County Executive Laura Neuman announces Anne Arundel faces huge deficit because of underpayments for retiree healthcare
UPDATE – Oct 3, 2013 – Arundel Exec Neuman Proposes Retiree Health Changes – Sun
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Neuman: Anne Arundel faces huge deficit
By Daily Record Staff, The Daily Record
Anne Arundel County is facing a $1.3 billion deficit due to underfunding of health care benefits for county retirees, County Executive Laura Neuman said Tuesday in an email sent to all county employees.
Neuman said previous estimates of health care costs for retirees of $72 million a year were inaccurate.
The actual amount, according to the latest actuarial studies, is $110 million a year, or 53 percent more than paid in.
To fund the annual shortfall, every Anne Arundel County resident — men, women and children — would have to pay $160 a year for the next 30 years.
Neuman said it is “likely” that legislation will be proposed this month “to bring the County’s costs under control.”
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Neuman Calls Arundel Retiree Benefits System Unsustainable
In letter to employees, county executive says changes must be made
By Pamela Wood, The Baltimore Sun
Saying Anne Arundel County is “on a path to bankruptcy if it doesn’t address this issue,” County Executive Laura Neuman told county government employees Monday that significant changes to retiree health care plans must occur to repair a system she described as financially unsustainable.
In a letter to workers, Neuman said the county needs to change how much it contributes to retiree health plans and how long it takes for employees to become eligible.
Government workers and their spouses are eligible for retiree health care after five years of working for the county, or 20 years if they work in public safety branches. County government pays 80 percent of the insurance premium for retired workers.
“The cost of providing that level of benefits is simply unsustainable,” Neuman wrote.
In an interview, Neuman said she recently reviewed new projections on retiree health costs and “was alarmed when I understood the actual numbers and the unfunded liabilities.”
Those costs are much more than previously estimated, she said, and county government is not putting away enough money to pay the bills.
The county spends about $100 million annually on health care for current and retired employees, Neuman said. Recent projections show the county needs to set aside another $110 million annually for future health care costs.
If changes are not made, she said, retiree health care benefits for existing employees would be underfunded by $1.3 billion over 30 years — an amount she told employees equates to $2,400 for every resident in the county.
Neuman, a Republican, said she’s drafting a bill to change the retiree health plan, but declined to offer specifics. She said she’s in talks with county unions to get them on board.
County Councilman Jamie Benoit, a Crownsville Democrat, said he has been working on the issue as well, and has a bill that’s “98 percent drafted.” Benoit has served on a committee of council members, administration officials, union representatives and human resources experts that has looked at the issue for the past two years.
Benoit declined to share details of his proposal, but said for a bill to be successful, it needs to have the support of employees, save the county money and require county government to set aside sufficient money in the future.
“I have long believed the county has made a promise to its employees it can’t keep,” he said.
Mike Akers, president of AFSCME Local 582, said he and other union representatives have been in discussions with county officials on retiree benefits. The intensity of talks has ratcheted up in recent weeks, he said. He hoped the County Council would address the issue in 2014, but fall is now looking more likely, he said.
Akers, who represents about 750 county employees, said workers understand the financial problem facing county government, but it’s tough to give up benefits that were promised.
“It’s extremely difficult, especially since the hook to bring new employees in and to retain their services is the benefits package,” said Akers, who works for the Department of Public Works. He noted that county workers have dealt with multiple years of no raises and unpaid furlough days.
Akers is hopeful a compromise can be reached that the unions will support, “even though we’re not all going to be jumping up and down about it.”
Councilman Richard Ladd, a Broadneck Republican who also served on the committee, said he hoped enough common ground will exist among the proposals that just one bill can be introduced to the County Council.
“We need to find a way to pay these obligations,” Ladd said.
Benoit said getting everyone behind one bill is possible, but not likely.
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Anne Arundel County’s $1.3B health care problem dates back 30 years
By Allison Bourg, The Capital
The $1.3 billion Anne Arundel County officials say retired workers will be owed over the next 30 years is a hole the government started digging decades ago.
And while county leaders have been aware of the problem for at least two decades, no one has been willing to do much about it, Anne Arundel Budget Officer John Hammond said last week.
Hammond, whose career with the county dates back to 1993, said the future cost of health benefits for retirees was a constant topic of conversation then in the budget office.
But talk was all that happened.
“No one in county government wanted to touch it,” Hammond said. “It was not a high priority.”
Officials say they have no money saved to fund the county’s health care package for retirees in future years. In a letter sent to county employees last week, County Executive Laura Neuman said that equals a $1.3 billion shortfall. She and County Councilman Jamie Benoit, D-Crownsville, each plan on introducing their own legislation Monday to address the problem.
The county paid $24 million in retiree health costs in fiscal year 2013, about $72 million less than what analysts say was needed to make a dent in the billion dollar problem.
The county government pays 80 percent of retirees’ health care, plus that of their spouses and dependents. Most employees only have to work for the county for five years before they are eligible.
County leaders say these two components, which have been in place since the 1980s, must change.
