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Regarding the retiree obligations…if you pay all of the interest and 5 percent of the principal, you are on (approximately) a 14-year amortization schedule. On a 20-year schedule, you wouldn’t pay any principal in the first year and you also wouldn’t pay all of the interest. That’s exactly what’s happening over at the County.
The 4 percent assumption on post-retiree health isn’t the “med-flation,” it’s the assumed rate of return on the invested assets (you will find this number in the draft 2003 CAFR). That earnings assumption appears low to me, but it is the assumption used to calculate the $1.4 billion UAAL, so I’m pretty much forced to use it when calculating the interest on the liability in the same way that I am forced to use 8 percent when calculating the interest on the pension. They should be parallel.
As far as the med-flation, the factor used to calculate the $1.4 billion isn’t stated in the draft CAFR. Since everyone and their brother has looked at that 2003 draft CAFR, I’m assuming that the med-flation number is reasonable. It is an excellent question though, and one you may want to ask someone who really is connected to the mayor at the hip.
On the revenue assumption, I took this last budget (the draft 2007) and backed out the POBs. As you recall, they weren’t included in the final version. That left me with an 18 percent increase to cash inflows. I pulled it down to 15 percent for 2008, but agree that it warrants much more scrutiny. Given all the different types of inflows at the city and your knowledge of the budget, what would you recommend?
Yes, $125 million is a very, very BIG shortfall.