A $47B ALARM
By Robert B. Ward
August 10, 2006 -- 'A BILLION here, a billion there," the old line about government spend ing goes, "and pretty soon you're talking real money." At the state Capitol in Albany, barely three days pass for every $1 billion that goes out the door - with hardly a shrug at the damage to taxpayers.
But even Albany blinks at a $47 billion bombshell - and that's what just landed.
The state government already faces chronic budget gaps in the billions, and is constantly looking for new revenues to make ends meet. Now comes a $47 billion eye-opener from the state Budget Division, which estimates that state taxpayers are on the hook for at least that much - perhaps more - in future health-care costs for retired state employees.
The price of public employment in New York is already among the highest in the country. That's partly because we've put so many jobs on the state and local government payrolls - after adjusting for population, some 14 percent more than the national average. And we pay government workers unusually well - with the average salary topping $53,000 a year, 21 percent above the U.S. norm.
Also generous are the fringe benefits, for retirees and active workers alike. This year, Albany will spend $1 billion (there's that figure again) just on health insurance for retired state workers.
The new, $47 billion cost represents what the state "owes" today for future retiree health-care costs. Under new rules from the Governmental Accounting Standards Board, states and localities across the country must report the estimated long-term cost of post-employment insurance benefits for individuals already on pensions, and for those still working but entitled to coverage later. Like most states, New York pays such costs on a year-to-year basis and had never calculated its total, long-term obligation to current and future retirees.
The $47 billion is not a new cost, then, but a stark warning of problems to come. Problems much like the ones that threaten to bring down such major private companies as General Motors.
Right now, New York's problem is growing. The state's spending $2.6 billion this year on health care for retirees and current workers; that's expected to jump another $400 million in just two years.
What do all these numbers mean?
For one comparison, let's say Albany acted like most private employers and allowed retirees to rely strictly on Medicare and their personal resources, rather than adding taxpayer-subsidized health coverage. That would save $1 billion this year - enough to double the property-tax rebates the Legislature approved recently, or to cut the corporate income tax by a third.
Or consider another startling piece of the the Budget Division's report. It says the state's "long-term net asset condition," or net worth, is around $49 billion. That represents the total of all Albany's physical and financial assets - cash holdings, Adirondack park lands, Jones Beach, highways, the Capitol building itself, etc. - compared to its long-term debts, unpaid tax refunds and other liabilities.
But the figure excludes the new estimate of retiree health costs. Adding that liability to the balance sheet, the state's budget experts say, "would nearly eliminate the state's net positive asset condition."
In other words, Albany is not just broke today -- with a multi-billion-dollar budget gap awaiting the next governor. The state also faces a decades-long challenge to pay those rising health-care costs without selling every single asset it's accumulated over two centuries, or raising taxes sharply.
Unless, that is, Governor Eliot Spitzer or John Faso takes serious action to control costs. A good first step would be to make public-employee benefits more like those of private-sector taxpayers.
One example: On retirement, state workers often "cash in" unused sick days to escape their monthly health-insurance premiums. Such bonuses are rare in the private sector.
In Buffalo, retired city workers enjoy health plans that include free plastic surgery and elective services such as hair implants. The city has raised taxes, and laid off teachers, in part because of those retiree health costs.
Elected officials should also look to trim taxpayer-funded jobs where possible. Certainly, they should avoid creating new ones - as the Legislature proposes to do, passing a bill that would add 52,000 home-based child-care providers to the state payroll.
That $47 billion is only a small part of pending health expenses for retirees. The Budget Division's estimate covers only state workers -- not those employed by the City of New York, or other localities around the state. And Albany's payroll is only about one-fifth of the entire state-and-local employment picture.
In other words, New York taxpayers could well be on the hook for something approaching a quarter-trillion dollars in retiree health-care costs. Real money? No question about it.