SACRAMENTO
(AP) -- As Stockton contemplates a bankruptcy filing, cities, counties
and school districts throughout California are grappling with the same
issue that has led the delta port city to the brink of insolvency --
soaring costs for retiree health care.
San Francisco, which
once allowed its public employees to qualify for full retiree medical
benefits after working just five years, is projected to pay $153 million
in retiree health care costs this year, about 5 percent of the city's
general fund.
The Ventura County city of Thousand Oaks
capped its contributions for retiree health care at $435 a month but
still faces a $12.6 million unfunded liability for the perk, an amount
equal to about 18 percent of the city's general fund budget.
The
Los Angeles Unified School District, the nation's second largest school
district, promises 100 percent lifetime health benefits to retirees,
their spouses and dependents. It now faces $10.3 billion in long-term
unfunded liabilities for the benefit, 1 1/2 times the district's annual
budget.
And at the state level, retiree health care costs
have ballooned from $560 million annually a decade ago to a projected
$1.7 billion in the coming fiscal year, almost 2 percent of general fund
spending.
The benefits' costs are expected to double for the state and local governments over the next 10 years.
"The problem with (retiree medical benefits) is that these promises were made back when insurance for medical cost $200 a month, and those costs have now quintupled. And
nobody even put away a nickel," said Girard Miller, a public finance
consultant based in Southern California who has testified about
retirement funding before state panels.
The looming crisis in
providing health care for government retirees is similar to the one
involving public employee pensions. The difference is that the state,
counties, cities and other entities have been pre-funding pension
obligations, even though the benefits promised in most cases far
outstrip the pool of money available to pay them.
Retiree
health care has largely been handled on a pay-as-you-go basis, meaning
the state and municipalities pay whatever bills come due each year. In
each case, taxpayers are on the hook for tens of billions of dollars in
unfunded obligations.
Both types of retirement benefits --
guaranteed pensions for life and family health care coverage after
retirement -- are increasingly rare in the private sector.
In
2007, the year the recession began, Credit Suisse estimated that states
and local governments nationwide were carrying $1.5 trillion in
unfunded liabilities for retiree health care costs.
It's
hard to know exactly how much California cities, counties and school
districts owe. Governments have had to report their long-term
liabilities since 2008 under changes made by the Governmental Accounting
Standards Board, but the state controller's office says it tracks only
the state government's obligations. It does not track the patchwork of
retiree health benefits provided by local governments.
The
only comprehensive survey of the benefits was completed in 2008 by the
California Public Employee Post-Employment Benefits Commission, a panel
convened by former Gov. Arnold Schwarzenegger as the new reporting
standard was taking effect.
The commission estimated that
the state, cities, counties, school districts and other governmental
entities in California faced at least $118 billion in unfunded
liabilities for retiree medical benefits -- about twice the amount
taxpayers owed on public pensions at the time. Today, the unfunded
liability for California's two main public pension funds is about $150
billion.
"I don't think people recognized how much exposure
there was for government on this front, and also the fact that none or
very little of this was pre-funded," said Anne Sheehan, who served as
executive director of the Schwarzenegger commission.
Stockton
City Manager Bob Deis said the city of 290,000 had not set aside any
money to pay for lifetime health care coverage for its workers. His
office estimates the city will spend $9 million of Stockton's $165
million general fund to cover health insurance for about 11,000 city
retirees. That's compared to $8 million the city will spend on health
care for more than 12,000 current workers.
Deis, who
inherited the contracts when he took the job in 2010, wants them
renegotiated as part of a required mediation process that is taking
place as the city tries to avoid bankruptcy. If Stockton files for
Chapter 9 protection, its public employees might look to the city of
Vallejo for an example of what it could mean for them.
Vallejo
provided full health care coverage to its retirees but reduced that to a
monthly stipend of $300 after it filed for bankruptcy in 2008. Retired
city workers say they were blindsided.
"If I had thought
this was even a possibility for the last 26 years, maybe I would have
been pre-planning some kind of health care strategy," said former fire
chief Vincent Sarullo.
Sarullo, 57, has an annual pension
of $135,902 and counts himself among the luckier ones who have been able
to absorb the expense. Some public employees, like Sarullo, are not
eligible for Medicare or Social Security.
While many
government workers can look forward to receiving medical, dental and
vision benefits after they retire, such benefits are rapidly
disappearing from the private sector.
In 1988, 66 percent
of all companies with 200 or more workers offering health benefits to
active workers also offered retiree health benefits, according to a 2011
Kaiser Health Foundation survey of employers. That dropped to 26
percent by 2011.
The opposite is true for California
governments. According to the survey by the post-employment benefits
commission, 86 percent of cities, 91 percent of counties and 89 percent
of school districts offer retiree health benefits.
Many
government workers can collect their full pensions before age 65, the
eligible age for Medicare. Some governments provide retirees health care
coverage as a bridge to Medicare. Once the employee is eligible, the
retiree benefit becomes secondary to help them fill any Medicare
coverage gaps.
A few local governments have begun to make
changes. Thousand Oaks was the first city to contract with the state
pension system to prefund retiree health care and has capped monthly
benefits at $435.
Until a few years ago, employees could
work for San Francisco for five years, leave and start claiming full
retiree health care benefits once they turned 55. Under Proposition B in
2009, voters changed the rule so new workers have to contribute to a
trust fund and must work 20 years to qualify for full benefits.
The city still faces a $4.4 billion long-term liability.
Most
state workers have to work 20 years to qualify for full retiree health
benefits, but tens of thousands of employees of the California State
University system, the courts and Legislature have to work only five
years to qualify.
As part of his retirement-reform package,
Gov. Jerry Brown wants all new state and local government employees to
work 25 years before qualifying for full retiree health care coverage.
"We
didn't get into the mess overnight and we're not going to get out of it
overnight," Brown said. "I'm doing my best to push it."
