Retiree Healthcare Weighs on City Budget
By Carl Wagenfohr
CLEARWATER - Although the City of Clearwater does not provide healthcare insurance to its retirees, it does, as required by State of Florida law, allow retirees to buy into the group healthcare coverage it provides to its active employees.
Because of their higher age, medical costs are greater for retirees than employees. If they were a separate group, retirees would pay higher healthcare premiums, but because they participate as members of a group that includes active and younger employees, they pay a lower premium.
While that's great for the retiree, it's a liability for the city's taxpayers. The difference between a retiree's estimated "age-adjusted premium" and the city's group rate amounts to an implicit subsidy of retiree healthcare. For fiscal 2007, Clearwater estimates the subsidy at $117 per month per retiree, with the impact on the city's annual budget totaling an estimated $450,000 for the 322 retirees who participate.
Because of the growing impact of "Other Post Employment Benefits" (OPEB) on government budgets, the Governmental Accounting Standards Board (GASB) has issued a Statement 45 that requires accounting for the implicit retiree healthcare subsidy as a liability on the city's financial statements.
But while GASB 45 requires the city to account for the unfunded retiree benefits, it does not require cash funding of the growing liability. And the City of Clearwater does not plan to fund it at this time.
In May, PriceWaterhouseCoopers (PWC) conducted a GASB 45 actuarial analysis of Clearwater's retiree health and life insurance benefits for fiscal year 2007, and the numbers are startling. PWC found that the city staff's recommendation to leave unfunded the accrued liability for OPEB to be $21,834,600! That amount consists of the current year cost plus a 30-year amortization of the unfunded future liability.
PWC's report was discussed during the Clearwater City Council's June 18th worksession, and Councilmember Paul Gibson was concerned with staff's recommendation to leave the retiree benefit unfunded.
"It's taking an expense that we should be recognizing today and moving it into the future, would that not be correct," Gibson asked Assistant Finance Director Jay Ravens. "That's a matter of opinion. Staff's opinion is that 'Pay as You Go' is appropriate because we are not providing an explicit benefit…we're merely complying with Florida statutes" Ravens replied.
"Wouldn't you agree that if we don't fund it, that we're not recognizing the full cost of employees," Gibson asked. "Technically yes, because we're not recognizing the implicit subsidy on a pre-funding basis" Ravens answered.
"So that essentially says that future City Councils and future taxpayers will be paying for a benefit that someone is receiving today," Gibson stated. "Yes, which is what we've always done," Ravens said, "We have not encountered a Florida government yet that is planning to pre-fund the implicit rate subsidy."
But it's not only future taxpayers who will bear the burden for the city's implicit subsidy of retiree health insurance; it's the city's active employees as well. In a report to the City Council, the finance staff wrote, "… health insurance benefits may have to be decreased in the future as employer contributions for the implicit rate subsidy increase (i.e. employee/retiree medical insurance co-pays may have to be increased, etc., to compensate as the number of retirees and related subsidies increase in future years).
The funding of retiree benefits will be discussed at a future, but unspecified, Budget Workshop. The City Council will hold their next budget discussion during their July 16th worksession meeting.
Return to Home Page
Return to Current Edition