The insolvency of Stockton, Ca., provides a reminder of another big fiscal woe that states and cities are allowing to build up without much in the way of reform, namely the staggering cost of providing retirees with health care for the rest of their lives. Many places like Stockton, which has an astounding $417 million in unfunded liabilities for retiree health care, have done little to set aside funds for this cost and instead have simply been trying to pay the benefit out of their everyday budgets as more and more workers retiree. According to a new accounting by Bloomberg Ranking, among states unfunded liabilities for these so-called other post-employment benefits (other than pensions, that is) now amount to $627 billion.
Alaska leads the way in the Bloomberg study with liabilities totaling $16,742 for every resident of the state. Indiana, by contrast, has the lowest unfunded liability, just $81 per resident.
States are taking various paths to addressing this issue. Alaska, for instance, established a trust to put aside money for these liabilities. That's the good news. But then the state promptly announced it had cut those liabilities simply by increasing the rate of return on investments it expects the trust to earn. As with pensions, if the trust fails to earn those returns, taxpayers will have to pay up.
Other states, however, are looking at genuine reform. Jersey was among the states which has increased the age at which its government workers can retire. Idaho has moved to enroll its retirees in Medicare, the federal health care program for seniors.
But plenty remains to be done. Only 4 percent of the benefits promised have been pre-funded, Bloomberg estimates.