Retiree health care costs hazardous to state’s fiscal health

Edmund_G_Brown_Jr

California has rightly received a good deal of attention for the unfunded pension liabilities – estimated in the hundreds of billions of dollars – that current and future taxpayers will have to pay, but far less attention has been paid to its retiree health care obligations, which have also increased markedly.

The state’s retiree health care liability stands at $74.2 billion – up $2.4 billion from last year – according to a report published by State Controller Betty Yee’s office. That is up from $59.9 billion (a 24 percent increase) just five years ago. Without changes, this deficit is expected to rise to $100 billion in five years, and $300 billion by fiscal year 2047-48.

“California has a duty to ensure it can meet obligations to workers who earned these retirement benefits,” Ms. Yee said in a statement. “We need to assure through collective bargaining that we set aside money to meet this obligation and keep the state on sound fiscal footing.”

Unlike pensions, other post-employment benefits, such as retiree health and dental care, are funded on a pay-as-you-go system, which does not account for the full cost of the benefits earned each year. “While the current fiscal year’s budget sets aside $1.9 billion to cover just actual costs, a true accounting of existing and future costs would have required more than $5 billion,” Ms. Yee reported. “To take advantage of the hefty reduction in liability from full prefunding, the state would have needed to contribute $3.99 billion” in the current fiscal year – more than twice as much as the state actually contributed.

Gov. Jerry Brown wants to fully prefund future benefits (via collective bargaining with the state’s employee unions) over the next 30 years, which he projects will save $240 billion.

In light of mounting liabilities and the fact that retiree health care is a lucrative benefit unavailable to the vast majority of private sector workers, California should join most other states in starting to prefund these benefits, in addition to making necessary benefit reductions and requiring employees to share a greater portion of the rising costs.

http://www.ocregister.com/articles/billion-702522-state-retiree.html