There was a milestone passed yesterday that probably went virtually unnoticed by 99% of our readers, but may have a dramatic effect on your local taxes in the coming years. The Governmental Accounting Standards Board has set new mandatory regulations for disclosing the accrued cost of all unfunded retiree benefits for fiscal years that begin after December 15, 2006. This will apply to all public employers with at least 100 million dollars in annual revenue and is estimated to nationally effect an estimated 24.5 million State and Local employees and teachers. J.P. Morgan, Chase and Co. has issued a preliminary estimate that the present value of unfunded state and local public-employee health care and other non-pension benefits alone are between $600 billion to $1.3 Trillion.
The new standard only mandates that the numbers be reported, not that the problems be addressed. However, political pressure by taxpayers and public employee unions, along with accompanying lower bond and credit ratings, should mean that any significant shortfall would demand action. This would translate into increased taxes and a decrease in services, or a significant reduction in retiree benefits. According to surveys by Mercer Health and Benefits, over 80 percent of public employers and managers do not know the extent of the problem. “They’re aware they haven’t funded (the promised benefits), but they do not seem to have plans to do so.”
We highlighted the potential for this type problem when we addressed the latest Martin County Firefighter’s Contract. In that example, a glaring but certainly not the only one, fire/rescue personnel are eligible to retire after 25 years service with a retired pay figured at 75% of the last five years TOTAL SALARY, INCLUDING OVERTIME. If they continue to 30 years service that figure jumps to 90%. A number of senior fire/rescue personnel currently (2004/5 figures) exceed $150,000 per year in total compensation. In the new contract negotiated and ratified by local officials prior to the 2006 elections, they are now going to receive a 10% compounded increase for each of the next three years. As a result, if they retire today, their taxpayer-funded pension will almost certainly exceed $100,000, plus extensive benefits. If they stay on the job for the next three years that figure could be pushing $150,000.
We do not know the actuarial status of the pension and benefit plans for Martin County’s Teachers, Law Enforcement, Emergency Services and other employees. However, we have reason to believe that our Commissioners and School Board do not either. According to Michael Merlob of Gallager Benefit Services: “I think this is going to be a major shock to Commissioners, budget officers and citizens when they start seeing (and dealing with) these liabilities.” We hope that Martin County’s officials will aggressively seek this information and take appropriate action to quickly address identified problems.
Other “sleeper legislation” that is still receiving less attention than it deserves is the State’s handling of Citizens’ Insurance Corporation. As insurer of last resort, Citizens’ insure those Florida Homes and Businesses that cannot obtain insurance from private companies. Since these properties are most often those that are abnormally high risk due to location or less than optimum construction, Citizens’ sustained tremendous losses during the hurricanes of 2004/5. Their Board was recently pressured by a number of Florida Legislators to delay a vote that would have raised the rates charged their customers by as much as 55%. This increase would certainly be a burden on many of Citizens’ customers and we think the actuarial soundness of the assumptions made to reach this figure should be well reviewed by individuals that are held accountable by our votes. However, taxpayers also need to be well aware of the alternatives to Citizens’ customers paying a fair rate for the higher risk properties they chose to purchase. Currently their huge losses are being recovered by “taxing” every commercial insurance policy sold in Florida with a surcharge, or direct subsidies from the State Treasury. In both of these situations those that chose wisely are being “taxed” to support those that did not. In some cases subsidies may be justified, but it should be done in the open by legislative action, not second hand assessments by Citizens’ Board of Directors.