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EDITORIAL: Governments have to get real about retirement benefit costs

General Motors may not be the only employer to go broke trying to pay for the health care benefits of its workers. New York's taxpayers could be next. Nationwide, the liability for all the benefits promised retired state workers is $558 billion, according to a report released last week by the Center for State and Local Government Excellence. The staggering number was calculated for the first time because a new accounting rule requires state and local governments to put on their books the projected costs of paying for retiree health care benefits for current and retired workers. New York, with its agenda-driving public employee unions, tops the list with a $55 billion liability over the next 30 years. For that same period, the tab for Nassau County is $3.6 billion and Suffolk's is $4.1 billion. Beside these time bombs in the state and counties, Long Island taxpayers are on the hook for villages, cities, town and school districts. Check the numbers where you live. Unlike other bills, however, this one is for planning purposes only. The Government Accounting Standards Board, or GASB, required the numbers be revealed so that taxpayers can have a better grasp of how close they are to falling off the cliff. But the board can't go further and demand a legitimate plan to manage the costs and or mandate investments to cover future payouts. Unlike pension-liability costs, where local governments are required to make annual contributions, local governments just pay the bill year over year. Elected officials, already strapped with the consequences of the immediate financial downturn, say they don't have any extra cash to sock away. But how long can we afford to ignore these liabilities, mushrooming because people are living longer and because there are more of them as the baby boomers put in their papers? All the while, health care costs are running way ahead of economic growth. And don't we have a responsibility to these workers who, at least years ago, got lower wages in public service and civil service jobs in return for more generous retirement benefits? In recent years, many public employee unions negotiated away higher wages to keep these benefits. Wasn't intelligent management of this liability part of the bargain that was made with them? "We are not sure the full gravity of the funding situation has taken root," said Jerrell Coggburn, an author of the survey and chair of the public administration department at North Carolina State University. Even those few local entities that want to act sensibly can't. The Garden City school district wanted to set aside a surplus $5.2 million for its estimated retiree costs of $95 million but had no legal way to do so. While some elected officials are starting to trim benefits in their contract negotiations, only a few have take the extra step to issue an honest warning about the pending fiscal danger. Nassau County Comptroller Howard Weitzman was one of the first to call attention to the problem by advocating an increase in the vesting requirement from one to five years and demanding better management of the New York State Heath Insurance Plan.

State Comptroller Thomas DiNapoli has asked the legislature to authorize reserve accounts, so places like the Garden City school district could sock away money and, more importantly, so the state can start an investment fund, much like the pension funds, that could eventually cover these long-term liabilities. But legislatures around the country don't want to force local governments to raise taxes or cut services, nor do they want to antagonize employee unions, who fear it would result in shifting some costs to the retirees. Unlike pension benefits, however, which are guaranteed to public workers under New York's constitution, health care benefits can be terminated either unilaterally or after collective bargaining. And the state's unions are already ahead of the game - every year in Albany a bill that would permanently prohibit the reduction of retiree health care benefits gets closer to passage. Just a few states have eliminated benefits for those already retired. But a few more have told current workers not to expect them when they retire. Others have tweaked the costs, according to the report by the center. It found 33 states have hiked contributions from retirees, 36 have increased co-payments for prescription drugs, and 23 have raised deductibles. In Suffolk, County Executive Steve Levy's push to use generic drugs saved $12 million in 2008. In New York, many retired public workers pay nothing or just 10 to 15 percent of their health care premiums. With retirements as early as age 55, they are guaranteed pension benefits and lifetime health care - and the costs don't stop at age 65, when Medicare kicks in. For former employees of Suffolk and Nassau, the county picks up the secondary or Part-B costs. Nassau will spend $14.6 million in 2009 on this benefit. In contrast, private sector workers have increasingly seen their pensions and 401(k) contributions disappear while they're giving up more of their paychecks to cover health care costs, if they have coverage at all. And that's for those who have jobs. Elected officials have to get honest about covering health care costs, and public employees and their representatives should realize that perhaps the best way to protect their benefits is to join in the drive to properly fund their costs. Otherwise, the private sector may one day say it's no longer willing to pay for its public workforce. hN