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News of the Day ... In Perspective


Public agencies face crushing retiree health benefits

It’s equivalent to a “massive mortgage that taxpayers have taken on with little public notice,” writes Jeffrey Rabin. Cities, California counties, school districts, and state agencies have promised retirees billions of dollars in future health benefits, but have done little to provide the funding.

Each year, bills have been paid on a “pay-as-you-go” basis, and many agencies failed to calculate the long-term bill. New accounting rules that go into effect in 2007 have begun to force the agencies to determine these liabilities.

The Los Angeles Unified School District will need to set aside $357 million every year for the next 30 years—about 6.6% of its operating budget—to meet the cost of retiree benefits, according to a preliminary estimate. Some say the bill may be twice as high. Health benefits already consume 13.3 cents of every general fund dollar the school district receives.

Fresno’s school district faces a long-term bill that is twice as high as its annual budget.

While financially stressed school districts may ask for a state bail-out, state agencies have barely begun to calculate their own liabilities.

The City of Los Angeles, which has begun to deposit money in a reserve account to fund some retiree benefits, is “in significantly better shape than any other large city in the U.S.,” according to William T. Fujioka, its chief administrative officer (LA Times 8/5/05).

Additional information:

Trustees say unfunded liabilities of Medicare program $27.9 trillion…. Legislative supplement, AAPS News, June 2005.

Government accounting worse than Enron’s…. AAPS News, September 2002.

Liabilities unrecognized by government accounting system, in Cato Project on Social Security Privatization, Aug 14, 1995, www.cato.org. (www.socialsecurity.org/pubs/ssps/ssp1es.html)

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