It's Coming Round the Mountain

Saturday, December 24, 2005 | You had to put your big brain on if you wanted to understand anything that was being said at a workshop Monday morning for the San Diego County Employees’ Retirement Association.

Unfortunately we’re out of big brains here at Scott Lewis on Politics™, or SLOP™.

When that happens, we ask a few people to help and we can usually come up with something to talk about.

Here are the basics: There’s a new accounting regulation coming down soon that has – or should have – virtually all local government officials in every corner of the country a little frenzied. And you have to hand it to our county officials for getting out in front of this one. It’s going to be a tidal wave, and county officials are dusting off their extra-long big-wave surfboards.

It has to do with the health-care promises they’ve made to thousands of people who have worked or currently work for county government. But it’s not just how much that’ll cost. That, in itself, is a huge deal and we learned more about how much that is.

If you just can’t wait for the figure, here you go: The county has promised its workers and retirees health care benefits, which are estimated to be worth $770 million. Now, the county has saved up some of that. But not all of it. And the debt they face isn’t piddly. It’s on top of the $1.37 billion shortfall in the county’s pension fund. And yes, it’s on top of the additional $1.2 billion the county owes to Wall Street for pension obligation bonds, which county officials never bothered to ask voters to approve.

But that’s not the story this week.

Monday, county officials gathered to discuss new ways they could set up a trust to pay for these medical benefits. It’s as complicated of a discussion of anything in government.

What was not complicated, however, is that all of the plans discussed by the politicos and finance gurus gathered in the room, only one of them was currently allowed by California state law. And that one wasn’t the most interesting to them.

The news provoked one county official, sitting in the audience, to mumble “Well, I suppose we’ll have to have the legislation changed.”

Suppose so.

The real story hanging over the meeting like a big gorilla was the fact that the county, along with every other government entity in the nation, is going to have to start disclosing how much they owe or have promised current and future retirees for their health care.

Locally, the new rules of the Government Accounting Standards Board are going to force the county and city of San Diego to add up all their health-care obligations to current and future retirees and put those numbers on annual financial disclosures.

This is a big deal. Until now, government employers have been able to promise their workers lifetime benefits – like health insurance forever – without imagining or memorializing how much that promise would cost taxpayers.

And that cost is really coming home. The county, facing the mountains of debt that its health-care obligation is going to cost, has actually floated the idea of cutting funding off for retiree health care. Unlike the city, the county believes it never actually promised employees a health-care benefit. It has merely paid them through “excess earnings” in its pension system. And now that the pension system is $1.37 billion in the red, well, they might have to stop calling earnings “excess.”

That’s like a person $30,000 in credit card debt buying a new car with his Christmas bonus because it’s his “excess earnings” for the year.

So now, because of the accounting standards, the county will have to outline just how much it owes and it will have to do one other thing.

See, most governments pay their health care bills on a “pay-as-you-go” basis. The county has prepared a 5-year reserve to make those payments. But now, it will have to start treating its health-care debts as a long-term liability – just like its pensions. In other words, it will have to start investing money and saving it for not only the next five years, but the entire total obligation it owes its current and future retirees for their health care.

That means it’ll have to put aside even more taxpayer dollars to fund retiree health care needs. And for every dollar it sets aside for health care needs, it’ll have to take a dollar away from some other service.

At least the county is spending its time trying to figure out what to do. The city, on the other hand, is still cleaning up its past mistakes – it has no time for the future.

And as city officials are learning now, when you have to spend more of your budget covering the cost of benefits for retired employees, you either have to cut services or come up with some clever way of having your cake and eating it too.

If the county learned anything from the city, it’ll stay away from trying to be clever.

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