insurance for retirees will burden governments
Some cities, counties and school districts have future
obligations that could have severe effects on their fiscal
By Pat Doyle
Minneapolis Star Tribune
Wednesday, December 14, 2005
For teacher Greg Van Alstine, the deal promises early
retirement after more than 30 years of working in a public
school in the northern Twin Cities suburbs.
But for Duluth, a similar deal for city employees could mean
higher taxes, reduced services or even bankruptcy.
The cost of health insurance for retired government
employees, overlooked for years by politicians and the
public, is slowly coming into focus for cities, counties and
school districts in Minnesota. One of the biggest
obligations is in St. Paul, where the total future liability
could reach $1 billion for the city, the school district and
Ramsey County. Duluth is looking at a $280 million bill.
Nearly half of the state's school districts pay part or all
of the health insurance premiums for their retirees. A hint
at what could be in store for some of them occurred this
year in the Crosby-Ironton School District in northern
Minnesota, where teachers struck over proposals to cut
retiree benefits before agreeing to concessions.
"You had a district that had made these promises for a large
number of years and ultimately didn't have the ability to
fund it," said Harley Ogata, general counsel for Education
Minnesota, the state teachers union. "Both sides had to
Retiree health insurance was sometimes approved as a
substitute for better wage increases for public employees.
Typically providing a bridge to Medicare for early retirees,
it cut payroll costs by encouraging early retirement. Over
time, public employees saw retiree health insurance as
deferred compensation for government pay that was lower than
what they might earn in the private sector. And politicians
saw it as a way to hold the line on raises while agreeing to
a benefit that was harder to quantify.
Disclosures will be
But concerns about the rising cost of health care have
prompted the federal government to require state and local
governments to begin disclosing in 2007 the impact of their
long-term obligations. Few state employees in Minnesota are
entitled to retirement health insurance, but the impact is
significant among local governments.
The state auditor's office is scheduled to meet next week
with finance officials of major local governments to discuss
the new federal rule.
"We want to find out how many ... have started looking at
this," said Carla Heyl, general counsel for the auditor.
Local governments already are scrambling to figure out what
they owe and what to do about it. "We can't afford to
continue to give this away," Duluth Mayor Herb Bergson said
in an interview last week.
Without concessions from city unions, he said, Duluth faces
an estimated $280 million health insurance liability for
current and future retirees. Although that figure is much
higher than the city's annual budget, the cost would be paid
Raising taxes to meet the obligations is an option, but "if
there are levy limits ... it would probably require mass
service cuts and layoffs," Bergson said.
If contract revisions, budget cuts, tax increases and other
remedies don't solve the problem, "then the city will likely
face bankruptcy," said a task force report delivered Monday
to the Duluth City Council. The report recommended that the
city ask lawyers for "advice regarding this alternative and
the steps the city needs to take now to protect its citizens
should bankruptcy happen in the future."
Heyl said she is not aware of any local government in
Minnesota that has ever filed for bankruptcy protection.
St. Paul Mayor-elect Chris Coleman hasn't yet formulated a
plan for dealing with retiree health insurance costs but was
scheduled to get a briefing on that city's obligations in a
couple of weeks, said spokesman Bob Hume. Ramsey County has
dropped the benefit for new hires.
The Minnesota Supreme Court ruled this year that a
government can't unilaterally cancel health benefits of
retired public employees who won those rights in collective
bargaining agreements before they retired.
The Crosby-Ironton settlement offers an example of how
future retirement costs could be contained. Current
teachers hired before July 1990 won't have the same
guaranteed district-paid retirement health insurance as
current retirees. Instead, the district will contribute
money to a trust account for older teachers. It will be
managed by the union, which will determine how benefits are
Employees hired from July 1990 until July 2005 will receive
up to $1,500 a year for health care savings accounts that
they can use to pay premiums when they're retired. The
district won't pay for retirement health insurance for
future employees. The arrangement spares the district about
$13 million in retiree health contributions through 2019.
"It would have bankrupted us, no doubt about it," said
Superintendent Linda Lawrie.
Ogata said the possibility of more severe cuts was a blow to
a large number of older teachers, "who had dedicated two or
three decades of work to the organization with the idea that
the promise was they would get retiree health insurance."
Van Alstine, 58, a third-grade teacher at Rice Lake
Elementary School in Lino Lakes, said he and other veteran
teachers worry that the district will insist on stripping
away five years of early-retirement health benefits.
Without the benefit, "I would end up teaching longer," he
said, because paying insurance premiums until he could
collect Medicare payments would cost about $15,000 a year.
The district proposed cutting the retirement benefit during
contract negotiations between his union and the district,
but has backed away from the idea.
Pat Doyle • 651-222-1210