New York’s public-sector employees have been promised $205 billion in post-retirement health benefits that the state and its local governments have set aside no money to pay for, a new Empire Center report found.

Thanks to a new government accounting standard, known as GASB 45, the state and local governments are now required to calculate and disclose the long-term costs of keeping all of their retiree health care promises. The Center’s report — “Iceberg Ahead: The Hidden Cost of Public-Sector Retiree Health Benefits in New York” – found that each resident (man, woman and child) of New York City is on the hook for $7,386, a bargain compared to Syracuse’s per capita rate of $11,200.

Other liabilities detailed in the report include $60 billion for state government, $13.8 billion for the state’s 20 largest counties and $6.5 billion for the top 20 school districts. New York City and California tied for the largest unfunded OPEB liability at $62 billion each.

In a New York Post op-ed, E.J. McMahon wrote:

The good news is that retiree health benefits, unlike pensions, aren’t guaranteed by the state Constitution. Elected officials can still change course by restructuring health benefits for both current retirees and active employees.

The report concludes with a series of recommendations for curbing costs, including:

1. Preserve health benefits for employees who have already retired, but require them to pay a larger share of their own premiums.
2. Reserve the greatest benefit to those who have worked the longest.
3. Allow trust funds to cover adjusted OPEB liabilities, but calculate required contributions to these funds based on assumed returns from conservative, low-risk investment strategies.
4. Eliminate retiree health insurance coverage for new hires and for employees who have been on the payroll for less than 10 years, and shift these workers into retirement medical trusts.

A spokesman for the state’s largest public employee union, the CSEA, dismissed the Empire Center report as “scare tactics … to create the misimpression that government is going off the rails when in fact it’s not.”

In other words: Move along folks. Nothing to see here!

Originally Published: NY Public Payroll Watch, October 15, 2010

About the Author

Tim Hoefer

Tim Hoefer is president & CEO of the Empire Center for Public Policy.

Read more by Tim Hoefer

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