Former Anne Arundel County Executive O. Jim Lighthizer, who was in office from 1982 through 1990, said it was never on his radar.
“Nobody warned us about this 30 years ago. We promised too much, and it’s not sustainable,” Lighthizer said. “It means significantly higher taxes or noticeably lower benefits, one or the other. And it’s probably going to be lower benefits, because I don’t think people want to pay more taxes.”
Huge figure
The County Council started seriously weighing the costs of retiree health care two years ago, after independent consultants warned the county faced an unpaid tab of roughly $1 billion.
The county has been funding retiree health care on a “pay as you go” basis out of the annual operating budget.
Combine escalating health care costs, retirees who live longer than they used to and no savings for these benefits, and the numbers are scary, county officials said.
A work group, which included Councilmen Dick Ladd, R-Severna Park, Jerry Walker, R-Gambrills, and Benoit began studying the issue in the fall of 2011.
“This is a very complex issue, and it’s emotional,” Ladd said.
Walker, the council’s chairman, called retiree health care the biggest financial issue facing Anne Arundel County long term.
In the mid-2000s, the Governmental Accounting Standards Board ruled local governments must measure and report liabilities associated with post-employment benefits, aside from pension plans, as part of its annual financial report. Now it’s something bond rating agencies look at, Walker said.
The county has a healthy bond rating, Hammond said — an AAA rating from Standard and Poor’s, the credit rating agency’s highest mark, and an AA+ from Moody’s, that agency’s second highest rating. But analysts expressed concern about the unfunded health care liability, he said.
Michael Faulkender, associate professor of finance at the University of Maryland, said unfunded liabilities such as health care costs have been the driving force behind municipal bankruptcies.
Elected officials, he said, likely didn’t understand what they were promising years ago. Most of the ones who came after “try to paper over and pass the buck,” Faulkender said.
Walker said five-year vesting is a big part of Anne Arundel’s problem.
5-year vesting
Public safety workers must work for 20 years before they can vest, but everyone else can vest after five. In theory, Walker said, someone can start working for the county when they’re 18, leave at 23 and then be eligible to collect benefits later in life.
The age at which an employee is eligible to start collecting benefits varies, but it’s usually 60 for nonpublic safety employees and 50 for public safety employees.
Amy D. Burdick, acting personnel officer for Anne Arundel County, said there are 207 retirees with less than 10 years of service who are collecting benefits, plus an additional 154 people who have left the county with less than 10 years of service who will be eligible for benefits. The county is paying for the benefits of more than 2,000 retirees.
“It’s created this astronomical figure we have sitting in front of us,” Walker said.
But Mike Akers, president of the American Federation of State, County and Municipal Employees Local 582, said scenarios like Walker described “rarely, rarely, rarely” happen.
“You don’t bring someone in as a police officer at the age of 50 or 55,” said Akers, who represents about 750 workers in nine county departments. “You do that with nonpublic safety workers.”
The five year rule, he said, was meant to entice more experienced workers to come to the county for lesser pay than they might earn elsewhere.
Akers said he understands the county’s situation, but is concerned about broken promises to employees.
Two years ago, the state changed the rules for its workers, bumping vesting requirements from five to 10 years.
“We’re a little late to the game on that,” Walker said.
Councilman John Grasso, R-Glen Burnie, introduced legislation earlier this year to change the vesting requirements for pension benefits to 10 years, but it was rejected by the council 5-2.
Others on the council thought the debate should center on retirement benefits in general. Grasso said he’s all for that.
“We’ve got to have more coming in than what we’re spending,” Grasso said. “If you don’t like it, you can always go work somewhere else.”
Grasso has re-introduced the legislation, which will be heard Oct. 21.
Hammond said the county socks away money for future pension costs, and has $1.5 billion in its pension fund.
Broken promises
In 2009, the county put aside $15 million to pay for future retiree health costs. The game plan was to put away $10 million each year after that, Hammond said.
Then the recession hit, and that money was used to pay employee salaries and keep government going, Hammond said.
“Now the recession is over, and we can get back to this problem,” he said.
Last November, voters overwhelmingly approved a charter amendment requiring the county to establish a trust fund for retiree health benefits.
That’s something the council must address through legislation, Walker said.
Walker said once the county puts money into that account, it can get a rate of return of 8 percent on those funds, effectively cutting the county’s liability by half.
Under Neuman’s bill, new county employees would have to wait 10 years to be eligible for retirement health benefits, and the amount of money the county would pay toward those benefits would be based on an employee’s years of service. Current employees’ coverage would also be based on the number of years they logged with county government.
Benoit said his bill is similar in that regard. He said his proposal also requires the county executive to submit a budget next year that appropriates that year’s liability for retiree health care, plus set aside another $25 million to fund the deficit. It also requires the executive to increase that appropriation by 10 percent each year until the annual shortfall is erased.
Both bills will likely be heard by the council in November.
“At the end of the day, we have made a false promise to the people who work for the county,” Benoit said. “It’s a promise that can’t be kept.”