Here is a little bombs waiting to hit the government near you.
And they say accounting is boring. This is all the effect of more sensible accounting being forced on government en ies.
This stuff will cost you long before Social Security goes bankrupt.
Pay off your debts now, because this will not be pleasant.
(yahoo business news)
Retiree health care may overwhelm gov'ts
By BOB PORTERFIELD, Associated Press Writer 1 hour, 52 minutes ago
SAN FRANCISCO - The bill is coming due for years of generous benefits bestowed upon the nation's public employees, and it's a stunner: hundreds of billions of dollars over the next three decades, threatening some local governments with bankruptcy and all but guaranteeing cuts in services like education and public safety.
This staggering burden is coming to light because of new accounting rules issued by the Government Accounting Standards Board. They require public agencies to disclose the future cost of health care and other benefits — such as dental, vision and life insurance — promised alongside traditional pensions to the nation's estimated 24.5 million active and retired state and local public employees.
Retiree health care costs have been quietly mounting for decades while public agencies have passed out generous retirement benefits during labor negotiations — often in lieu of salary increases. But government negotiators rarely considered the long-term financial consequences of awarding such perks, according to Brian Whitworth, a retirement benefits specialist with JP Morgan Chase and Co.
"A surprising number of public en ies didn't even make informal estimates of long-term costs prior to the new accounting rules," Whitworth said.
Many cities and state agencies already are struggling to fully fund their pension obligations, but experts say those liabilities pale in comparison to the debt ac ulated for other retirement benefits.
Last month, JP Morgan released what it considers the most comprehensive preliminary estimate. It projects the present value of unfunded health care and other non-pension benefits at between $600 billion and $1.3 trillion.
By comparison, the debt rating agency Standard and Poors estimates the country's total unfunded public pension debt at around $285 billion.
"There's a good chance some government en ies are going to go bankrupt," said California Assemblyman Keith Richman, a Republican from Chatsworth. "But the issue isn't just bankruptcy, it's governments dying of a thousand cuts in services. The costs of promises that have been made are going to be astronomical."
Union officials say it's not their fault municipalities put themselves in a hole by promising more than they can deliver.
"This is a monumental problem and government is going to have to deal with it," said Steve Regenstrief, head of the retirement division at the American Federation of State, County and Municipal Employees.
When the new accounting rules take effect in 2008, taxpayers will be able to see for the first time just how much they're paying to provide benefits to active and retired state and local public employees.
"When the numbers are produced, they're going to be shocking," said Ronald Snell, director of state services for the National Conference of State Legislatures. "They'll be in the hundreds of billions, and it's definitely something that policy-makers are going to have to take notice of and act upon. ... There are consequences of decisions made in the past."
The Government Accounting Standards Board is an independent nonprofit organization that establishes accounting standards for public agencies. Seeing a need to bring public sector disclosure rules in line with those of the private sector, the board unveiled the rules change in 2004 and gave governments several years to implement them.
The new rules don't require governments to come up with the money right away, just to disclose the present value of these future costs and estimate how much more money is needed to pay for them. To prepare for these disclosures, public officials across the country already are beginning to calculate how much they might owe.
So far, California, New York, and Maryland appear to have the biggest burdens, but that could change when estimates begin trickling in from Florida, Texas, Illinois and Pennsylvania. Of the country's 10 most populous states, none has completed a formal estimate of their liabilities, but those that have completed preliminary assessments are reporting astounding numbers.
_The California Legislative Analyst's Office estimates $40 billion to $70 billion in retiree health care and related liabilities for the state. With cities and counties included, JP Morgan pegs California's debt at $70 billion to $200 billion. The state controller is just now beginning a detailed study.
_New York's preliminary analysis puts state liabilities between $47 billion and $54 billion. In a recent budget report, the state acknowledged "these costs are substantial and would significantly reduce or even potentially eliminate" New York's current $49.1 billion in positive net assets.
_Maryland has initially estimated its liability at $20 billion.
_Other states also have reported significant amounts: Alabama estimates $19.8 billion, Massachusetts $13.2 billion, Alaska at least $7.9 billion, and Nevada between $1.62 billion and $4.1 billion.
Many local governments also are beginning to acknowledge huge liabilities. The City of San Francisco reported its burden at $4.9 billion, and the Los Angeles Unified School District said its liability is $10 billion. New York City has yet to complete its analysis, but is expecting a large shortfall and already has set aside $2 billion to help cover it.
How this will impact citizens depends upon the size of their government's obligation and how it's handled.
At the least, experts say, the public can expect increased taxes and fees or reduced public safety and public works services as governments adjust their budgets to amortize the debt.
They probably can't expect much in the way of concessions from public employee unions, said Suzi Rader, director of district and financial services for the California School Boards Association. Any attempt to limit benefits already granted in future negotiations will be a contentious issue, she said, so employers must instead hold the line on granting additional perks to future retirees.
