The State Worker

California Controller John Chiang proposes prefunding state retiree health care

A new tally of unfunded state retiree health care costs shows long-term obligations grew by hundreds of millions of dollars last year, prompting Controller John Chiang to propose a plan on Thursday to chip away at the debt..

Chiang, a Democrat running for state treasurer this year, reported unfunded health benefits for current and future retirees will cost $64.6 billion over the next 30-years. The estimate is a shapshot of future costs as of June 30, 2013, before adjusting for inflation. The total grew by $730 million from the previous year.

The controller proposed a five-year plan that would fully pay the costs of retiree benefits as active employees earn them. The proposal would add higher payments on top of what the state shells out to cover current bills: $220 million in the coming fiscal year incrementally growing to $1.37 billion in 2018-19.

The state has $1.8 billion budgeted this year for retiree health benefits, but the money only pays for medical and dental bills as they come due. With nothing set aside for future obligations, the long-term costs balloon, much like making minimum payments on a credit card while running up new and bigger charges.

“This is a sleeper problem that can become the next big fiscal threat if we continue to do nothing," Chiang said in a press release.

Fully prefunding retiree health care liabilities would save the most money long-term, but immediate costs would soar. In the current fiscal year, for example, paying both current bills and prefunding 100 percent of future obligations would have doubled the state’s retiree health care budget to $3.6.billion, according to Chiang’s estimates.

Chiang’s proposal didn’t include a political game plan for enacting it, but like most sweeping changes in state compensation, it would need legislative action after unions, CalPERS and government agencies weighed in.

“The goal here is to make sure it’s on the radar for policymakers,” said Chiang spokesman Jacob Roper.

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