There’s a growing fiscal crisis hitting cities, counties and states across the U.S. It’s all about generous retiree health benefits that historically haven’t been fully funded.
MICHELE MARTIN, HOST:
Across the United States, there is a growing problem for current and retired government employees. It has to do with retiree packages known as other postemployment benefits. They’ve been around for decades, but they are often chronically underfunded. And now with the retirement of more baby boomers, it’s time to pay up. Houston Public Media’s Andrew Schneider reports on how one city is trying to head off a financial crisis.
ANDREW SCHNEIDER, BYLINE: Any city council meeting can be boring, especially when it’s about finances. But in Houston, those meetings and what they’re wrestling with have forced people to sit up and take notice.
DAVID BERGER: Our initial $2.4 billion liability has been mentioned, but we projected it out over the next 30 years, and it became $9 billion.
SCHNEIDER: David Berger of Segal Consulting talked about the bleak financial outlook for Houston, the nation’s fourth largest city. He says that $9 billion projected shortfall is a real problem.
BERGER: That would increase far faster than your revenues, your tax revenues. And so that kind of highlights the need for, not only a current solution, but a longer term. What can we do to control the longer term costs as well?
SCHNEIDER: Houston is far from alone. The Center for Retirement Research at Boston College has been looking at this issue. In 2016, it found that cities counties and states collectively are short more than $860 billion.
ALICIA MUNNELL: The problem is nationwide. The seriousness of the problem varies a lot.
SCHNEIDER: Alicia Munnell is the center’s director. Historically, governments have always underfunded pensions and retiree benefits. But it’s not been until the last few years that federal accounting rules forced them to admit the shortfalls. And Munnell says some states are really struggling.
MUNNELL: I’m not going to surprise you very much. Illinois, Connecticut, New Jersey, those are the plans where you see the most serious shortfalls and where you have, you know, high debt service and high retiree health care costs as well.
SCHNEIDER: In terms of local governments, she points to counties in California and cities like Chicago and Detroit. And then there’s Houston. It’s proposing some drastic measures to keep retiree benefits from mushrooming into another crisis. Councilman Dave Martin says they’re looking into eliminating some spousal subsidies depending on longevity.
DAVE MARTIN: We have some retirees that are marrying younger men and women – for instance, a 50-year-old man marries a 30-year-old woman or a 50-year-old woman marries a 30-year-old man. The obligation in the retirement goes with the younger spouse.
SCHNEIDER: Houston officials are worried that some of these changes, which include no postretirement health coverage for new employees, could make it more difficult to attract workers to the city. Bill Fulton directs the Kinder Institute for Urban Research at Rice University. Fulton says unfunded retiree benefits could lead to the same problems for cities that had unfunded pensions.
BILL FULTON: Where we’ve seen bankruptcies so far have been purely a pension problem. That was the problem in Detroit. I do think that we – there will be – I can’t say which ones – but I do think probably some jurisdictions will be at similar financial risk as postemployment benefits become a bigger issue and become more expensive.
SCHNEIDER: It’s a painful choice to make because when the benefits get more expensive, something else in the budget doesn’t get funded. The Houston City Council is expected to vote on the proposal to overhaul retiree benefits soon. For NPR News, I’m Andrew Schneider in Houston.
(SOUNDBITE OF HYPNOTIC BRASS ENSEMBLE’S “BALLICKI BONE”)
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