- The Washington Times - Sunday, September 24, 2006

SAN FRANCISCO (AP) — The bill is coming due for years of generous benefits bestowed upon the nation’s public employees, and it’s a stunner: hundreds of billions of dollars over the next three decades, threatening some local governments with bankruptcy and all but guaranteeing cuts in services such as education and public safety.

This staggering burden is coming to light because of new accounting rules issued by the Government Accounting Standards Board. They require public agencies to disclose the future cost of health care and other benefits — such as dental, vision and life insurance — promised alongside traditional pensions to the nation’s estimated 24.5 million active and retired state and local public employees.

Retiree health care costs have been quietly mounting for decades while public agencies have passed out generous retirement benefits during labor negotiations — often in lieu of salary increases. But government negotiators rarely considered the long-term financial consequences of awarding such perks, said Brian Whitworth, a retirement-benefits specialist with JP Morgan Chase and Co.

“A surprising number of public entities didn’t even make informal estimates of long-term costs prior to the new accounting rules,” Mr. Whitworth said.

Many cities and state agencies already are struggling to fully fund their pension obligations, but analysts say those liabilities pale in comparison with the debt accumulated for other retirement benefits.

Last month, JP Morgan released what it considers the most comprehensive preliminary estimate. It projects the present value of unfunded health care and other non-pension benefits at between $600 billion and $1.3 trillion.

The debt rating agency Standard and Poor’s estimates the country’s total unfunded public pension debt at $285 billion.

“There’s a good chance some government entities are going to go bankrupt,” said California Assemblyman Keith Richman, a Republican. “But the issue isn’t just bankruptcy. It’s governments dying of a thousand cuts in services. The costs of promises that have been made are going to be astronomical.”

Union officials say it’s not their fault municipalities put themselves in a hole by promising more than they can deliver.

“This is a monumental problem, and government is going to have to deal with it,” said Steve Regenstreif, head of the retirement division at the American Federation of State, County and Municipal Employees.

When the accounting rules take effect in 2008, taxpayers will see for the first time just how much they’re paying to provide benefits to active and retired state and local public employees.

“When the numbers are produced, they’re going to be shocking,” said Ronald Snell, director of state services for the National Conference of State Legislatures. “They’ll be in the hundreds of billions, and it’s definitely something that policy-makers are going to have to take notice of and act upon. … There are consequences of decisions made in the past.”

The Government Accounting Standards Board is an independent nonprofit organization that establishes accounting standards for public agencies. Seeing a need to bring public-sector disclosure rules in line with those of the private sector, the board ordered the rules change in 2004 and gave governments several years to implement them.

The new rules don’t require governments to come up with the money right away, just to disclose the present size of these future costs and estimate how much more money is needed.

Public employee unions likely will not make concessions, said Suzi Rader, director of district and financial services for the California School Boards Association. Any attempt to limit benefits already granted will be opposed, she said, so employers must instead hold the line on granting additional perks to future retirees.

Lori Moore, a spokeswoman for the International Association of Fire Fighters, said nothing is really changing except the need for cities to reveal how much they’ll owe in non-pension retirement benefits.

“The liability has always been there,” she said. “They had to know in the back of their minds that it was there.”

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