The State Worker

Chronicling civil-service life for California state workers

April 30, 2009
Cost of retired state worker health, dental care puts California at risk
State Auditor Elaine Howle today updated a 2007 report in which she said that the rising cost of providing health and dental benefits to retired state workers represented a significant risk to state finances if legislators don't deal with the problem.

In her 2007 report, Howle's office estimated it will cost the state $48 billion to provide future post-employment medical and dental benefits to retired state workers.

California and many other state and local governments only budget enough money every year to pay premiums for retiree insurance, instead of setting aside funds to cover all future costs to the State.  This is known as "pay-as-you-go" funding.

This gives Howle's bean counters a case of financial chills.

Why?  The state must now estimate and report these future costs, or liabilities, in its financial statements as required by new accounting rules.

In its fiscal year 2007-08, the state paid only $1.25 billion of the $3.59 billion annual bill for retiree health and dental benefits. The $2.34 billion difference is a future liability.

In today's update,  Howle said the gap will rise to $4.71 billion for fiscal 2008-09.

Click here to read the full report.

The state auditor's big concern?  If the liability grows so large that it overshadows others in state  financial statements, it could affect California's credit rating.

A weaker credit rating could add to the state's budget woes by making it more expensive for the state to borrow when it issues bonds.

Howle argues this risk could  be reduced if the state starts setting aside more money now for these future bills.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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