I had a great conversation with Teddy Panos this week on WCAP, 980 on the am dial, talking about the new report from the Massachusetts Taxpayers Foundation detailing the staggering unfunded retiree health care obligations of ten gateway cities, including Lowell. I have attached the Foundation Report at the bottom of this posting. This report, by Michael Widmer and the Foundation, details the current methodology of paying for municipal health care costs, and how the “pay as you go” method, used by all ten communities, is allowing these liabilities to continue to grow and accrue as unfunded. In order to meet these obligations in the future the service cuts and or tax increases that would be necessary are staggering, to both residential and commercial property taxpayers. Widmer, as usual, is exceedingly thorough in his analysis. He shows us what a scheduled payment against this liability would mean for these municipalities, and the numbers are not pretty. The system of making scheduled payments against a future unfunded liability is how municipalities are required to handle their unfunded pension obligations, and those payments have caused great strain on municipal budgets. The Commonwealth is also on a pension schedule, and like municipalities has had to defer scheduled payments by extending the full payment schedule out further into the future.
Since municpalities are now going to be required to book their OPEB (Other Post Employment Benefits) liabilities these retiree health care costs, in the past hidden by virtue of not being reported, are out in the open. It is only a matter of time before mandatory steps are imposed to address the problem. Widmer makes several recommendations which are likely to cause substantial political heartburn. They are:
1) Implement Municipal Health Care Reform. On the way via the new State law empowering municipalities in this area.
2) Tie benefits to Years of Service and Raise the Minimum Service for Eligibility. Recommendation would push the system of post retirement health care benefits to look more like the pension system, with longer service allowing a greater health care benefit. Full benefits today can accrue after 10 years of service.
3) Raise the Eligibility Age for Retiree Health Care. This recommendation makes perfect sense, and probably reflects one of the greatest weaknesses in the current retiree health care system. Retiring at 55 and getting full benefits until 65 (medicare) is a huge cost drag on municipalities. The recent health care reform bill mandated that all medicare eligible retirees be moved to that system, as incredibly some localities had not done so. But this recommendation would likely cause a huge political brawl.
4) Increase Eligibility Hours and Prorate Benefits for Part Time Employees.
5) End Spousal/Dependent Coverage. Talk about a political firestorm!
6) Reduce the Municipal Share of Premium Contributions. Oh boy another recommendation mandated by the numbers, but one that would cause a political firestorm.
We talked about the Rep. Campbell proposal for reforming the current laws and regulations governing Housing Authorities, as well as the naming of the new receiver for the Lawrence Public Schools. Can’t wait until next Friday on WCAP, where everyone gets it.
https://player.soundcloud.com/player.swf?url=http%3A%2F%2Fapi.soundcloud.com%2Ftracks%2F33391429 WCAP January 13, 2012 by Bill Manzi
opeb-report-10-cities
