published Monday, May 24th, 2010

Council wrestles with medical costs

by Cliff Hightower
Audio clip

Daisy Madison

The city's proposed 2011 budget includes millions of dollars to establish and maintain a fund for retired city employees' lifetime medical costs, records show.

Some council members are questioning whether now is the time to invest in such a program.

"What makes this a magical year?" Councilman Peter Murphy said. "It's a legitimate question."

In Mayor Ron Littlefield's budget last week, at least $6.3 million is allocated to what is called "other post employment benefits," or a trust fund for retiree medical benefits.

Daisy Madison, the city's chief financial officer, said Friday a fully implemented trust fund would require about $15.5 million in start-up money -- funds already budgeted to pay claims and the additional millions to seed the trust fund for future years.

PDF: OPEB Presentation


* $15.5 million: Annual cost of fully implemented retiree medical benefits trust fund for city

* $1.6 million: Annual cost of fully implemented retiree medical benefits for county

* 2,350: Estimated number of city employees

* 1,900: Estimated number of county employees

Source: Chattanooga, Hamilton County

Documents show the city would have to allocate about $15 million into the fund each year for the next 10 years.

The fund would operate much like the city's general pension fund or fire and police fund where money put into the fund earns interest. Interest income would then be used to pay retiree health claims, she said. Last year, the city paid about $8.2 million in claims.

At a time when the City Council is considering a 33 percent property tax increase, the council chairman wondered if the city's whole retirement system should be re-evaluated.

"I'm for reforming our benefits, period," said Manny Rico. "This is killing us."

The city is currently "pay as you go" on retiree medical benefits, Ms. Madison said. With retirees living longer and medical costs going up, claims will outstrip the $15.5 million startup cost of the fund within five years, she said.

Another factor in prompting the city's change in how it plans for future medical costs is a new rule from the Government Accounting Standards Board. The board, which sets standards for how governments keep their books, enacted an accounting change in 2008 that requires all governmental agencies to disclose their projected liability for all unfunded retiree programs.

Ms. Madison said a drawback of this change is that it opens up records to financial institutions, which could affect a city's interest rates on bonds if those institutions conclude the city carries too much liability.

Hamilton County pays $1.6 million annually for retirement medical benefits, said Louis Wright, the county's chief financial officer. The county started its trust fund in 2006 after the last property tax increase, he said.

"The big difference is their's is for life and ours cuts off as someone is eligible for Medicare or Medicaid," Mr. Wright said.

One cent of property tax raises about $500,000 in revenue for the city. That means about 14 cents of the property tax would be devoted solely to supplementing the retiree trust fund.

Mr. Rico said that's why the city needs to seriously look at reform and go toward a model more like the county's.

"That's unreal," he said. "That's the way we need to go."

Continue reading by following these links to related stories:

Article: Realtors oppose property tax increase

Article: Public sentiment runs cold on proposed 33 percent tax hike

Article: Mayor asks for 64-cent property tax increase

Article: City faces tax hike to close fund gap

Article: Agencies request more funding

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slr3 said...

What makes a city employee entitled to lifetime medical benefits outside medicare and medicade?? This is another example of a bad idea which taxpayers must stop at the local level. Come to the City Council meeting tomorrow night and protest the Mayor's misguided budget. If you don't stand up for your rights , who will. Get involved and we can change this attitude of entitlement on both a local & a national level.

May 24, 2010 at 4:22 a.m.
prettysharpladi said...

I also think that government employees are not entitled to any more than Medicare and Medicaid, just like the average citizen. What makes them better than us. They receive better pay for the duration of their employment than the average person, and better retirement benefits also, so why should they get lifetimes health benefits also??? The average class working "Joe" shouldn't have to bear the burden of paying government retirees health costs, when we can't afford to pay our own. I mean really, a 33% tax increase, and 14% of that is going to fund a government employment retirement health care program, that is utterly ridiculous!!

May 24, 2010 at 12:10 p.m.
Salsa said...

The city's spinmasters are working hard and would have you believe that retirees are getting health car for free. They aren't. They pay for it every month out of their pensions. The mayor tired to get his hands on the Fire and Police pension money to fund his schemes but now that he couldn't do that he and his cohorts are attempting another scam.

May 24, 2010 at 6:49 p.m.
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