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City faces $2.9 billion gap in retiree health benefits
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Related Topics: BALTIMORE
BALTIMORE (Map, News) - Baltimore City officials estimate they will need $2.9 billion to cover employee retirement health benefits for the foreseeable future.
The problem: Baltimore has set aside only $15 million, presenting a fiscal challenge for the city, Budget Director Raymond Wacks said.
“We have a long way to go to fund this,” he said.
The $2.9 billion is an “unfunded liability” — an actuarial estimate of the costs of providing retirement health benefits to all current employees and retirees required by the Governmental Accounting Standards Board, Finance Director Edward Gallagher said. The GASB has mandated that all municipal and state governments nationwide calculate the future costs of retiree health in present-day dollars — from city hall secretaries to police and firefighters. Gallagher said the sum, more than the entire 2008 $2.1 billion city budget, will strain finances.
“It’s certainly challenging,” he said.
But Gallagher and city officials took steps to address the issue Wednesday, as the city’s Board of Estimates authorized setting up a new irrevocable trust similar to the city’s pension fund dedicated solely to paying health benefits. The fund will invest money set aside by the city for retiree health benefits in stocks and bonds. The trust will be administered by the city’s Employees’ Retirement System and, like city pension funds, will soak up more money in the future.
“We will be increasing our contributions over time, but it will take a number of years to catch up,” Wacks said.
The unfunded liability is bad news for a city already facing challenges in covering retiree benefits. In fiscal 2008, Baltimore will contribute nearly $118 million to employee pension benefit plans, up nearly 400 percent since 2000. The rising costs are part of a statewide trend, said Chris Summers, head of the Maryland Public Policy Institute.
“This is the fiscal tsunami that’s going to hit not just Baltimore, but the state of Maryland. This isn’t something you economically grow out.”
Summer said the state and the city will have to generate more revenue to fund health care obligations.
“It’s going to create a fiscal crisis, massive cuts in services or massive cuts in benefits or a massive tax increase — take your pick.”
She we raise taxes to cover health benefits? Respond in our comments below.
Comments from Examiner Readers
1:59 PM MST on Thu., Jul. 31, 2008 re: "City faces $2.9 billion gap in retiree health benefits"
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8:01 AM MST on Mon., Feb. 25, 2008
re: "Howard considering trust fund for retiree benefits obligation"
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7:11 AM MST on Sat., May. 26, 2007
re: "More than $10M set aside for retiree benefits"
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5:58 AM MST on Fri., Apr. 20, 2007
re: "More than $10M set aside for retiree benefits"
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Examiner Reader said:
Oh sure, raise my taxes. It doesn't matter that I have no retirement plan. That I have worked since I was 16 years old, not including babysitting when I was younger that 16. All the hardworking state employees, I say hard working because I see them napping in yellow trucks, deserve a big fat retirement check. And the city employees, with all the hard work they do by shopping using city credit cards is tiring. They deserve it also! Take my money, what little I have left.
0 agree | 1 disagree
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Not surprised said:
Retirement should be in 401K plans. With the county and the employee contributing. Then there would be no unfunded liability!
32 agree | 23 disagree
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Examiner Reader said:
Baltimore County's website makes no mention of a 5 % penalty , nor does it tell you how they aren't finish yet... if this information is true then employees who have been loyal and hard working are to be pusished for their committment. If the Administration and Council and Govenment on all levels really are so worried about the system , then perhaps they should show how much they care about all of their constituens out here in the communities it by reaching into thier own retirement systems/pockets and pay into the Social Security System. and Retirement system and cut their pays.. Excuse me, but it would seem that we have elected people who have no problem taking pensions from workers who are the backbone of the entire system....yet..pay nothing themselves... I think that perhaps it may be time that government "for the people" replaces "by the people" with "real people."
159 agree | 150 disagree
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Examiner Reader said:
Howard County's approach to funding their retirement liability is not being done by ravaging the current employee's retirement as Baltimore County Executive Jim Smith is trying to do. They also have a Spending Committee evaluating the financial impact. Baltimore County did not have the pension system evaluated prior to proposing the radical changes to the current retirement system.
172 agree | 151 disagree
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