Unfunded retiree healthcare benefits threaten to take a $1.7 billion bite out of the Santa Clara County budget, a drastic uptick from the $425 million liability seen a decade ago.
“Faced with 10 consecutive years of debilitating general fund deficits, the county has been unable to fully fund this employee benefit,” says Gary Graves, the county’s chief operating officer, in one of several memos going to the Board of Supervisors.
As cash flow stabilized to a degree since the great recession, supervisors asked to hear some policy options to tackle the problem. Graves will present a few ideas on how to deal with this cash-hungry liability on Tuesday, during the first of a three-day workshop where supervisors will iron out the details of the county’s 2013-14 budget.
“A policy to address both the dedication of one-time and ongoing general fund resources to this benefit program, and the extent to which our employees make a commitment to contribute to funding must be considered if we are to make any progress in reducing this liability,” Graves writes.
Three sources need to be considered: Ongoing general fund cash, one-time general fund cash and ongoing employee healthcare contributions. Wait until the unions catch wind of that third option.
Based on the latest estimate, which was all the way back in June, the county needs $190.9 million to fund retiree healthcare in 2014. Right now, on hand, there’s only $83.9 million available—a $104 million shortfall.
“The magnitude of this shortfall is of great concern and it will take some time for us to be able to fund this program in an appropriate manner,” Graves cautions.
OK, so a plan of attack:
Possibility I: Up the ongoing general fund commitment for retiree health by $10 million every year for the next five years—$50 million in all.
Possibility II: Make a policy to give 50 percent of one-time and ongoing redevelopment cash returned to the county as a taxing entity to health care costs until it’s all paid off. Of course, who knows if the county will get San Jose’s share of those property taxes, as the city’s suing to keep redevelopment proceeds.
At least there’s another pool of one-time cash in a health trust fund: $157 million the county set aside, just in case, “to provide additional flexibility in managing the county’s cash flow needs.”
Possibility III: Make employees shell out $10 per pay period and up that by another $10 per pay period per year for five years. That would bring in $20 million to fund health plans in the fifth year.
All this strategizing and we still haven’t broached the subject of how to slow the increase in healthcare liabilities in the first place. Rising premiums, more retirees and longer life expectancies will only increase those figures.
“Opening a dialogue with county labor unions to implement retiree medical benefit strategies for new hires may have the highest probability of success,” Graves notes.
Also on day one, May 7, of the supervisors’ three-day budget workshop, County Executive Jeff Smith will go over budget recommendations for the following programs:
• Department of Child Support Services, which is fully funded by state and federal allocations.
• In Home Support Services.
• Mental health services.
• Santa Clara Valley Health Plan.
• Department of Alcohol and Drug Services.
• Custody Health Services.
• Community Health Plan.
• Social Services Agency.
• Santa Clara Valley Medical Center.
• Public Health Department.
WHAT: Santa Clara County Board of Supervisors budget workshops
WHEN: 1:30pm May 7, 8 and 9
WHERE: County Government Center, 70 W. Hedding St., San Jose
INFO: Lynn Regadanz, [email protected]