By Bob Salsberg
BOSTON, Feb. 16 —
The 50 largest cities and towns in Massachusetts face a “staggering” $20 billion unfunded liability for retiree health benefits that will wreak havoc on local government and place crushing burdens on property taxpayers in the future, a new report warns.
The study was released Tuesday by the nonpartisan, business-backed Massachusetts Taxpayers Foundation. The group said it was the first comprehensive look at the challenges cities and towns face in meeting health care obligations to retired municipal workers.
The unfunded health care liability is 2 1/2 times greater than the more widely known unfunded pension liability, the report said. The two together “threaten the long-term stability of local government finances and are already crippling municipalities’ ability to provide basic services, including public education,” the report said.
The $20 billion represents what local governments would have to pay for lifetime health care benefits already earned by 150,000 current employees and retirees. The report said the figure was likely understated, because it assumes 5 percent annual growth in health care costs, when actual increases have exceeded 10 percent over the last decade in many communities.
While the study only calculated the unfunded liability for the state’s 50 largest communities, it estimated that obligations for the remaining 301 cities and towns and regional school districts would add $5 billion to $10 billion to the overall burden in Massachusetts.
The largest unfunded retiree health care liability by far was in Boston, at more than $4.5 billion, the foundation said. Worcester and Springfield, the state’s second- and third largest cities, both faced obligations above $760 million.
“These are not hypothetical future obligations but the amount that communities actually owe today,” MTF President Michael Widmer said in a statement.
“It’s the equivalent of a giant credit card debt which grows and grows the longer it is ignored,” he said.
Meeting the debt would place enormous burdens on property taxpayers, the report said. In the 10 largest communities, the average residential property tax bill would have to increase by more than 50 percent to pay the $1.2 billion in annual contributions required to meet the unfunded liability.
In Boston, the average single-family homeowner would have to pay nearly $100,000 in additional taxes over the next 30 years while in Lawrence the average owner of a single-family home would face an “astonishing” 255 percent annual tax increase _ or $180,000 over 30 years.
The report said only one of the 50 largest communities, Arlington, has designated a special trust fund to handle retiree health insurance liabilities, but that fund would only cover about 2 percent of the town’s total liability.
Most other communities have adopted a “pay-as-you-go” approach, deferring larger contributions to the future.
“While municipalities operate under the illusion that pay-as-you-go adequately meets their obligations, they are digging deeper and deeper holes that taxpayers must pay in the future,” the report said.
Even if communities covered their future obligations fully, the researchers said the costs would still be “simply unaffordable.”
Municipal workers receive retiree health care benefits that are far more generous than those offered by private employers, according to the report.
In Massachusetts, 12 percent of employers provided supplemental coverage to retirees eligible for Medicare and less than 10 percent provided any coverage for early retirees, the group said.
Municipalities, by contrast, provide full retiree health care benefits to employees after 10 years of service and many retirees are eligible for benefits as early as age 55. State law also requires that spouses and dependents of retirees be covered.
The report recommends a series of reforms, including giving local officials the power to make changes in the design of health care plans without collective bargaining.
It also calls for setting dollar caps on contributions made by municipalities to health care plans; basing benefits on years of service; raising the retiree health care eligibility from 55 to 62; changing eligibility requirements for part-time employees; and discontinuing spousal and dependent coverage for future retirees. — MA
Online: Massachusetts Taxpayers Foundation report: http://tinyurl.com/45rrehq