State struggles with liability costs

December 28, 2019

first_img AD Quality Auto 360p 720p 1080p Top articles1/5READ MORECasino Insider: Here’s a look at San Manuel’s new high limit rooms, Asian restaurant160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! The state’s unfunded liability for providing health care to retired public employees could be as high as $70 billion and continues to grow rapidly, the state Legislative Analyst’s Office said Friday. The liability has gotten so out of hand that it now costs the state $1 billion a year to service the costs. That figure will hit $1.6 billion by 2010 – an increase of 60 percent in just four years. “This is a liability out there and the costs to service it are growing significantly each year,” said Jason Dickerson, a senior analyst with the LAO. “That unfunded liability, because we have no funds set aside to pay for it, completely falls upon the general fund each year. “As those costs become bigger, we think it would make more sense to have a long-range funding plan where the state began to set aside money to reduce the budgetary effect of those costs each year.” The increase in costs is driven by skyrocketing health care premiums, increasing retirements and longer life expectancies. Government agencies throughout the country are all facing similar problems, and most are just starting to tackle them this year because of a change in national accounting standards that takes effect next year. Assemblyman Keith Richman, R-Granada Hills, said the state needs to start looking to deal with the problem now, including setting aside more money from the general fund to pay for the costs, and reducing future benefits. “It is a very difficult task, but we can’t continue to simply sweep this problem under the rug,” Richman said. “This problem is going to come crashing down on the state of California and local governments throughout the state. This report from the Legislative Analyst’s Office is a bombshell.” Richman has authored a proposed constitutional amendment to reform the state’s pension system, including reducing costs of health benefits for retirees. The measure says that new government employees hired in the future who retire before the normal retirement age will not receive state-funded health care until they reach retirement age. Most Democrats in the Legislature, backed by the public-employee unions, have resisted any changes in the state pension system and are likely to fight reductions in health benefits. Senate President pro tem Don Perata, D-Oakland, cautioned that the report should not be used as an excuse to cut benefits. “No one has to tell any Californian the cost of health care is going up,” Perata said in a written statement. “But anyone who seeks to use this report to abandon the teachers, cops and firefighters who have worked their lives for the people of this state will be disappointed.” The figure from the LAO is a preliminary estimate, not a full actuarial study. Gov. Arnold Schwarzenegger has proposed in his 2006-07 budget that the state pay for a full study to get an accurate account of the full scope of the problem, said spokesman Vince Sollitto. He said it would be difficult for the state to start setting aside more money to cover the liability when it is still facing a structural deficit in its general fund. “The focus right now needs to continue to be on steps to close the structural deficit,” Sollitto said. “You can argue whether it makes sense to save money when you have to borrow money to cover the money you’re saving. This again highlights the urgency of California living within its means and closing the structural deficit, in order to be in a position to more easily address these actual liabilities.” Starting in 1961 when the state began offering health benefits to retirees, and for decades after, the costs remained reasonable enough that the state was able to manage them on a pay-as-you-go basis, without putting money aside to cover those future costs as, for example, a pension fund does. But in recent years the costs have grown so massive that the LAO recommends that the state begin saving for them in advance. Setting aside the full amount would cost $6 billion a year, though the LAO recommends that the state start instead by setting aside an extra $1 billion on top of the current $1 billion costs to slowly work toward covering the liability. The LAO also believes that state officials need to look at whether to reduce such benefits for future employees. Most government agencies and private corporations throughout the country have similarly failed over the years to plan ahead for the cost of providing health care to retirees, leaving many of them this year to come to terms with what has become a massive liability. Such companies as General Motors and United Airlines are facing serious financial threats, including the possibility of bankruptcy and massive layoffs as they struggle with the costs. The Los Angeles Unified School District disclosed this week that the calculation of its unfunded liability for retiree health costs had doubled to $10billion. [email protected] (916) 446-6723last_img

Leave a Reply

Your email address will not be published. Required fields are marked *