Council wrestles with medical costs

Council wrestles with medical costs

May 24th, 2010 by Cliff Hightower in Politics Local

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."

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