Shires writes: “Most public employees automatically receive a three to five percent “step” increase each year. The raises we hear discussed in the limited public releases about these negotiations are increases on top of these basic increases — the so called COLA or cost of living adjustment.

“For example, in Vallejo, a city which recently filed for bankruptcy protection, some unions were scheduled for 21 percent COLA increases over three years — on top of their regular step increases of 3-5 percent.

“These kinds of increases are unheard of in the private sector (try asking your boss for a 12 percent guaranteed raise for each of the next three years), but have become ubiquitous in California?s state and local governments.

“And this is just the salary portion of the conversation. Add on top of it full medical benefits for the rest of their lives, extensive overtime and an amazingly generous retirement system and you have a public finance system that is destined for bankruptcy — a destination rapidly approaching for the state and many local communities.

“While the result is shocking, the real failure is the secretive process that lead to it. The total lack of public information about these negotiation processes prevents the public from holding their elected officials accountable. Add in the fact that many of these very officials are elected due to major investments by these very employee unions (a topic for a later day), and you have a recipe for fiscal disaster. And taxpayers across the state are about to taste the fruits of that recipe.”

KICKER

SFGATE: Californians pessimistic about budget fix

The latest estimate is lower than the $2.57 billion calculated two years ago. The reduction results primarily from the use of new actuarial assumptions, and secondarily, from recent board of supervisors’ action to modify the health care benefits for unrepresented county employees.

The liability is still staggering, because the board of supervisors has yet to make any meaningful changes to the generous health care benefit plans available to county employees and retirees covered by union contracts, despite three opportunities to do so in the past several months.

The county’s predicament did not develop overnight. It has been nurtured for decades by past boards that repeatedly agreed to increasingly expensive health care benefits in a labor-friendly environment, without any consideration of future costs. But in light of today’s clear understanding of the crushing impact that the obligation will have on the county’s ability to provide services, it is worrisome to see the current board appears to be continuing this trend.

Most of the county’s 39 union contracts expire in September of 2008. In the past several months, three new labor contracts have been approved. None includes changes to health care benefit plans that would begin to seriously address the county’s imminent financial crisis. This does not bode well for the outcome of future negotiations unless the supervisors take as realistic and tough a position with labor unions as it has with the County’s unrepresented employees.

If the Board of Supervisors either collectively, or any of its members individually, squander this opportunity to substantially improve the county’s financial situation in the name of political expediency or labor peace, out-of-control retiree health care costs will surely and painfully impact the county’s ability to deliver basic services to its more than one million citizens.

The complete report is available on the Contra Costa County Grand Jury web site: www.cc-courts.org/grandjury

Below see analysis that shows why I believe the County has barely taken “baby steps” to solve the problem, and I have also attached a list of critical financial events to help put in perspective just how long some of these problems have existed in the County. Please take a look at that timeline list as well as the Economic Partnership’s report.

The Problem
Contra Costa County has been promising its employees lifetime health care without setting aside money to pay for this cost. The County has known about this problem since 2001 and has been through two labor contract cycles (the latest in the fall of 2006) without dealing with a level of benefits that has been deemed “unsustainable” by the County’s financial experts. A new accounting requirement (GASB 45) is forcing the County along with all other government entities to disclose the cost of the total retiree health care obligation and to begin to deal with it. The bad news: Contra Costa County’s obligation is $2.6 billion.

For Fiscal Year 2007-08, the County will pay about $36 million annually for retiree health which is the amount they are actually being billed. This continues the practice called Pay-As-You-Go. Under the GASB 45 reporting requirement, the County’s annual obligation is actually around $227 million. The shortfall will have to be reported as a liability.

The County’s Solution
On June 26, 2007 the Board of Supervisors passed a Board Order that at least some of the Board members contend has addressed the $2.6 billion retiree health problem. Unfortunately, up to this point they only established targets, but have not taken any binding action that will actually solve the problem. What the Board did and did not do:

1. The Board did not find a single penny in the current Fiscal Year budget to devote to this problem despite publicly declaring it to be “County Priority #1, #2, and #3.”

2. The Board proposed setting up a Health Trust Fund with a targeted funding level of only 40% (Pensions target 85% - 110% as a funding level.) At the Governor’s recent Public Employees Post Employment Benefits Commission hearing where I testified on this issue, nobody in a financial capacity suggested that the funding levels for retiree health be any different than that of pensions.

3. The “Trust Fund” is not currently funded and as a prominent local attorney stated “If it isn’t funded, it isn’t a trust fund.”

4. The proposed future funding of the “Health Trust Fund” relies on funding sources that may or may not materialize. Some of the funds are not even available until Fiscal Year 2022-23 when the current Board members will likely be long gone.

5. The $2.6 billion liability is likely to increase because the actuaries used an older Mortality Table. When they do their new calculations as of 12/31/07, they should use the updated table that reflects the fact that people are living longer. In addition, until the County takes real action to reduce the debt it continues to grow daily.

6. Given the proposed funding level, it appears the Board will either have to cut services and/or change the benefit structure for union members. No changes have publicly been agreed to by the unions.

If retiree health were the only financial issue, the County would still be in trouble. Unfortunately, there are others. The cost of health care benefits in general has doubled in six years. The pension issue continues to loom. The County is not funding building maintenance or vehicle replacement adequately. It can only be hoped that increased focus on the County’s growing retiree health problem will also mean that these other issues will finally be dealt with as well.

If you have any questions, comments, or solutions please feel free to call or email me.

Sincerely,

Kris Hunt
Executive Director
Contra Costa Taxpayers Association
925-228-5610

For peace officers, firefighters, public safety, and other public employees hired after July 1, 2009, this measure: reduces pension and retirement health care benefits; increases minimum retirement age; restricts early retirement; increases minimum age and years of employment needed to qualify for retirement requires public employers to make annual payments to fund future benefit costs; and allows public employers to adjust retirement contribution rates in future labor agreements. Summary of estimate by Legislative Analyst and employees hired on or after July 1, 2009, offset to an unknown extent by increases in costs for other forms of public employee compensation. Major short-term increase in annual governmental payments to prefund retiree health benefits, more than offset in the long run by annual reductions in these costs. (Initiative 07-0024.) (Full Text)