A new report out from the state’s Financial Control Board (FCB), which reviews New York City’s finances, shows the updated value of New York’s projected costs over time for providing healthcare to retirees.
This liability has grown by 36 percent in the three years since the city has had to report it, and will near the $100 billion mark in less than a half decade.
In 2006, when new accounting regulations forced New York to disclose how much it has promised in future health benefits to retirees, the figure was $50.5 billion.
Today, it has risen to $68.8 billion.
Four years from now, the number will have grown to $96.4 billion — another 40 percent, and nearly double the first $50.5 billion figure.
Unlike with pension benefits, no government body requires the city to set aside money to fund these liabilities. (And unlike with pension benefits, the state constitution does not guarantee payment to retirees.)
But in 2005 and 2006, flush with record surpluses, Mayor Bloomberg put a total of $2.5 billion into a “retiree health benefits trust,” supposedly to fund this future liability.
The Financial Control Board’s new report notes that the city needs to do more, though, to “address this serious growing liability,” either by reducing benefits through bargaining with unions, or by aggressively increasing its contributions to the trust fund, or both.
Instead, Mayor Bloomberg is drawing down $1.5 billion from this “trust fund.” The money withdrawn will fund current pension contributions, the city says.
However, pension contributions are part of the city’s annual operating budget. They’re just another labor cost. And all operating money is fungible.
So the city is really using a long-term store of savings to cover its immediate budget gap.
This Monday, the New York Times‘s Michael Barbaro reports, the FCB’s three board members from the private sector “scolded the city” for taking money out of the trust fund when it should be adding to it.
“Troubling to us is that many reports on the city’s fiscal condition treat the health benefit trust fund like it is a budget reserve to be used to close deficits,” the members said at the board’s annual meeting, which nevertheless certified that the city’s budget is balanced.
The fiscal propriety of creating anything called a “trust fund” and using it instead as a mechanism through which to paper over operating imbalances in the budget is dubious, at best.
New York would not be able to raid pension funds to help close its operating budget gap, nor would it be able to borrow by issuing bonds for this purpose.
But, in effect, by raiding a long-term fund whose coffers will have to be replenished eventually, New York is borrowing from the future, just as it would if it were floating bonds.
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