By BRETT WILKISON
THE PRESS DEMOCRAT
Three years after a highly controversial rollback in retiree medical benefits, Sonoma County government’s costs for retiree health care and its long-term liabilities again are on the rise.
The increase is shown in a county report made public last week and headed to the county Board of Supervisors Tuesday for acceptance.
It reveals what one supervisor, Shirlee Zane, called a “disappointing” picture of escalating costs that the county sought to cap in 2008 with benefit reductions approved over the protests of current and former workers.
The reductions are the subject of a court challenge. Their full extent is not set to kick in for another two years, but figures in the new report show the rollback already has dropped the county’s retiree health care costs by as much as 42 percent a year and decreased taxpayers’ long-term unfunded liability for retiree benefits by almost $150 million.
Both figures, however, are now on the rise. Annual costs jumped from $21.8 million in the fiscal year 2009-2010 to $24.7 million in the current year, the report showed.
Over the same period, the county’s unfunded obligations to retiree medical over the next 30 years also increased by more than 13 percent, or nearly $39 million, to about $298 million, the report showed.
“It’s frustrating,” Zane said of the new projections, which came in a biannual review by a county actuary.
The county also is struggling under the weight of mounting pension costs and other fiscal woes. Next month officials will begin budget discussions likely to result in a fourth consecutive year of spending cuts for public services.
A renewed rise in retiree health care costs could exacerbate that crisis, county officials said.
“That it’s going back up, that’s not good news,” Zane said.
The report forecasts increases in retiree health care costs for the county extending to 2028, when they are projected to peak at $35 million a year and drop gradually thereafter.
Chris Thomas, a deputy county administrator, conceded the projections appear dramatic and said some of the figures have prompted concern at county headquarters in Santa Rosa.
But Thomas cautioned that the implications for county budgets now and into the future were not yet clear. The uncertainty has to do with accounting methods, he said.
Under standard government accounting rules, the county is required to put on its books all costs and long-term liabilities associated with its retiree health care program, he said. That includes liabilities expected to be borne by the retirees.
Under changes approved by the Board of Supervisors in 2008, retiree benefits were sharply reduced. For the current 2,700 retirees and roughly 1,200 beneficiaries and dependents, it meant the county contribution for premium costs would decline from 85 percent of the lowest cost plan for an entire household to $500 a month per household by 2013.
For employees hired after January 1, 2009, it meant a switch to an employee-managed health retirement account supplemented by a defined county contribution during employment but without any guaranteed county payment in retirement.
The changes will shift increasingly more — and eventually most — annual costs and liabilities onto retirees, Thomas said.
But because those retirees remain in the same overall program as current workers, with the option to purchase health care through the county — a provision called an “implicit subsidy” for retirees — the costs and liabilities associated with them show up on the county’s books, he said.
Thomas said that includes a main driver behind the two-year, $39 million—rise in long-term unfunded medical liability: a $20 million increase linked to higher future health care costs.
Most of that projected figure may be borne by retirees, not taxpayers, he said. The exact share for each group and what it might mean for the county budget this year and going forward is still unknown, he said.
“That part is the really hard part to understand,” Thomas said. For the coming fiscal year, he said, “we’re working that detail out now and we’re going to be bringing that to the board in January.”
Two other factors added about $17 million to the unfunded liability. They included a recent wave of early retirements and a lowering in the investment earnings assumption rate on the assets in the retiree health fund. Both were expected to put upward pressure on county costs.
Already the county is behind about $30 million in annual required retiree health insurance contributions over the past three years, the report showed.
The underpayment is a result of the Board of Supervisors’ decision to limit annual contributions to an amount equal to 7.5 percent of county payroll.
The required contribution this fiscal year — $24.7 million — equates to 7.86 percent of payroll. Future cost projections would have that amount climb even further against what is expected to be marginal short-term growth in the county workforce.
Benefit rollbacks are not necessary or planned at this time, Thomas said. That’s because the county’s effective payroll rate is closer to 5.6 percent — 7.86 percent minus the “implicit subsidy” for retirees — and therefore well beneath the benchmark authorized by supervisors, Thomas said.
Even with the projected rise through the next several decades, annual costs are seen as unlikely to eclipse that 7.5 percent mark, Thomas said.
“We’re still comfortable we’ve hit the target,” he said.
But the county retirees’ court challenge is being watched as a potential game-changer.
The U.S. 9th Circuit Court of Appeals has taken up the case after the Sonoma County Association of Retired Employees, which represents about 1,500 former workers, appealed a district court judge’s rejection of their case.
The appellate decision could hinge on a recent ruling by the California Supreme Court in a similar case involving retired Orange County employees.
The state high court found that health benefits for government retirees may not be eliminated if the employer clearly promised workers those benefits. That promise can exist as an implied term outside of the standard written contracts governments draw up with their employees, the court said.
Retiree representatives say the decision bolsters their case. They have cited job announcements and public statements by county leaders that they say meet the definition of a contractual promise.
But Sonoma County Counsel Bruce Goldstein said the lower court’s direction was clear last year when Judge Claudia Wilken saidg retirees failed to show retiree health care was an implied term in any contract.
The state high court’s ruling in the Orange County case also stressed that any court deliberating such a matter “ensure that neither the governing body nor the public will be blindsided by unexpected obligations.”
County officials are arguing that point: a reversal would have to consider the latest cost figures.
“For a court to say that the county once again had this obligation would have a huge financial impact,” Goldstein said.