Time to break some promises..just like politicians do with taxpayers

Controller: State faces up to $47 billion bill on health benefits

Monday, May 7, 2007

California may have to come up with an extra $47.9 billion over the next 30 years to cover health and dental benefits for its retirees and current state employees, Controller John Chiang said Monday.

But Chiang said the state could cut that bill to about $31.3 billion if it dropped its pay-as-you-go approach, invested about $1 billion a year to help cover future retiree health costs and used the earnings to ease the impact on the state budget.

"Our actuarial report shows that, annually, if we continue on the pay-as-you-go basis, we will accrue a liability of $3.59 billion a year," Chiang said in remarks prepared for a speech to the Sacramento Press Club. "But if we fully pre-fund and put that money into a trust fund, we'll only need $2.59 billion a year (from the budget) to cover this liability."

The state has been paying less than $1.4 billion a year for health benefits, raising the specter of a large unfunded liability in the future, Chiang said.

An order issued by the federal government in 2004 requires states to spell out how much they'll have to pay in non-pension retirement benefits.

Chiang said he was releasing his findings nearly two years before the federal deadline to give the state time to come up with a "responsible plan to honor our promises to state employees and protect future budgets."

"We cannot continue to defer these costs to the next generation of Californians," he added.

The pre-funding approach he recommends is the same one used by the state to pay pensions. He also said the state should look for ways to control its health-care costs.

State Finance Director Mike Genest said Gov. Arnold Schwarzenegger appointed a 12-member commission last year to propose ways to deal with state public pensions and retiree health benefits.

"As the governor has said, we have to find the best way to meet these obligations without harming other government programs and taxpayers or handing the problem off to future generations," Genest said.