A significant cost of government impacting its ability to provide ongoing maintenance funding for the Parkway and other parks, is that of retiree health benefits.
This is a good analysis of that issue.
MANAGEMENT
Paying for Promises
After the shock of the big numbers, states and localities are finding ways to deal with the costs of their retirees’ health care.
By JONATHAN WALTERS
Call it the six stages of GASB 45: anger, denial, sorrow, acceptance, study and action. That’s been the general response to a new set of governmental accounting rules that ask state and local governments to spell out the costs of their promises to provide retired employees with health care as well as other post-employment benefits.
The new rules arrive courtesy of the Governmental Accounting Standards Board — the outfit in Norwalk, Connecticut, that sets all the accounting regulations for state and local governments — and are part of GASB’s push to head these governments toward accounting for the long-range and cumulative consequences of financial obligations and promises made yesterday and today.
And when it comes to retiree health care, those promises carry quite a price tag. According to the 2006 Rockefeller Institute Report on State and Local Government Finances, aggregate state and local liabilities for retiree health care (as well as other non-pension post-employment benefits) come to around $1 trillion, with some individual eye-poppers such as the Los Angeles Unified School District’s $5 billion and the state of California’s $70 billion.
The new GASB rules don’t require that states or localities actually do anything to close the liability gap. However, the gap will, over the next few years, become part of a jurisdiction’s comprehensive annual financial report, and rating agencies will be watching to see how various governments deal with the new red ink being splashed across governmental ledgers.
According to Parry Young, head of public finance for the rating agency Standard & Poor’s, his company is not expecting miracle fixes for what he acknowledges is a large and vexing new hole in public ledgers. “What we’re looking for,” Young says, “is a thoughtful plan on how they’re going to manage this liability.”
Figuring out how to react to GASB 45 has certainly been a sobering experience, says David Manning, chief financial officer for Nashville’s metro government. Back-of-the-envelope calculations there indicate that Nashville is on the hook for about $1.5 billion. The city can tack on another half-billion or so if it includes teachers in the equation.
Nashville is currently where most states and localities are: They’ve done the quick and dirty calculation, and now they’re trying to home in on a more exact number and figure out what to do about it. “Right now, we’re updating our actuarial estimates to try and get a handle on what the implications are for us,” says Manning. The city has a GASB 45 task force that was created by Mayor Bill Purcell to consider alternatives for dealing with the new directive. That task force has yet to report.
What’s clear though, is that most states and localities are past the anger, denial and sorrow phase of GASB 45, and are developing concrete ways to deal with the new rule. Those responses have ranged from paying down the liability by digging directly into general funds to floating more debt. Governments are also taking a hard look at what, exactly, has been promised to retirees by way of benefits, with an eye toward cutting back and thereby reducing long-range liability. Some jurisdictions, meanwhile, have decided to try to slide some of their liability onto the feds.
