NCPA - National Center for Policy Analysis


September 25, 2006

The bill is coming due for years of generous benefits bestowed upon the nation's public employees, and it's a stunner: hundreds of billions of dollars over the next three decades.

California will almost certainly owe more than any other state, threatening to bankrupt local governments and all but guaranteeing cuts in services like education and public safety, say observers.

These staggering numbers are coming to light because of new accounting rules issued by the Government Accounting Standards Board.  They require public agencies to disclose the future cost of health care and other benefits - such as dental, vision and life insurance - promised to retirees alongside traditional pensions:

  • According to preliminary estimates, keeping California's approximately 2.3 million active and retired employees healthy through their sunset years could cost taxpayers more than $200 billion over the next 30 years.
  • Retiree health care costs have been quietly mounting for decades while public agencies have passed out generous retirement benefits during labor negotiations -- often in lieu of salary increases.
  • But government negotiators rarely considered the long-term financial consequences of awarding such perks, according to Brian Whitworth, a retirement benefits specialist with JP Morgan Chase and Co.

Many cities and state agencies already are struggling to fully fund their pension obligations, but experts say those liabilities pale in comparison to the debt accumulated for other retirement benefits:

  • Last month, JP Morgan released what it considers the most comprehensive preliminary estimate; it projects the present nationwide value of unfunded health care and other non-pension benefits at between $600 billion and $1.3 trillion.
  • By comparison, the debt rating agency Standard & Poor's estimates the country's total unfunded public pension debt at around $285 billion.

Source: Bob Porterfield, "States could be overwhelmed by health care burden," Associated Press/San Jose Mercury, September 25, 2006.

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