New York State and its local governments have a total unfunded liability for public-sector retiree health insurance benefits of nearly $250 billion, according to a report from the Empire Center for New York State Policy at the fiscally conservative Manhattan Institute for Policy Research.

“In other words, New York’s state and local governments have promised about one-quarter of a trillion dollars in post-retirement health care coverage that they have set aside no money to pay for,” said E.J. McMahon, a senior fellow at the institute and author of the report.

The other post-employment benefit liabilities, or OPEBs, have increased by $45 billion since 2010, when the Center last released a report on retiree health care.

The findings are based on a review of financial reports for the state and its largest local governments, school districts and public authorities.

“Thanks to its relatively large government payrolls and generous benefits, New York represents an outsized chunk of a nationwide state and local unfunded OPEB liability estimated at between $1 trillion and $1.5 trillion,” McMahon said.

In addition to pensions, the majority of public-sector workers in New York are eligible for OPEBs, which principally consist of employer-sponsored health insurance coverage, including prescription drugs, hospitalization, and major medical health care.

A recent Government Accounting Standards Board rule, first effective in 2007, changed the way states account for the future cost of retiree health benefits. Up to then, states followed a “pay as you go” practice, but after the GASB 45 rule, they have had to disclose the true cost of their long-term retiree health care promises. Most states disclose these costs over a 30-year period.

“Like pensions, health coverage in retirement is a form of deferred compensation — earned now, paid later. Yet, for decades, the entire bill for current retiree health care promises in New York has been routinely shifted to future taxpayers,”
McMahon said.

New York City leads all of New York’s state and local governments, with a net OPEB liability of nearly $84 billion as of June 30, 2011, the report found. California has been the only government employer in the country to report a larger unfunded retiree health care liability than that of New York City. As of June 30, 2010, the last period for which comparable estimates are available, California’s total unfunded liability was $78 billion and New York City’s was $75 billion.

Long Island’s Nassau County, with $4.6 billion, and Suffolk County, with $4.4 billion, have the largest OPEB burdens among counties.

“Differences in relative OPEB burdens within the same class of government may be explained, in part, by the actuarial assumptions and methods used to produce their liability estimates, and in part by differences in the size and composition of their payrolls,” McMahon explained. “Nassau and Suffolk, for example, employ large county police forces whose members retire early with generous health benefits.”

Among cities, excluding New York City, Buffalo has the largest unfunded OPEB liability of $3.3 billion.

“Since Buffalo is the second largest city in New York State, it is not surprising that we have the second highest OPEB liability,” said Buffalo Comptroller Mark Schroeder.

McMahon lists in his report a number ways to reform New York’s retiree health care. They include reserving the greatest benefits to those who have worked the longest, instead of providing equal benefits to all retirees, eliminating health insurance coverage for all new hires and employees on the payroll for less than 10 years, and shifting those workers into a “retirement medical trust.”

Stephen Madarasz, spokesman for the Civil Service Employees Association, said that these solutions are really about “undermining the rights and benefits of working people” and that the report overstates the extent of the problem.

“Health insurance coverage is already a matter for collective bargaining and can be brought to the table in good faith to find solutions,” he said. “Most of our members, active and retired, already pay toward their health insurance coverage.”

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