Organizations seek to avert ‘crisis of unmanageable proportions’ from rising health care, retirement costs

  • (Feb. 1, 2007) – Citing the threat that escalating public retirement and health care costs pose to the ability of governments to provide basic services, three statewide organizations called Thursday for a comprehensive, independent review of Kentucky’s retirement and health insurance programs.

    Controlling cost increases and ensuring the programs’ long-term sustainability are the goals of a joint effort by the Kentucky Chamber of Commerce, the Kentucky League of Cities and the Prichard Committee for Academic Excellence.

    As public retirement and health care costs escalate, they are draining money away from such vital programs as education, and their continued increases puts essential services at both the state and local level at risk, the groups’ representatives said.

    The organizations commended Governor Ernie Fletcher for his decision to appoint a task force to study what actions are needed to ensure the financial integrity of the Kentucky Employees Retirement System. They also advocated:

    •  that a majority of the task force members be actuaries or people with fiduciary responsibility for sustaining benefit programs to ensure an independent review
    • that the task force review include the public employee health insurance program because of its impact on retirement benefit costs
    • that the review include all state retirement systems, including those for local government employees and teachers
    • that the task force be charged with making recommendations that address the root causes of the problems, not just the symptoms
    • that the General Assembly dedicate part of the anticipated budget surplus to the state retirement system

    The groups also said they are forming a Coalition for Sustainable Benefits to focus on raising public awareness by meeting with policymakers, opinion leaders and others to discuss the issue and to assist efforts to develop a solution that will ensure the protection of public employees under sustainable benefit programs.

    “Increasing benefit costs are threatening basic services,” noted Dave Adkisson, president and CEO of the Kentucky Chamber of Commerce, and the problems require long-term solutions. “We plan to be a voice that advocates balance, affordability and sustainability of benefits for public employees,” he added. “We are advocating a deliberate, thoughtful approach to addressing these problems before they become a crisis of unmanageable proportions.”

    Taking action now is particularly critical because of an accounting rule change that requires governments to account for the future liability of providing health coverage to retirees, Adkisson said. The new rule, combined with rising health care costs, has created what one commentator describes as a perfect storm, one that will cause serious damage if the problems are left unaddressed, he added.

    Cities’ required contributions to the County Employees Retirement System, which includes city employees, are scheduled to increase dramatically in the 2008 fiscal year, said Sylvia Lovely, executive director and CEO of the Kentucky League of Cities. She cited three examples of the impact the increases will have: Elizabethtown will pay almost $500,000 more to CERS, Covington’s obligation will increase by $1 million and Louisville Metro will pay $13 million more.

    “Cities really don’t have a way to expand their options in meeting these financial obligations other than reducing the number of employees and thereby the services that they provide,” Lovely said. A KLC survey last year showed that more than 40 percent of cities have already had to draw on rainy day or surplus funds to cover increased CERS contributions, which are established by the General Assembly.

    “It is clear that layoffs are already taking place and will grow as a solution. In addition, as more costs are eaten up in retirement benefits, pay raises will be the first thing to go,” she added. “Our cities are crying out for attention to this crisis of epic proportions and for a bipartisan effort toward finding long-term solutions.”

    Kentucky’s schools are also experiencing the negative impact of rising health care and retirement costs, said Robert F. Sexton, executive director of the Prichard Committee for Academic Excellence.

    “A few years ago health insurance costs started eating up dollars in the education budget,” Sexton said. “Their spiraling increase continues, and each year will take more and more dollars out of the classroom. There are several ways to look at the numbers on this. They’re all bad.”

    • Between 1996 and 2008, health insurance and retirement took 50 percent of all the new money appropriated for education.
    • Between 1990 and 2005 health insurance and retirement, as a share of the education budget, jumped from 15 percent to 25 percent, where it remains.
    • From 1999 to 2005, increases in health insurance and retirement costs consumed all the other increases in education; total state education spending increased by $78 million while there were new costs of $119 million, adjusted for inflation, for health insurance and $63 million for retirement.

    “Skyrocketing health costs mean we are spending more but getting less into classrooms,” Sexton added. “We must deal with this for the good of our children and the people who are working so hard to teach them.”

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    Thursday, February 1, 2007

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