Officials face music on insurance
05 05 08 - 15:20
Local governments must report future benefit costs
By Nancy Dooling . Press & Sun-Bulletin . May 5, 2008
Local officials are being forced to look at -- and report -- what taxpayers will pay in years to come for health insurance benefits for public employees and retirees.
Municipal spending could eventually increase by millions of dollars.
"It's huge," said Mark Whalen, chairman of the Broome County Legislature.
Broome's unfunded post-employment health insurance, which it gives and promises to current employees and retirees, costs $340 million in current dollars -- $11 million more than the county will spend this year in its budget.
In 2004, the Governmental Accounting Standards Board, which establishes financial accounting and reporting standards for public employers, announced in its "Statement 45" that it was concerned local and state governments were not recognizing the total cost of post-employment health insurance in their annual financial statements.
"GASB 45" doesn't require governments to take action, but it does require them to report the numbers.
That's important because financial agencies that rate local governments and school districts for credit and bonds will take a hard look at those numbers in the next few years.
Public entities with poor bond and credit ratings that don't offer solutions could pay higher interest rates when they borrow money or bond for projects.
Keeping promises
For decades, public employers have promised and given their workers free or inexpensive health insurance when they retire. But in the next few years, municipalities and school districts will have to report the present value of what taxpayers pay for health insurance for retirees and what they can be expected to pay current employees when they retire.
Broome is already exploring ways to start paying for what it has promised to 2,245 current employees and 1,135 retirees.
Whalen, a Binghamton Democrat, has appointed a bi-partisan task force of legislators and community experts to come up with solutions.
"Our children and our grandchildren shouldn't have to be stuck with paying for this," Whalen said.
The problem for Broome and other public entities began decades ago when policymakers handed out lavish benefits, but didn't set aside money to pay for those promises, Whalen said.
Instead, health insurance liabilities for retirees have been paid for yearly on a pay-as-you-go basis, meaning taxpayers down the road are looking at huge increases to meet growing financial obligations to future retirees, Whalen said.
That's because health insurance costs each year are increasing at rates outstripping inflation. In 2007, national health care costs rose by 6.9 percent -- twice the rate of inflation. Employer health insurance premiums in 2007 also rose at twice the rate of inflation at 6.1 percent, national studies show.
Experts say that trend will continue.
Meanwhile, the current value of what will be paid to future retirees has not been calculated -- until now, Whalen said. In Broome, the value of health insurance benefits for retirees is put at $209.25 million, the actuarial study shows. Broome's projected liability for current employees when they retire is $130 million, numbers indicate.
"It's an extremely complex and expensive issue," Whalen said. "And it scares the hell out of a lot of people. But we've got to stop kicking this can down the road."
'An astronomical amount'
In the Village of Endicott, actuarial studies to determine post-employment health insurance costs for workers and retirees have not yet been done, but the clerk/treasurer said he doesn't need a study to know the amount will be significant.
Thomas Johnson expects Endicott's post-employment health insurance liability to run $40 million to $50 million for its 200 full-time employees and 350 retirees. That's for a village whose 2008 spending is $20 million -- or half the projected cost of health insurance.
"I'm expecting it to be an astronomical amount," said Johnson, a retiree from the New York State Comptroller's Office in Albany. "I already know it's going to be a huge number."
Some methods that may be examined to cut costs include long-term bonding to pay for a portion of the amount and/or reducing post-employment health insurance benefits for future employees with Broome's seven different unions through contract negotiations, Whalen said.
Some municipalities are already doing this. The Town of Vestal is negotiating with unions to make all 138 current full-time employees pay up to 10 percent of their health insurance premiums. The public sector has lagged behind the private sector in demands on employees to pay ever-increasing percentages of health insurance.
Vestal's 62 retirees pay nothing, said Laura McKane, the town's comptroller and financial director.
Property owners in Vestal now pay $15,000 for a family health plan for town employees and retirees, and $6,000 for an individual employee or retiree to receive health insurance, McKane said. Vestal is in the process of having an actuarial study done on its post-employment costs, McKane said.
Broome's biggest municipality is also looking into reducing benefits for future employees. The Town of Union had an actuarial study last year, said Gary E. Leighton, comptroller.
Union's post-employment liability for its 140 full-time employees and 105 retirees is $25.13 million, Leighton said. In comparison, the town's spending budget this year is $17.4 million.
Like Vestal, retirees in Union pay nothing toward their health insurance. In the early 1990s, through a collective bargaining agreement with its union, a provision was included for employees retiring after Dec. 31, 1997, to pay 50 percent of their health insurance. Subsequent contracts eliminated the clause, and only two people retired under that provision.
In 2004, Union employees paid 3 percent toward their health insurance, Leighton said. They now pay 6 percent, and by 2011, they'll pay 9 percent, he said.
"Municipalities will continue to ask for a greater share from employees," Leighton said. "It will make a dent in the costs."
Negotiating the future
Labor unions acknowledge the percentage contributed toward their health insurance is a negotiable item. Members of the Broome County Sheriff's Law Enforcement Officers Association pay 15 percent toward their health insurance, said Sgt. Vasili G. Yacalis, union president. That applies to both current sheriff's deputies and retirees, Yacalis said.
School districts, too, are required to look at their accrued health insurance numbers, said Kathy Blackman, Chenango Forks School District's business executive. Chenango Forks will have an actuarial study conducted during the 2008-09 school year, Blackman said.
Depending on the plan, Chenango Forks employees pay zero to 20 percent for individual plans, and 15 to 50 percent for family coverage, Blackman said. Yearly plans range from $5,040 for individuals to $12,504 for family coverage.
If financial organizations see that a municipality or school district is working to reduce post-employment costs, they may get a more favorable bond rating, allowing them to borrow money at reduced interest rates, Whalen said.
"We can either pay now or we can wait and pay later through high bond rates," said legislator Jerry Marinich, R-Town of Chenango, and a member of the task force.
Marinich and Whalen agreed current Broome retirees will not see any changes in what they receive in health insurance benefits from taxpayers.
Saving for a rainy day
For now, the state organization that represents New York's 62 counties and their interests in Albany is taking a wait-and-see approach, said Stephen J. Acquario, executive director of New York State Association of Counties, based in Albany.
"We are telling county officials to proceed with caution," Acquario said. That's because NYSAC is presently working with the state Comptroller's Office to propose legislation that would make it easier and more financially beneficial for counties to begin saving money.
New York restricts municipalities and school districts from forming trusts that would allow them to put money aside toward post-employment benefits, Acquario said.
However, New York City has put $2 billion in trust to help pay for a whopping $50 billion in post-employment costs for its current and former employees, Acquario said. New York City claims that its powers of home rule allow it to form trusts.
New York's counties may also make the same argument to legislators in Albany, Acquario said.
Unlike New York City and Broome County, New York state officials have made no effort beyond calculating and reporting the state's post-employment benefits cost at $55 billion, Acquario said.