S. Tahoe making dent in unfunded liabilities
By Kathryn Reed
South Lake Tahoe’s unfunded liability for health care was dramatically decreased by having retirees join Medicare. If they all go this route, the figure will drop even more.
Before the change was implemented earlier this year, the city was on the hook for $52 million. That amount would have to be paid if the city closed its doors today. In actuality there will always be a balance due. But it can be lowered if the city sets money aside for the future and implements changes to the program.
That $52 million becomes $37 million when all retirees who are 65 and older switch to Medicare. This is a program City Manager Nancy Kerry implemented.
John Bartel, president of Bartel Associates, gave a presentation to the City Council on Nov. 5 about where the city stands with its health care and pension obligations. He took a more conservative approach. There could be another $7.5 million reduction depending on what plan the retirees choose.
Changes have been implemented throughout the years to trim retiree health benefits. There was a time when the city worker and that person’s family could be on the plan forever – even after the employee died.
Employees heard the numbers at a mandatory meeting Nov. 6.
Depending on which medical program employees enroll in, there could be an annual cost savings to the general fund of $300,000. This is money the residents could see reinvested in the community.
Reasons public entities are caring more about unfunded liability is that under a new government accounting standard all unfunded liability has to be accounted for. It could affect the ability to borrow money or issue debt through a bond because it is now a debt on the books.
City staff is in talks with employee groups about potential changes to the health care plan. It had been hoped the Affordable Care Act would have played a roll, but it does not allow an employer to pay part of the fees.
“Every city that is in bankruptcy is in bankruptcy because of benefits problems. You have to stop the runaway train,” Kerry told Lake Tahoe News.
In total, the city has 140 retirees it is responsible for when it comes to funding pension and health care benefits. This doesn’t include their dependents on the health program.
On the pension side, the liability is $53.6 million.
“The bulk of your liability rests with the people not providing services,” Bartel said of the Public Employee Retirement System, or the state pension fund.
Public employees are guaranteed a defined paycheck when they retire no matter how well the money was invested by PERS officials and what the return is. That is why public entities have to keep paying more. The pension is a lifetime commitment and investments don’t always go up.
The city’s hands are tied when it comes to making changes to PERS. The state Legislature controls the rulebook. That means cops and firefighters can keep retiring at age 50, and all other employees at 55.
Cities across the country are dealing with this issue of unfunded liabilities. The Wall Street Journal launched a series looking at the fiscal health of the country’s 250 largest cities.
Well done Nancy Kerry. This is a truly impressive and innovative solution to a very serious financial burden facing our town. Transferring these unfunded liabilities from local taxpayers to the Feds is pure genius!
I am not fully aware of the negative ramifications of some of Nancy Kerry’s financial decisions, but she sure seems to be improving the fiscal health of our city. If I remember correctly, a few jobs were lost last year (?) so I hope those ex-employees are now employed elsewhere and can enjoy the positive aspects of a more solvent SouthLake Tahoe. Thank you Nancy!
Why weren’t these retirees and dependents already switched to Medicare at the appropriate age like the rest of us? Another example of the mismanagement of government.
A few inaccuracies here. Retirees have ALWAYS been required to go on Medicare at 65 with the City insurance becoming secondary at that time. What the City did is dump Medicare eligible retirees into commercial Medigap plans. As for PERS, unless something changed, there were various plans with varying retirement ages & percentages. The City could go with a less favorable PERS plan for both public safety & miscellaneous employees. As for hoping Obamacare would save the day, the employer mandate is still looming in a year. What will the City do then? Put everybody on part time?
Seems the City can’t tell the truth about anything.
Thank you for this article that explains the circumstances related to the unfunded liabilities of healthcare and PERS. While I haven’t watched the most recent City Council meeting I heard Ms. Kerry address the retiree healthcare topic in depth at a previous meeting at which she referenced the City establishing the ability for retirees to purchase Supplemental Health Insurance which is very affordable and would create a large savings to the City. Also, the ramifications of unfunded liabilities are something which the City’s staff has been aware for several years now and they’ve been reporting on this to the City Council at their meetings. The staff has been addressing this for some time and is to be commended for their historical acknowledgment and full understanding of this circumstance and for taking a proactive approach to address this.
While “City bashing” is considered a fun sport by so many it cannot be ignored that our little municipality had been taking steps to address this unfunded liability circumstance and have remained solvent while so many other municipalities have been crippled to the point of bankruptcy by this.