John Abraham of the American Federation of Teachers said union negotiators have long been aware that future retirement benefits must be paid from shrinking resources.
"If they haven't been looking at the numbers, shame on them," he said. "Do we recognize there is a cost problem? Absolutely. As costs have gone up we've made accommodations."
Lori Moore, spokeswoman for the International Association of Fire Fighters, said nothing is really changing except the need for cities to reveal how much they'll owe in non-pension retirement benefits.
"The liability has always been there," she said. "They had to know in the back of their minds that it was there."
Most governments now fund retiree health care on a pay-as-you-go basis, with annual appropriations from their general funds, focusing most of their attention on current expenses.
Under the new accounting rules, the liability can be paid over 30 years, just like a home mortgage, but it forces public officials to recognize the debt and calculate an annual payment.
If officials choose not to set aside additional money each year to cover the payment, it counts against net assets, potentially putting a city or agency deeper into the red. Because assets are a critical component in the credit ratings that allow governments to borrow money at lower interest rates, governments that don't handle their liability properly could end up insolvent.
Parry Young, director of public finance at Standard and Poors, said few governments are prepared for the annual contributions they'll be expected to make.
"It's been a growing liability that wasn't being addressed. But now the chickens are coming to roost," he said. "For some it's going to be a big credit issue depending upon what resources they have."
Young says one way governments can get a jump on their liabilities is by putting more money into retiree health care plans, something "easier said that done."
Public officials "might also choose to issue bonds, or review benefit costs and maybe make changes in the benefits themselves," he said.
Some states have taken a proactive stance. Ohio sought to address its future liabilities by establishing a Post Employment Health Care Fund containing more than $12 billion, an amount the fund's trustees say will not be enough. In order to cut health care costs, the state has reduced the amount it will pay for employees who retire with less than 30 years of service.
Utah, with a relatively small liability estimated at between $536 and $828 million, has taken a unique approach, earmarking unused sick leave for retiree health care expenses. Under a law passed last year and upheld by the Utah Supreme Court, retirees can no longer cash out unused sick leave earned after January 2006. Instead, 25 percent must be placed in an employee's 401K and the remainder in a Health Reimbursement Account.
"The law really stopped the out-of-control-escalation of health care costs," said John C. Reidhead, director of Utah's Division of Finance. "From a financial perspective it's a good deal. From the employee perspective, maybe not."
You can cash out sick leave in the US? Here you can cash out personal leave, but you just lose your sick leave.
Australian governements started addressing this stuff 10 years ago, and paying for it involved a lot of public asset sales and tax inreases. How short-sighted we are, eh?
It's called living beyond your means. Americans, as individuals, love to do it; America as a country is addicted to it.
Last edited by smeagol; 09-24-2006 at 09:55 PM.
Keep lending to U.S.
Dude, where've you been?
The public sector is going to have to do what the private sector has been doing for the last decade: phase out overly-generous retirement packages and retiree health care.
I hang out on a teacher chat board and every so often they will and moan about having to work 30 years before getting full retirement benefits at 55. , I will have worked 45+ years if I get to retire at 65 and will have to underwrite the entire cost of my retirement and medical costs (if Medicare isn't around, and I fully expect it to go belly-up in the next 20 years). Don't even mention "Social Security" around us.
Ruff: Some places let you cash out sick leave, many do not. Again, a lot of public sector jobs have this concept of "earned" sick leave they don't have to carry it on their books. Private sector firms have to represent it as a liability if they let emps cash it out.
Yup. Government accounting is a bit different than business accounting in a lot of ways. There is a move to get governments to change that so that finances are a bit more transparent.
Either way, we are in for a of a ride. Higher inflation and interest rates form oil, along with tax increases to pay for short-sighted government policies like running up the federal debt under Reagan and Bush jr., or promising overly generous pensions without providing for paying those pensions.
I plan to get out of debt as soon as possible and stay that way, and you should too.
So, govt. agencies have been run pretty much like Enron?
Surprise, surprise.
Up here in PA, there are ALWAYS teachers going on strike, and it is almost always about benefits. This is an area with a shrinking population, and an absolutely dwindling school-age children population; yet the teacher's unions will still go to the mat over an increase in their heatlh insurance 0deductible! Starting pay for teaches up here is in the mid to upper 40's; and that is with class sizes almost never above 20 students. Pretty damn good job, if you consider summers and x-mas break.
January 16, 2007.
Not quite. Enron was more or less deliberate.
This is more or less simply short-sighted as poltics in the US tends to be.
As for paying teachers more: great. I would try to link pay to performance a bit more closely, but think my tax money is well spent if it ends up in the pockets of a competant teacher.
