Retiree health costs straining budgets in poorer cities

By Andy Metzger
Published: September 22, 2014

STATE HOUSE, BOSTON, SEPT. 22, 2014…..Retiree health care costs are sapping more and more money each year from cities that are ill prepared to weather new fiscal burdens, according to a new report from the Massachusetts Taxpayers Foundation.

The dynamic of retiree health care costs growing faster than property tax revenues exists throughout Bay State cities and towns, according MTF President Michael Widmer, who said cities where lower incomes predominate have fewer resources to succeed under those conditions.

“They’re the ones who are struggling to provide basic services,” Widmer told the News Service. He said, “No community’s finding it easy.”

In Springfield, retiree health costs outpaced property tax growth by $6.2 million from 2009 to 2013, eclipsing the $4.3 million in property tax growth over the same period, according to the report. If retiree costs held steady over those years, Springfield would have enough money to fund 75 more teachers, MTF estimated.

Municipal pensions are drawn from investment funds that cities intend to fully fund in the future, though timelines for achieving that goal vary from community to community. Health care for retired municipal employees, by contrast, is funded each year, a system dubbed “paygo,” with city halls unable to exert much influence over what the costs will be.

“A few communities are putting token amounts away to fund the unfunded liability,” Widmer told the News Service, identifying Brookline, Dedham, Needham and Wellesley as towns that are socking away small amounts toward the liability.

Massachusetts Taxpayers Foundation analyzed the impact of growing retiree health costs on nine of the 10 cities with the lowest per capita incomes. In North Adams, for example, retiree health care amounts to 22 percent of the city’s property tax levy, or $445 on the average annual tax bill in North Adams.

“Not only are property taxpayers funding retiree health care at the expense of other services, they are also funding a benefit that most of them do not receive,” the MTF report stated. “Few residents have access to any retiree health care benefits themselves, let alone the generous ones provided by municipalities.”

The nine communities reported “nearly 1,000 fewer full-time employees” in fiscal year 2013 compared to fiscal 2009, and wage and salary growth increased $8.7 million, which is half the amount of the $17 million increase in their retiree health costs, the MTF bulletin stated.

Frank Valeri, president of the Retired State, County and Municipal Employees Association Of Massachusetts, said his members prefer efforts to reduce the cost of health care overall.

“Health care costs at the state and national level have diminished,” Valeri told the News Service. He said, “Shifting costs onto the retirees is not the answer to solving inflated health care costs.”

Valeri also said MTF failed to consider other sources of revenue beyond property taxes, such as state aid, the hundreds of millions in savings from the 2011 municipal health care reform law, and other variables affecting cities such as Springfield.

“You have to look at the other aspects of the finances of the city of Springfield,” Valeri said.

The amount of growth and the percentage of the property tax levy spent on retiree health care varied among the cities, with Everett and Amherst spending 7 percent of the property tax levy on retiree health care compared to Holyoke, Lawrence, New Bedford, North Adams, Springfield and Fall River, which all spend north of 15 percent of their property tax levy.

Widmer suggested instituting a sliding scale of benefits based on years of employment, and said benefits should not kick in until someone has worked for a municipal government for 20 years. The current law, which does not vary by municipality, allows someone to receive retiree health care after 10 years of employment.

“The politics are difficult,” said Widmer. After a previous MTF report, a commission studying the issue of post-employment benefits in 2012 recommended increasing the age and years of service required to receive benefits, with the Massachusetts Municipal Association’s representative on the commission casting the lone vote against the plan.

Widmer said the 2011 law requiring municipal retirees to enroll in Medicare eased some of the burden, but retirees continue to receive benefits from municipalities after enrolling in Medicare, receiving enviable premium contribution rates.

While the state treasurer does not have a direct role in overseeing municipal retirees’ health care, the office has a general purview over the state’s debts and obligations, and the three candidates running for it are offering various ideas for how to deal with the cost of retiree health care.

Republican Michael Heffernan, of Wellesley, said he would focus on increasing the profitability of the State Lottery, which provides funding to cities and towns, and enroll more municipalities in the Health Care Security Trust Fund “where they can save and invest for future retiree health care expenses.”

“Our cities and towns are being crushed under the weight of unfunded liabilities, including the health care promised to retirees,” Heffernan said in a statement. “Meanwhile, unrestricted local aid to municipalities has been cut by $400 million since 2009, pressuring local budgets and causing a sharp increase in property taxes in many communities.”

Deb Goldberg, a Brookline Democrat running for treasurer, said the Other Post-Employment Benefits Commission “proposed, thoughtful, sensible reforms to address the rising costs of retiree health care,” and she would look for “acceptable solutions.”
“But I will continue to oppose efforts to change the health benefits of public employees who have already retired. Protecting these hard-earned benefits is critical to treating our retirees with the dignity and respect they deserve,” Goldberg said in a statement. “We have already seen the economic benefits of collaboration between legislators and labor when it comes to addressing our Commonwealth’s unfunded pension liability. On pension reform, over the last 5 years Massachusetts has undertaken a series of pension reforms that closed loopholes, preventing gaming of the system and requiring new employees to work longer. Anticipated savings from these reforms is in excess of $6 billion over the next thirty years.”

Green-Rainbow Party candidate Ian Jackson, of Arlington, said single-payer health care, which generally refers to a Medicaid-for-all system, is the solution to tackling health care costs.

“I would advocate for a single payer health care system,” said Jackson in a statement, citing a 2010 UMass Amherst study that he said reported a projected savings of 15.75 percent on health care. He said, “Not only would this save money for the cities and towns, it would save money for the people and business.”

Valeri noted that MassRetirees was part of the OPEB Commission, and said the organization looks forward to “working with the legislature and Administration as they continue to address the issue of health care cost containment.”

Copyright 2014 State House News Service

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