California's Government Workers Mounting Benefits Tab

The San Francisco Chronicle reports:

The future cost of providing health care benefits to millions of retired public-sector employees in California could reach $140 billion and lead to spending cuts in areas such as education and transportation if governments don't set more money aside to meet the obligations.

New federal accounting rules will soon force public agencies -- from the state to local school boards -- for the first time to report the cost of future retiree medical benefits. Many governments use a "pay as you go" approach to meet current obligations, and experts say that is masking enormous unfunded liabilities that are looming.

Revealing the true cost of health benefits is likely to focus new attention on whether health benefits promised to public-sector retirees are too generous and whether spending priorities need to be adjusted as growing numbers of Baby Boomers retire in an era of soaring health care costs.

While accountants start tallying the cost of the benefits, governments are scrambling to find a way to ensure that the promises won't break their future budgets.

"If they don't start financing these future retiree costs, their financial situations will just worsen," said Marian Mulkey, a senior program officer for the California HealthCare Foundation, which released a report on the issue earlier this year. The foundation is an independent organization whose goal is to ensure that all Californians have access to affordable, quality health care.

The federal Governmental Accounting Standards Board issued rules in 2004 requiring all public agencies to disclose their future expenses for meeting retiree health care costs that aren't covered by Medicare. Most larger agencies, such as state governments, have until 2008 to make a complete disclosure.

California has hired an actuarial firm to begin calculating retiree health care costs. The nonpartisan Legislative Analyst's Office estimated that the state could be looking at future bills of anywhere from $40 billion to $70 billion. The report by the California HealthCare Foundation combines that total with the projected unfunded liability for local governments and estimates a total bill to California taxpayers of $80 billion to $140 billion over 30 years. With 15 percent of the California workforce employed by the public sector, the report concludes that the future of health care benefits for these workers is on the line.

An issue you'll be hearing more about.