N.y. Faces $200 Billion In Retiree Health Costs

[interestrateripoff]

http://www.nytimes.com/2010/10/13/business/13retire.html?_r=1&ref=business

The cities, counties and authorities of New York have promised more than $200 billion worth of health benefits to their retirees while setting aside almost nothing, putting the public work force on a collision course with the taxpayers who are expected to foot the bill.

The total cost appears in a report to be issued on Wednesday by the Empire Center for New York State Policy, a research organization that studies fiscal policy.

It does not suggest that New York must somehow come up with $200 billion right away.

But the report casts serious doubt over whether medical benefits for New York’s retirees will be sustainable, given the sputtering economy and today’s climate of hostility toward new taxes and taxpayer bailouts.

The daunting size of the health care obligation raises the possibility that localities will be forced at some point to choose between paying their retirees’ medical costs and paying the investors who hold their bonds. Government officials aim to satisfy both groups, and have even made painful cuts in local services when necessary to keep up with both sets of payments.

Only a few places have tried to rein in their costs, by billing retirees for a portion of the premiums, for example. Retirees have responded with lawsuits, but ratings agencies and municipal bond buyers have shrugged off these warning signs.

“So far, the market doesn’t care,” said Edmund J. McMahon, the director of the Empire Center. “The market seems to assume, on the basis of nothing, that at some point all of these places are simply going to stop paying retiree health benefits.”

The health benefits are entirely separate from the pensions that New York’s public workers have earned. Governments have reported their pension obligations for years, but their retiree medical obligations have been building up unseen, because governments were not required to account for them. The information is starting to come to light because of a new accounting requirement.

One city, Schenectady, found the cost too overwhelming to calculate, warning that it “will be astronomical, with the potential of bankrupting municipalities.”

The city even said in a document accompanying a recent debt offering that it did not know whether it was really required to comply with the new accounting rule.

The $200 billion that New York State and its localities owe retirees in the aggregate is less than the amount they owe their bondholders, about $264 billion. But health costs are rising, and in some places the obligations have already eclipsed the value of the government’s outstanding bonds. Most credit analysts seem to expect that if a municipality has to default on something, it will default on its retiree health promises, not on its bonds. Pensions, meanwhile, are considered protected by the New York State constitution.

Excellent we promise the workers something and then make no plans to pay for it. Genius.

With people like this in charge it's no wonder the global economy is so healthy, cigars and bonus all round I think.

[aa3]

One soon to be retiree told me.. when my parents retired they had 6 boomers working in good jobs to pay their pension. When I retire there will be 1 hispanic immigrant on minimum wage struggling to support himself and maybe one middling paid gen xer to support me.