January 26, 2007

Fiscal prudence urgently needed in coming years

Fiscal prudence urgently needed in coming years
Investments considered as more boomers retire

BY JAMES BURGER, Californian staff writer
e-mail: jburger@bakersfield.com | Saturday, Jan 27 2007 10:55 PM

Last Updated: Saturday, Jan 27 2007 10:58 PM

Paying for retiree health care used to be easy for the county of Kern.

The county paid a little. The employee paid a little. The money was invested. That was enough.

Now it's not.

"Historically we have been able to fund this just fine," said County Administrative Officer Ron Errea.

But he said the cost of health care has climbed dramatically in recent years and a substantial chunk of county employees, many from the baby boom generation, are rushing to retire in the next few years. Paying for all that takes taxpayer dollars.

Now new rules from the Governmental Accounting Standards Board are forcing governments across the nation to tell the public how much those retirements are going to cost them.

Kern County hasn't finished crunching the numbers yet. An actuarial report is expected to be released in February.

It seems likely that there will be a lot of red ink in that report.

The county won't have to pay up immediately. In fact, there is no legal requirement that it set aside money now to pay for future retirement costs.

But to avoid bad credit and weaker bonding muscles, the county is looking for the best way to invest enough moneyeach year -- over 30 years -- to pay for estimated cost of retiree health care.

"It's a serious problem. It's constantly coming to the forefront," said Supervisor Ray Watson. "We are amortizing our liability. We smooth that by paying off that deficiency over 30 years."

In June 2005, actuaries estimated the county's retiree health care account was short by around $78 million.

This year the county will contribute $1.7 million to that account. Next fiscal year the amount the county contributes is proposed to more than double to $3.9 million in an effort to catch up with its looming debt.

County employees currently contribute eight-tenths of one percent of their base pay toward their retirement health benefits.

Next year the county wants to bump that to 1.85 percent, according to county officials. County unions would have to agree to that.

Errea said fiscal prudence demands that the county look for a way to fund the rising cost of health benefits.

If it doesn't deal with it, county officials say, its official debt level could burgeon and its bonding capacity could suffer.

But the county won't be able to establish concrete solutions until it has updated actuarial numbers.

Right now, the only plan is to pour more money from taxpayers and county employees into the retirement investment fund, they said.

Watson said the county and its unions need to talk about a way to provide health benefits to retirees without breaking the county's bank.

That may mean the county funds a lower level of defined benefits and have employees pay more in contributions to buy increased coverage, he said.

Chuck Waide, spokesman for the Central California Association of Public Employees, said the union is watching closely to see what the impact might be to county employees the union represents.

"All of us recognize that the cost of health insurance has skyrocketed," Waide said.

He said the hope is that employee's increasing contributions to their post-employment health care will control the costs.

"Our members are feeling it because (the contribution) keeps going up," he said.

But Waide said the issue isn't just about how Kern County deals with rising retirement costs.

The rising cost of health care, and retiree health costs, are national problems, he said, and they need a national solution.

Unfortunately, Waide said, nobody has come up with one yet.

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