Elderly Staging Raid on City's Coffers

Because of a newly promulgated national accounting standard, city governments must now report their long-term unfunded liability for retiree health care in their annual financial statements. This new standard is forcing municipal governments across the country to face their obligations to public sector retirees, and in most cases the debt is pretty darn big. For example, the City of Austin is now looking down the barrel of its own retiree health care debt....all $1 billion of it. We know what you're thinking, and, to an extent, you're right; old people are expensive.

Yet while the new accounting standard requires Austin to include this massive debt on its books each year, the standard doesn't require the city to apportion any money toward that debt. In order to cover the $1 billion debt, the city would have to set aside at least $65.5 million in the upcoming budget; this amount includes the $17 million that's already been budgeted for Austin's retirees in 2008.

Austin has yet to put a single cent toward the $1 billion liability, but it'll have to start doing so within the next few years if it wants to preserve its credit rating. Yet this is hardly a problem unique to Austin. Cities across the nation are gradually beginning to deal with the issue of setting up annual payments for unfunded retiree health care, a long-term debt that, until now, has typically taken a back seat to more pressing expenses, such as those for infrastructure and basic services. It looks as though Austin, for now, is going to sit back and watch how these other larger cities handle their debts before making any moves to pay off its own.

In the meantime, of course, the debt goes unpaid and city retirees will be forced to take what they already get from the city. Sadly, this means that Austin's public retirees, despite their sense of entitlement to taxpayer dollars after they retire, will in fact have to plan better for their future by saving more and spending less, much like the rest of us do. Hopefully within the next couple of years this problem can be fixed, but these things take time, of course.

For further information on retirement and financial planning, please see the following useful resources:
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Image of old couple courtesy of Wikipedia. Image of old man living it up in the silver years courtesy of eScapes on flickr.

Contact the author of this article or email tips@austinist.com with further questions, comments or tips.

By s in News on August 9, 2007 1:10 PM 0 Comments

Comments [rss]

Wes

"Sadly, this means that Austin's public retirees, despite their sense of entitlement to taxpayer dollars after they retire, will in fact have to plan better for their future by saving more and spending less, much like the rest of us do."

Retired public employees ARE entitled to the deferred compensation that they EARNED through 20 or 30 years of service. While the benefits were not guaranteed they were an imlicit part of the employement contract. Employees gave up private sector pay for the security of a defined benefit pension and health care benefits.

If local governments want to cut benefits for future retirees then so be it but those governments will have to start paying higher salaries in order to retain employees.

Ryan

I think this post is accurate and informative all the way until the last paragraph. The debt goes unpaid? Retirees will be forced to take what they already get? What are you talking about? The city has to pay a certain amount each year to retired employees. Instead of taking that amount out of a fund that the city contributed to while the employees were actually working, the city just takes it out of the current budget. I am not saying this is an ideal situation, but keep in mind that the only thing that changed is the way they have to financially report what has been happening all along. Unless I missed something in the article, I didn't see anything that indicated that current or future retirees will not get promised pension payments. If there is some news to that effect, maybe the last paragraph would make sense.

mdahmus

Problem is that, like with social security, the sense of entitlement is based on a belief that the amount you paid in (or were promised the city paid in) is remotely enough to cover your costs, when in fact it's nothing close to the truth - for instance, today's average retirees take out many times what they and their employers put into Social Security, even adjusted for interest at a very generous rate; but they are POSITIVE that they're just getting their own money back.

The ONLY good thing about corporations ditching pensions in favor of 401(k)'s is that it's now impossible to delude yourself about exactly how much you put in.

guest

Although I see what you're saying, I take issue with that "sense of entitlement" bit. If public sector retirees feel entitled, it's because that benefits package (of which retirement is a part) was offered to us, and is a big reason why many of us took these (generally unfulfilling, low-wage) jobs in the first place. Most of these jobs are the ultimate in "the job sucks but you get good benefits" category. In my case, promises weren't enough to keep me around (after 10 years), but if I had stuck around until retirement, I WOULD be entitled to what I was promised upon hire. Perhaps the City needs to rethink making promises it can't keep, or consider paying a real living wage instead of assuring us we'll be receiving our benefits some day.