor talks as government leaders push for cuts or changes in health benefits for retirees.
In the Sacramento region, the Sacramento Municipal Utility District has imposed a two-tier retiree health program. Sacramento County supervisors are considering dropping subsidized benefits for certain retirees.
Statewide, the liability could approach $90 billion for school districts, community colleges and municipalities, according to projections by Keenan & Associates, a Torrance employee benefits consulting firm. The estimate for the University of California is $7.6 billion.
So far, the numbers are coming in larger than most officials had anticipated, said Steve Gedestad, a Keenan executive vice president. "We're past the shock. What we're seeing is more and more (agencies) trying to do some kind of prefunding."
To date, public agencies have set aside about $700 million for a special trust fund to pay for retiree health benefits. Schwarzenegger has created a special Public Employee Post-Employment Benefits Commission to address the retiree health care issue.