Wisconsin’s 25 largest cities face $2.25 billion in unfunded retiree health care liabilities, with increasing costs over a three-year period in Milwaukee and Racine negating savings elsewhere, the Wisconsin Policy Forum reported Monday.
The report examined the size of unfunded commitments between 2013 and 2016 in the state’s 25 largest cities. While 23 cities cut costs by just over $120 million during that time, that was more than negated by $228 million increases in expenses in Milwaukee and Racine.
$2.25 billion! That sounds horrible. Where does the Wisconsin Policy Forum come up with that number?Well, if you read the report, Jason Stein and company do a good job in explaining where the number is derived from. The paper uses the City of La Crosse’s situation as an example, where a police officer could retire at age 53.
It currently costs La Crosse $18,800 a year to provide family coverage to rank and file officers, with a net cost of $16,400 a year to the city once the officer pays his or her share of the premium. Even without accounting for inflation, it would cost the city about $197,000 for the 12 years of coverage needed to take this officer from retirement to Medicare eligibility. (See Figure 3.) So far the city has not put aside money to pay for its commitments.So if the City of La Crosse has nothing set aside in their budgets to pay for that officer’s health care, then it has an “unfunded liability” of $197,000.
Now, it’s worth mentioning that the $197,000 is a TOTAL amount, while cities budget year-by-year, so it’s not like Wisconsin communities face a huge crisis where $2.25 billion has to be paid up immediately or else every retiree loses his/her benefits. But much like debt, the real problem is that paying for these needs every year takes away from other items that could be funded, or taxes that could be cut. And if those figures on Other Post-Employment Benefits (OPEB) figures keep rising, then things get proceedingly worse as a locality tries to make ends meet each year.
So to head that off, the Policy Forum notes that many municipalities have used the “tools” of Act 10 to impose a benefit structure that offloads the costs onto their employees, or ends OPEBs entirely for younger workers.
For more than a decade, local governments have made some use of this flexibility. The city of La Crosse, for example, has made a series of changes to raise eligibility standards going back to 2004. The city then phased out retiree coverage entirely for employees who were hired after January 2014. This statewide trend intensified after the passage of 2011 Wisconsin Act 10, which greatly restricted collective bargaining for public employees other than police and firefighters.
Over the past several years, La Crosse has seen the projected liability for its retiree health benefits fall by $10.3 million, a decrease of 13%, from $76.7 million in 2013 to $66.4 million in 2016. Of the 25 cities reviewed, 18 saw their unfunded promises to retirees decline over the three-year period. The biggest drop in dollars came in Beloit, where the expected obligation fell $33.9 million, or 25%, from $136.4 million in 2013 to $102.5 million in 2016….
Racine had the largest challenges for a city of its size [partly because it used to cover retirees’ health care FOR LIFE, until they starting phasing it back in 2007]. Its total retiree health care obligation grew $96.7 million, or 24%, between 2013 and 2016 to $503.2 million. The good news, city officials say, is that a forthcoming study is expected to show the liability dropped to $386 million in 2017. (See Figure 5.) They said that was due to a variety of factors, including a decision to shift some retirees to a Medicare Advantage plan for prescriptions. Still, Racine’s 2017 projection for its obligation amounts to $4,953 per person.
And here's a look at every community's per capita deficit, you'll find that the "problem" of underfunded post-retirement benefits is concentrated into a few communities.
The Policy Forum says one thing to keep in mind is that while state employees also have had to deal with some changes to their benefits in recent years (you may recall something about this from 2011), the situation facing local governments on retiree health care is very different than the stable and funded one that existing for state employees.
It is important to keep retiree costs for cities in context. Wisconsin, for instance, has a stable and fully funded pension system that covers nearly all state and local government employees. The main exceptions are workers for the city of Milwaukee and Milwaukee County, which each maintain their own pension systems. State workers can use the value of their unused sick leave to pay their health insurance after retirement; though those costs are substantial, the state has set aside assets to cover them. Those two factors put taxpayers and government budgets here in a much better position than in many other states.Keeping with the topic of public employee health care, you may also remember that Scott Walker’s Department of Administration recently received a report that looked at how much teachers and other school district employees were paying for their health insurance premiums (here’s the spreadsheet with all districts listed, if you are so interested).
The report showed that the average Wisconsin teacher was taking up between 2-4 times as much of a share of the costs of health care premiums as what they were paying before Act 10.
Barry Forbes, associate executive director for the Wisconsin Association of School Boards, said the figures show health care costs for school district employees generally matching “what greater society is experiencing now.”And that’s 12% of a higher amount of health care cost than we had in 2011, so it’s a double-whammy from that perspective.
“It was clear before Act 10 that public-sector employee fringe benefits were typically far superior to the private sector. Now, not so much,” Forbes said…
In the 2010-11 school year, Forbes said the average employee contribution for health premiums was 5 percent for family plans and 3 percent for single plans.
That compares to an average, or mean, employee contribution of just less than 12 percent in the data released [last] Monday. The median contribution was slightly more than 12 percent.
Notice that at both the state and local levels, these fiscal “improvements” have often come out of the pockets of the workers themselves. And sure, you can play the “divide and conquer” game and claim that it makes public employees like “the rest of us.” But it also can’t be denied that it reduces the compensation that public employees have been given, and will be given in the future.
And like any other profession, when the amount of take-home pay and quality of OPEB-type benefits are reduced, that’ll make some people demand more pay and/or move on to other places/professions. Combine that with the fact that Scott Walker and the Wisconsin GOP is giving public K-12 education and local communities less money in shared revenues next year than what was given 8 years ago, and you can see where it becomes increasingly difficult to attract teachers and other public employees. This is especially true in smaller communities where the funding is even more constrained and they have to compete with other places that might have a lot more to offer from both a compensation and quality of work/life experience.
Why, it’s almost like paying for talent costs money! Funny how this administration and their corporate puppetmasters seem not to understand this concept, and instead demands that local governments, schools, and workers “do more with less.” And then they wonder why Wisconsin keeps having labor shortages and falls further behind in jobs and wages?
Maybe it’s time for the corporations and their GOP puppet-ticians pay a little price of their own, literally and occupationally.