Page i
EXECUTIVE SUMMARY
New York taxpayers spend billions of dollars a year on health insurance coverage forretired state and local government employees, many of whom are too young to beeligible for Medicare. But the mounting “pay-as-you-go” bill for retiree healthcare is just the tip of a much larger iceberg.
Thanks to a new government accounting standard, the true cost of this long-termentitlement is finally emerging from the depths of state and local finances. Based ona review of financial reports for the state and its largest local governments, schooldistricts and public authorities, this report estimates that New York’s total unfundedliability for public-sector retiree health insurance comes to nearly
$250 billion
.This figure represents a mammoth potential transfer of wealth from future taxpayersto current government employees and retirees—for a type of benefit that is notavailable to the vast majority of private-sector workers.The burden of retiree health care is clearly unsustainable and unaffordable. This re-port, designed as a primer on the issue for taxpayers and government officials, rec-ommends a four-step plan for curbing retiree health care costs before it is too late.
About the Author
E.J. McMahon is a senior fellow of the Manhattan Institute for Policy Research andits Empire Center for New York State Policy. His recent work has focused on statebudget issues, tax policy, public pension reform, collective bargaining, competitivecontracting of public services and the fiscal record of the Pataki and Spitzer-Patersonadministrations. McMahon’s professional background includes more than 25 yearsas a senior policy maker and analyst of New York government. Prior to joining theManhattan Institute in 2000, he served as Deputy Commissioner for Tax PolicyAnalysis and Counselor to the Commissioner in the state Department of Taxationand Finance; Director of Minority Staff for the state Assembly Ways and MeansCommittee; vice chancellor for external relations at the State University of NewYork; and Director of Research for The Business Council’s research arm, the PublicPolicy Institute. He is a regular opinion columnist for
Newsday
, and his articles alsohave appeared in the
New York Post
, the
Wall Street Journal
, Barron’s, the
Public Inter-est
, The
New York Times
, the
New York Daily News
and the
New York Sun
, among otherpublications.
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EXECUTIVE SUMMARY ......................................................................................... iINTRODUCTION..................................................................................................... 1
Table 1.
Summary of Unfunded Retiree Health Care Liabilities in New York State
........................ 2
Potential for change ............................................................................................................ 2
Charting a new course ....................................................................................................... 3
1.
Current Retiree Coverage .................................................................................... 4
State & local government benefits .................................................................................... 4
Big Apple benefits ............................................................................................................... 6
Medicare interaction ........................................................................................................... 6
The legal status of OPEB .................................................................................................... 7
The bottom line ................................................................................................................... 8
Benefit comparisons ........................................................................................................... 8
2. Gasping at GASB ................................................................................................ 10
Table 2.
Actual and Projected Annual Health-Related Benefit Costs
............................................. 10
Figure 1.
The Shape of Things to Come?
........................................................................................... 11
What’s in a liability? ......................................................................................................... 10First blush estimates ......................................................................................................... 13
Comparing OPEB burdens .............................................................................................. 13
Table 3.
Unfunded Liabilities (UAAL) for Other Post-Employment Benefits
................................ 14
Long liability tails ............................................................................................................. 16Table 4.
Combined Municipal and School OPEB Liabilities for Selected Cities
............................. 14
False Starts, Sidesteps and Baby Steps in Albany ........................................................ 18
3. Steps to Reform ................................................................................................... 18
To fund or not to fund? .................................................................................................... 20Cost savings opportunities .............................................................................................. 21The Federal Wild Card ..................................................................................................... 22Four steps to retiree health care reform......................................................................... 23
Endnotes ................................................................................................................... 25
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