NCPA - National Center for Policy Analysis


February 15, 2006

Until last week, Los Angeles school officials had thought their unfunded health care obligation for retirees was $5 billion. Then they scrubbed the numbers. The new estimate: $10 billion. That's bad news for taxpayers who will foot the bill and for children whose education will be limited by the cost, says USA Today.

Thanks to generous contracts negotiated years ago, when health care costs were largely an afterthought, tens of thousands of teachers about to retire have been promised lifetime benefits for themselves and spouses, something available to very few of the taxpayers who pay the cost, says USA Today.

  • As health care costs soar, these contracts represent financial time bombs.
  • They will leave schools with less money to hire teachers, less money for raises -- less money for everything.

The health care squeeze is "the single most important issue facing districts nationwide," says Tom Henry, a financial adviser to California schools. Doing nothing threatens to send many school districts into what Henry describes as "a death spiral." Already, health care benefits are smacking against budgets.

  • Los Angeles sets aside $1,000 of its $5,500-per-student budget to cover health care costs for current and retired teachers.
  • To cover the newly estimated $10 billion liability would require $2,087 per student.

The health care situation facing school systems mirrors the squeeze facing public and private employers more generally, as well as the financial strains on Social Security and Medicare as the baby boomers retire.

In all these cases, the sooner action is taken to bring promised benefits in line with revenue, the less painful the solution will have to be. That's a lesson schools can teach the rest of the nation, says USA Today.

Source: Editorial, "Schools face 'death spiral'; Districts must choose between students' needs, teachers' benefits," USA Today, February 15, 2006.


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