The funds that pay retirement and health benefits to local government employees such as county administrators, law enforcement, fire/EMS, teachers and other public employees are facing a shortfall that could exceed $500 million.

The problem is that the accounting techniques used by many local governments to balance their pension books disguise the extent of the crisis facing these retirees and the taxpayers who may ultimately be called on to pay these deferred costs.  The Post-Employment Benefit Report (July1, 2005) indicates that Martin County was then confronting a deficit of at least over $80 million in covering the cost of the retirement benefits they have promised. But that figure likely underestimates the actual shortfall because of the range of methods used to make their calculations, which include practices that have been barred in the private sector for decades.

Local governments that use these techniques for their pension funds face deficits that further contribute to what may be shaping up to be a massive breach of faith with a generation of public employees (Washington Post, 5/11/08). This previously under-funded liability has already presented Martin County taxpayers with over $8 million in annual appropriations at the cost of other needed services. Eventually, the County’s officials responsible for the funds will have to choose whether to continue paying or reneging on benefits promised to retirees.

By their own assessment, many state and local governments acknowledge that their funds for retiree benefits are increasingly falling behind, with the number that are severely under-funded soaring to 40 percent in 2006, a five-fold increase from 2000, according to the U.S. Government Accountability Office. Even these grim projections are based on assumptions that some analysts consider too aggressive; including projections about how the investments of pension funds will fare and how long retirees will live. Very small changes in these actuarial assumptions can generate huge additional liabilities over time.

Another concern for public funds is demographic: We are living longer and more of us are getting old. By 2015, life expectancy is expected to reach 79.2 in the United States. By 2030, one out of five people will be over 65. With workers retiring earlier and living longer, governments have been struggling to keep up with the promises they made. Many local governments are taking out loans to restock their pension funds, which is akin to using a credit card to cover monthly mortgage payments. Others are passing the bill to future generations by using unrealistic investment returns, claiming they do not need to dedicate more money now to their pensions. Taxpayers ultimately will pay the price when these forecasts prove wrong.

In addition, costs are soaring. Retiree health care costs are estimated to more than quadruple by 2019. Nor has the crisis in the housing and debt markets helped matters. Investment returns for most pension funds across the nation turned negative for the first part of this year. Martin County is also facing a problem common to many other communities around the country this year, budget deficits. According to the County Administrator these deficits are expected to top $20 million next year.

In short, our elected officials need to ensure their decisions comply with Governmental Accounting Standards Board’s new mandatory regulations for disclosing the accrued cost of all unfunded retiree benefits. They then need to use rational long range financial planning to ensure our local retirement/benefit plans are solvent. Because the fuse on this time bomb is long and other short-term problems receive much more publicity, politicians naturally resist addressing them, given that the resulting troubles will only become apparent long after the current decision makers have departed. Historically the County has leveraged our long-term fiscal health to meet the short-term demands of labor unions and political allies. Hard decisions need to be made now. Given this is an election year that already faces severely reduced income this will not be an easy task