I would anticipate that all you people who are certain you can do so much better will be running for City Council in 2014 and look forward to hearing your plans for the City.
I am impressed that the City Manager actually has a grasp on the problem.
It’s time to start privatizing more municipal services so that the pension bomb can be contained. There is no alternative short of cutting services altogether.
USMC, weren’t you inferring we should recall a certain council member a few weeks back?
This is an interesting and helpful way to understanding how calpers works and separates myths from facts about governments pensions.
http://www.calpersresponds.com/
Thanks Another X for the correction re Medicare – either Kerry misstated or Kae misunderstood. Also, not well known, is that the original idea for the City funding retiree health insurance came from the City, not the employees. But the consequence was that during the years immediately following the agreement, City wages dropped from the bottom 20 percentile of public employees in California to the bottom 5 percentile. Unknown to everyone was the fact that this savings was never applied to a reserve to pay for the retiree health insurance the City had been so anxious to fund. Members of the council who were around then seem to have trouble remembering those facts.
Hopefully this truly does put the City’s long-term fiscal house in order! Two of the reasons why I am so critical and cynical of the City Govt. are First:
Back in the 90’s there was this highly touted plan call D2000 that was going to do the same thing. With a bunch of hoopla the Council announced all these structural changes that would put us on a sound path. But when no one was looking, the changes were never implemented!
And Second, a couple City Mgrs. ago, we were being told how financially sound our City Govt. was. Only later do we discover the numbers were made to look good by not taking into account ‘down the road, behind closed doors promises’ that were made! For instance, high paid staff retired, but then could collect an annual check Greater! than their last year’s pay! Talk about a long-term liability!
But I’m optimistic that having avenues such as this website, where info. can reach the public, and perhaps having greater use of the initiative process (caused by the parking fiasco) us citizens can lock in the City to making positive, good for the long-haul, decisions!
Biggerpicture:
I don’t believe I inferred that a Council Member should be recalled. I have criticized certain Council Members on their positions but the fact that a recall would ultimately cost taxpayers money is something I wouldn’t recommend unless there was unequivocal evidence of impropriety on the part of a Council Member. I don’t think being imperceptive and unable to see the big picture is a recallable offense.
Thank you for the comments. Balancing the budget and reducing liabilities, requires teamwork, cooperation and agreements. New solutions are not a credit to me, but a credit to the entire team, which includes the Council, the employees, retirees and the community working together. An idea can best be realized with that commitment to teamwork in mind. Fiscal sustainability doesn’t come easy. The employees of the City have taken pay cuts ranging between 7% and 9 % to reduce the City’s pension costs. Over 30% of the workforce serving this City have lost their jobs in the last few years impacting the lives of their families and themselves. The health care benefits have been reduced, meaning it’s not much of a benefit, but with so many participants in the program, it’s the only way to reduce costs. New employees under the Pension Reform Act have less benefits all together, but the savings will take many years to come to fruition. These employees and retirees have stepped up to address the benefit issue and agreed to the changes that reduce the public’s liability. The employees who serve this community have demonstrated their commitment to the public by agreeing to these changes and I will add, they did so admirably. We’re in this together and we’re going to continue to solve it together. We still have more to do in that regard, because the cost of the benefits is unsustainable, but we’re on the right track.
Regarding the past plan and practice for Medicare. Although the City’s Health Plan said retirees would go to Medicare at 65, in practice many City retirees did not have enough “credits” to receive Part A of Medicare at no cost (the City did not participate in the Medicare crediting program for most of its history). Since the City is self-insured, whatever was not covered by Medicare, was picked up by the City. Being “self-insured” means the City pays the medical bills. The new process requires participation in Medicare and the Supplemental Plans are offered (aka “Medigap”) which will pick up the remainder of the costs, not the City. That’s an oversimplification of the change, but in short, that’s the main reason for the reduction in long term liability, along with a reduction in the benefit plan. What still needs addressing are the costs of providing health care to retirees and dependants and those employees who haven’t yet retired, all of whom thought those benefits would be available. Rather than keep cutting benefits, we need solutions for lasting change. It cannot be overstated that the credit goes to the employees who have been and continue to really work on solving this problem, they do so in an engaging, meaningful, and truly cooperative manner. Most cities do not have the luxury of such teamwork, since we do, it is a credit to them.
The real issue is the health care industry, with its uncontrolled escalating costs.
As for the bumps in the road we encounter along the way toward fiscal sustainability, we’ll work those out by working on solutions together. Thank you for your patience, involvement, and efforts to help us get there.
