By Joe Rogalsky,
Delaware State News
DOVER — A committee studying new accounting rules that will force the state to set aside hundreds of millions of dollars for health care for retired state workers recommended only broad suggestions to Gov. Ruth Ann Minner in a report released Wednesday.
Instead of providing specific steps that should be taken, the Retirement Benefits Study Committee decided the policy decisions would have such significant impacts that the calls should be left to the governor and the full General Assembly.
Two legislators who served on the panel, which Gov. Minner created in the spring, said the solutions could lead to state employees paying more for their benefits or receiving less coverage.
The Governmental Accounting Standards Board issued a ruling in December that requires states to treat retiree health care costs the same as pensions when they submit financial statements to bond agencies beginning in fiscal 2008, which starts July 1, 2007.
Currently, the state funds health care for retired state workers on a year-to-year basis, allocating funds only to pay for that year’s costs.
Workers and the government pay into the pension account to fund future payments in advance.
State estimates show Delaware needs to set aside $3.1 billion over the next 30 years to fund retiree health costs and comply with the requirement.
When inflation, population growth and medical cost increases are factored in, the state needs to allocate about $185 million a year to fund its obligation and make its financial balance sheets look good, the report says.
This is on top of what the state spends to fund retiree health bills incurred during the budget year, expected to be $101 million in fiscal 2008.
The panel did not find a magic-bullet solution, instead recommending several steps to solve the problem.
An annual allocation in the state’s operating budget should be part of any solution, the committee said, but so should looking at ways to reduce or prevent increases in retiree health care.
The yearly appropriation would be on top of whatever the state needs to spend to cover retiree health bills incurred in that budget year.
“There are no easy answers for the challenges presented by GASB’s new accounting standards and Delaware’s obligation for retiree health care,” Secretary of Finance Richard S. Cordrey wrote in a letter to Gov. Minner that opened the report.
“It is a very complex issue but one that carries significant importance to both current and future retirees.
“While trying to protect the state’s excellent credit, which we all worked hard to earn, we ultimately must balance the needs of state employees and retirees against the many pressing needs of the state.”
There are no legal consequences for ignoring the rule, because there are possible financial repercussions.
Financial institutions setting states’ credit ratings will evaluate their compliance with the rule.
Lower credit ratings sock states with higher interest rates when they sell bonds. Delaware is one of a few states with the highest possible rating.
If a state does not have money available for the future costs or a long-term plan to cover the costs, financial agencies could lower its rating and give a higher interest rate when the state issues bonds.
The state in June put $10 million into an account dedicated to funding future retiree health costs.
The account, created several years ago in advance of the rule change, now has $22.5 million.
Gov. Minner could recommend financial solutions in January when she releases her annual budget proposals.
“I am proud to say that we are ahead of other states on this issue in that we convened a task force, developed a report and now have a series of options to work from,” the governor said Wednesday.
“The bond rating agencies have recognized our efforts and know that we will now have to work on a long-term basis on the most fiscally responsible solution.”
Any benefits changes would likely spare workers already retired.
Rep. Joseph G. DiPinto, R-Wilmington, a task force member, said state officials do not want to break their “implied contract” to take care of retirees.
“I don’t think anyone is prone to say we are going to cut the benefits or put a burden on people who are retired,” said Rep. DiPinto, who co-chairs the powerful legislative committee that sets the state’s operating budget.
“It is going to be a challenge to see what we can do to reduce the size of the liability and make sure people are well covered.”
While retirees could see their benefits unchanged, active workers could see their benefits or the amount they pay for them altered.
“Anything we would do would probably have an effect on current employees (because) this regulation is newly enacted,” said Rep. Bruce C. Ennis, D-Smyrna, a task force member.
“There was a commitment made to the pensioners who retired years ago, but there may be some effect on people who have not retired yet.”
Another legislator serving on the study committee said reducing benefits or increasing employee premiums are reasonable alternatives to help the state cope with the fiscal impact of the new accounting standard.
“I think what is going to happen is that we will be looking at what kind of benefits we are providing today and what benefits we are going to provide going forward,” said Sen. Charles L. Copeland, R-Greenville.
“If you don’t change the benefits, you are going to have to raise taxes because the money has to come from somewhere.
“I am not sure the majority of Delawareans are willing to pay higher taxes for retirement benefits.”
Such changes would need approval from the full General Assembly, which has some influential members who are very supportive and protective of state employees.
“Employees’ costs have already gone up,” said Michael A. Begatto, who represents about 6,000 state workers in the American Federation of State, County and Municipal Employees.
“We have taken hits several times on co-pays. Changes to the benefits we get would have to be done legislatively, and we would oppose any legislation that shifts costs to employees.
“One of the reasons the state has to pay so much for health care is that the salaries are low. The health benefits are one of the few things that attract people to state government.”
can be reached at 741-8226 or jrogalsky@newszap.com
