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September 24, 2006

Retiree Health Care May Bankrupt Government Entities -- Michael

It's worse than you think.

By BOB PORTERFIELD, Associated Press Writer Sun Sep 24, 12:24 PM ET SAN FRANCISCO - The bill is coming due for years of generous benefits bestowed upon the nation's public employees, and it's a stunner: hundreds of billions of dollars over the next three decades, threatening some local governments with bankruptcy and all but guaranteeing cuts in services like education and public safety.

This staggering burden is coming to light because of new accounting rules issued by the Government Accounting Standards Board. They require public agencies to disclose the future cost of health care and other benefits β€” such as dental, vision and life insurance β€” promised alongside traditional pensions to the nation's estimated 24.5 million active and retired state and local public employees.

In the past, generous retiree health care benefits have been an easy give-away in negotiations with public employee unions. No one accounted for, or even estimated the off-book liabity, nor did they anticipate the staggering increase in the cost of health care over the last decade.

As the baby boomers approach retirement, it's time to pay the piper.


Last month, JP Morgan released what it considers the most comprehensive preliminary estimate. It projects the present value of unfunded health care and other non-pension benefits at between $600 billion and $1.3 trillion.

By comparison, the debt rating agency Standard and Poors estimates the country's total unfunded public pension debt at around $285 billion.

"There's a good chance some government entities are going to go bankrupt," said California Assemblyman Keith Richman, a Republican from Chatsworth. "But the issue isn't just bankruptcy, it's governments dying of a thousand cuts in services. The costs of promises that have been made are going to be astronomical."

Now let's get one thing straight. We can not blame the unions. Because, well, they say so.

Union officials say it's not their fault municipalities put themselves in a hole by promising more than they can deliver.

"This is a monumental problem and government is going to have to deal with it," said Steve Regenstrief, head of the retirement division at the American Federation of State, County and Municipal Employees.

When the new accounting rules take effect in 2008, taxpayers will be able to see for the first time just how much they're paying to provide benefits to active and retired state and local public employees.

"When the numbers are produced, they're going to be shocking," said Ronald Snell, director of state services for the National Conference of State Legislatures. "They'll be in the hundreds of billions, and it's definitely something that policy-makers are going to have to take notice of and act upon. ... There are consequences of decisions made in the past."

What does this mean for you and me? Experts predict increased taxes, reduced expenditures for education, public safety and public works, and the probable bankruptcy of some government entities.

What gripes my ass is this: Private employers like my company have been working for years to figure out how they can fund this liability and control its growth. Public employers are only now being required to account for the liability. Most of them are a long way from confronting the issue of what to do about it.

Retiree health care may overwhelm gov'ts

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posted by Ace at 04:07 PM

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