~Nancy
530-542-6043
My employer changed their retiree healthcare plan to a point where to participate in it was more expensive than going out on your own to purchase the same plan.
This change applied to everyone who hadn’t already retired.
Now they have no problem as retirees don’t take what is offered by the company. The company is saving millions.
USMC, aren’t these sentences from your comment on an article titled ‘Bullies don’t belong on City Council’ dated 10/16/13?
“My hope is that JoAnn Conner will be so angry at being criticized that she’ll just fix all of us ingrates and resign from the City Council. If not then a public recall should be initiated. I’d rather pay the costs of a special election than have this person remain on the Council for the next 3-years who goes into every meeting with her mind made up on a matter before the staff report is ever presented or Council/public comments taken, only represents who and what she wants, and ignores what’s in the overall best interest of the City of South Lake Tahoe and this community. She’s a bully and an embarrassment.”
Here’s a link: https://www.laketahoenews.net/2013/10/opinion-bullies-dont-belong-city-council/
Biggerpicture:
I stand corrected. Those are absolutely my words. You have an amazing memory for what I have written, and I don’t.
I noted that while you directly quoted what I wrote in the last paragraph that you didn’t reference what I wrote in the first and in the second sentences to Kae Reed which were as follows: “I agree with every observation that you stated and think Conner’s bullying behavior is so incredulous that she leaves the majority of the City Council and the City staff so shell-shocked they’re practically unable to respond. Conner also participates in agenda items and votes on matters in which she should recuse herself such as anything having to do with special events since she is a Special Events Promoter and during those discussions has on numerous occasions referenced her expertise in that field since it is “her perspective from being in that same industry”. That’s a conflict of interest and in direct violation of the Brown Act, and the new City Attorney will need to start confronting Conner and advise her of such.”
Thank you for expending your time and effort researching what I wrote on October 16, 2013, and for taking the time to copy the link. Is there anything else you need to say to me?
Nancy, I seem to recall that the monthly costs for for people who have worked between 30-39 qualifed quarters is about $250 a month and people who have less than 30 qualifed quarters is about $450 a month, this is for Part A of medicare, part B cost about $100 a month. Plus about $35 for part D. If you are able to have some of the retirees go to Medicare Advantage programs(Part C) There will be no need for a Medigap policy, and most Part C programs have no premuim and include part D. Blue Cross, and Blue Sheild offer good plans that should save quite a bit of money. I think Blue Cross even has a PPO program.
USMC, thank you for your acknowledgment.
I mean no disrespect towards you, but it is a good example of how people say things (politicians)(not inferring you belong to that group), and yet quickly forget what they have said, honestly, or conveniently.
I think we are lucky to have City employees and a City manager willing to work together to solve problems-I also think that if I insulted someones personal integrity and called for their resignation in a public forum after they gave up so much of their personal time to serve on Council I would remember it 3 weeks later
TeaTotal:
I too agree that the citizens of SLT are lucky to have City employees and a City Manager willing to work together to solve the problems of our City.
With regard to someone’s personal integrity, I believe an individual who campaigned for office, made promises, and has been elected feels the sting of a personal insult when it is delivered to them by someone whom they hold in high regard. I seriously doubt that Ms. Conner’s tender sensibilities have been wounded by my blogging comment upon which she likely places no value.
I acknowledged to Biggerpicture that “I stand corrected. Those are absolutely my words.” As for my aging memory, I make no apologies to you. Is there anything else you need to say to me?
4mer-Thank you so very much for your prompt and nuanced response to my post-Although I disagree that City officials find this forum and its contents to be of no value-we know they all read the LTN and some even respond to comments made-good and bad-as far as your failing memory excuse-no apology is necessary nor acceptable-thank you- EOM
TeaTotal:
While I agree that City staff and City Council members probably read this forum I don’t believe they hold that much stock in the contents of the blogs. I think that people who run for office have a well-developed sense of self and of their beliefs and I don’t think they can be readily swayed by what bloggers post. Like anyone else they can be pleased when support is given and p*ssed off when it’s not, but I think people who are able to attain a degree of power have a fairly thick shell since they know that their decisions affecting other people are always going to be closely scrutinized. What I see at City Council meetings is that some Council members only make vague references to the opinions of bloggers/the public when those opinions align with their own; when they are in opposition there is never a mention.
What does the acronym EOM mean?
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Thank you reloman for that clarification.