Baltimore City officials estimate they will need $2.9 billion to cover employee retirement health benefits for the foreseeable future.
The problem: Baltimore has set aside only $15 million, presenting a fiscal challenge for the city, Budget Director Raymond Wacks said.
“We have a long way to go to fund this,” he said.
The $2.9 billion is an “unfunded liability” ? an actuarial estimate of the costs of providing retirement health benefits to all current employees and retirees required by the Governmental Accounting Standards Board, Finance Director Edward Gallagher said. The GASB has mandated that all municipal and state governments nationwide calculate the future costs of retiree health in present-day dollars ? from city hall secretaries to police and firefighters. Gallagher said the sum, more than the entire 2008 $2.1 billion city budget, will strain finances.
“It?s certainly challenging,” he said.
But Gallagher and city officials took steps to address the issue Wednesday, as the city?s Board of Estimates authorized setting up a new irrevocable trust similar to the city?s pension fund dedicated solely to paying health benefits. The fund will invest money set aside by the city for retiree health benefits in stocks and bonds. The trust will be administered by the city?s Employees? Retirement System and, like city pension funds, will soak up more money in the future.
“We will be increasing our contributions over time, but it will take a number of years to catch up,” Wacks said.
The unfunded liability is bad news for a city already facing challenges in covering retiree benefits. In fiscal 2008, Baltimore will contribute nearly $118 million to employee pension benefit plans, up nearly 400 percent since 2000. The rising costs are part of a statewide trend, said Chris Summers, head of the Maryland Public Policy Institute.
“This is the fiscal tsunami that?s going to hit not just Baltimore, but the state of Maryland. This isn?t something you economically grow out.”
Summer said the state and the city will have to generate more revenue to fund health care obligations.
“It?s going to create a fiscal crisis, massivecuts in services or massive cuts in benefits or a massive tax increase ? take your pick.”
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