The com­ing del­uge

The Washington Times Weekly - - Editorials -

If one of the “Big Three” U.S. au­tomak­ers — Gen­eral Mo­tors, Ford and Chrysler — de­clares bank­ruptcy in the fu­ture, a ma­jor con­tribut­ing fac­tor will be the spi­ral­ing costs of health ben­e­fits for their re­tired work­ers. The “Big Three” aren’t the only ma­jor in­sti­tu­tions fac­ing dire fi­nan­cial prob­lems di­rectly at­trib­uted to the health costs of their re­tired work­ers. Vir­tu­ally ev­ery state in the na­tion and count­less cities across Amer­ica con­front the same prob­lems af­ter hav­ing granted pub­lic em­ploy­ees early-re­tire­ment deals re­plete with tax­payer-funded health ben­e­fits.

Blue-col­lar auto work­ers of­ten need to re­tire af­ter 30 years of phys­i­cal la­bor be­cause their bod­ies can no longer take the daily wear and tear of the as­sem­bly line. But state and lo­cal gov­ern­ments have no such ex­cuse for bur­den­ing their tax­pay­ers with breath­tak­ing health-care costs by per­mit­ting their largely pen­cil-push­ing, key­board-strik­ing bu­reau­crats to re­tire 10 to 15 years be­fore they be­come el­i­gi­ble for Medi­care at the age of 65. More­over, in re­cent decades, the private sec­tor has re­lent­lessly re­placed com­pa­ny­paid de­fined-ben­e­fit pen­sion plans with 401(k) re­tire­ment plans that re­quire em­ploy­ees to fi­nance their own pen­sions through de­fined con­tri­bu­tions. Dur­ing that pe­riod, the tax­payer-fi­nanced pub­lic sec­tor has achieved a near mo­nop­oly on gold-plated, early-re­tire­ment pen­sion plans, which are but­tressed by ex­trav­a­gant, tax­payer-funded health ben­e­fits for 10 years and longer. And most tax­pay­ers do not have a clue what they will be fac­ing in the near fu­ture.

In an eye-pop­ping anal­y­sis of the fi­nan­cial cri­sis bar­rel­ing down upon New Jer­sey’s tax­pay­ers, the New York Times last week re­ported that the state has ac­cu­mu­lated a health-care-re­lated un­funded li­a­bil­ity of $58 bil­lion. That’s the amount of money, in to­day’s dol­lars, that is needed to pay for the health costs of its pub­lic em­ploy­ees af­ter they re­tire. Not­ing that the state’s $58 bil­lion re­tiree-health-care mill­stone is nearly dou­ble New Jer­sey’s an­nual bud­get and its out­stand­ing debt, the Times fur­ther re­ports that New Jer­sey lo­cal gov­ern­ments have in­curred an­other $10 bil­lion in largely un­funded health costs for their own re­tired pub­lic work­ers. Mean­while, the state’s pen­sion fund is so un­der­fi­nanced that it would need an­nual in­fu­sions of $2.2 bil­lion just to bring it back to bal­ance. De­spite mak­ing pen­sion-fund con­tri­bu­tions that are larger than the com­bined av­er­ages of the pre­vi­ous four ad­min­is­tra­tions, Demo­cratic Gov. Jon Corzine is still able to pro­vide only half of what is needed for pen­sions.

Re­gard­ing the health-ben­e­fits cri­sis, for now it is pay-as-you-go. New Jer­sey’s state gov­ern­ment will spend about $1.1 bil­lion on the health costs of its re­tired pub­lic em­ployee this year; and that amount will dou­ble within five years. To get a han­dle on health ben­e­fits for re­tirees, a for­mer New Jer­sey trea­surer es­ti­mates that the state would have to be­gin to­day set­ting aside $6 bil­lion per year. With pen­sions so un­funded, how­ever, not a dime is avail­able to re­sume fi­nanc­ing a health trust fund. We say “re­sume” be­cause from 1987 through 1994 New Jer­sey was one of only a few states that had the fidu­ciary fore­sight to set aside money for re­tiree health costs. But newly elected Repub­li­can Gov. Chris­tine Todd Whit­man de­cided in 1994 to end that prac­tice. In­stead, the money that had been go­ing into a health trust fund was used to fi­nance the tax cut she promised to win elec­tion.

No longer set­ting aside any money for re­tiree health care, New Jer­sey ef­fec­tively pre­tended those fu­ture obli­ga­tions did not ex­ist. That mind­set en­cour­aged politi­cians to im­prove re­tiree health ben­e­fits. New Jer­sey pub­lic work­ers can gen­er­ally re­tire at 55. New Jer­sey tax­pay­ers fund the en­tire health-care pre­mium for re­tired pub­lic work­ers. Those with 25 years of ser­vice — and some­times their spouses — en­joy lav­ish health ben­e­fits (such as co-pay­ments of $5 when ex­er­cis­ing their right to see any doc­tor they want when­ever they want and gen­er­ous caps for out-of-pocket ex­penses) un­til they qual­ify for Medi­care, at which time New Jer­sey funds sup­ple­men­tary health ben­e­fits.

Need­less to say, New Jer­sey isn’t the only state fac­ing huge health-care li­a­bil­i­ties for its re­tired pub­lic work­ers. Ex­clud­ing New York City pub­lic work­ers, New York State faces $47 bil­lion in re­tiree health costs. Ex­clud­ing teach­ers, whose health ben­e­fits in re­tire­ment are pub­licly funded else­where, Cal­i­for­nia con­fronts $48 bil­lion in pub­lic-em­ployee re­tire­ment health costs. North Carolina, Con­necti­cut and Alabama face costs of $24 bil­lion, $21 bil­lion and $20 bil­lion, re­spec­tively, ac­cord­ing to the Times. Th­ese health costs are above and be­yond un­der­funded pub­lic pen­sion sys­tems. Tax­pay­ers, rel­a­tively few of whom will en­joy com­pa­ra­ble ear­lyre­tire­ment op­por­tu­ni­ties and post-re­tire­ment health ben­e­fits, will be pick­ing up the tab. It is long past time that tax­pay­ers be­come aware of the pub­lic-em­ployee re­tire­ment obli­ga­tions that politi­cians from both par­ties have been com­plicit in thrust­ing upon them.

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