Tomato, Tomata
The problem is, the student base, and the tax base are SHRINKING; the only constant is the size of the schools and their employee base. If we are trying to make government more efficient, and be held accountable somewhat more like a business, wouldn't tying the size of the service providing en y to the size and scope of the people being serviced be part of that? As all private sector employees benefits are being cut, deductibles raised, etc...despite whether or not their individual company is prospering or not, the teachers blindly go on strike, fighting to the end for benefits and salaries that other people in the area, frankly, just can't demand anymore.
As for performance incentives? If the teachers union will close the schools for two months over a $250 deductible increase, they'll burn the sum down before they allow performance incentives.
Interesting that you should mention performance pay for teachers - I'm working on that issue right now.
I'm not addressing your region specifically 101A as it sounds like the demographics are changing such that some schools need to be closed. However, there is a general perception in the community that teachers are overpaid and underworked, which is far from the case in my experience. In fact, it is the opposite - overworked, underpaid, and blamed for everything that could possibly go wrong with society. On top of that, the prestige of teaching is gone (it was THE MOST HIGHLY RESPECTED OCCUPATION a century ago). Consequently, the people who are training to become teachers are generally not top echelon achievers due to the poor money, long hours, and general disrespect - would you do it if you could do something else? Only those who can't go somewhere else, or who are truly committed to children and the future of our communities, seem to end up training as teachers these days. It is a profession in crisis.
As for performance pay, it is a very problematic issue. How do you measure "performance"? Standardized testing won't help because it can't account for variability between schools and classes. Given a performance pay system, no teacher would want to teach in a poorly performing school (where you need the best teachers), or to take a difficult class. Teachers may change their grading to "improve" their results. It's a very complex issue.
I'm shocked, California is ing up as usual...
Well, having a wife who has bee a math teacher for the past 6 years has definitely given me some insight into what a difficult job teaching really is. It constantly amazes me the lack of support teachers get not only from administration (who only seem to be interested in TASK scores and making sure some parent doesn't try to sue them), but also all the parents who are more interested in having co-dependent relationships with their children instead of behaving like real parents (role-modeling discipline, accountability, responsibility, etc.) Teachers are feeling more and more isolated and at the same time they're completely boxed in when it comes to ensuring some kind of discipline in the classroom. I can't count how many times my wife will send home a comment on some kid's homework, and the parent just can't believe it to be true! They immediately want to come in for a parent/teacher conference because their poor little Timmy had a comment written on his homework that he talks too much in class!
It really is sad how far public education has fallen in this country, particularly in Texas where we rank #49 in education. I have come to the conclusion that instead of this no child left behind thing, some children SHOULD be left behind, they're simply not cut out for the educational system. That's not necessarily a bad thing, but lets not keep fooling ourselves that every kid is meant for academic achievement. After middle school, start setting up some vocational schools for these kids to attend, teach them a trade of some kind so that they at least have a chance in a work environment. The kids who show an app ude for the scholastic route can go on to an educationally driven high school which prepares them for college, and the kids who show an app ude for vocational persuits can go on to that training. I know for a fact that my wife has way too many kids in her 6th grade math class who have no real chance at 'higher' academic achievement. So, instead of trying to force a square peg into a round hole, create some alternatives for these kids in the form of vocational training. It'a a lot better than them being 'passed' on to high school where they end up dropping out or preparing themselves for employment in the prison system.
I agree. I have seen no few classmates in college who were there simply because their parents expected them to be.
I think the costs of not doing so (prison) are much higher than public financing of vocational schools.
How many millions of people do we have to put in prison because they don't have the skills they need to hold down jobs?
Vocational School = German Model = Really good idea = Won't ever happen.
A disproportinate number of minorities would end up in the vocational schools - Brown vs. B o E would be revisited. It's all about equality; it would also lessen the number of traditional teachers required, so the NEA would be WAY against it.
Don't let the test results make you feel bad about public education in Texas. Trust me, as one with 3 children in PA, and who had 6 year's experience with the Texas equivalents: they are the same.
The problems in education, as a person who has children in it, and a wife who is a professor who teaches prospective educators, are more numerous to talk about. From who is taught, to how they are taught, to what they are taught, to how they are assessed; it all pretty much sucks.
Believe me, I've got a twelve year old who goes 6' 190 lbs, has a measured IQ of 150 +, is completely head-strong, obstinate, insubordinate and forgetfull; if there is a flaw in an education system, or some crack to be exploited, he will find it, and exploit it;
It used to happen here.
We had Woodshop and Autoshop and FFA and FHA and CVAE and all sorts of vocational education when I went to High School.
^ What worries me even more is that a large number of teachers don't even feel safe in their own classroom. At my wife's school there was a teacher who attempted to intervene between two students who were having a very verbally explicit yelling match by simply grabbing the shoulder of one of the students to try and intervene and move the 'discussion' outside of the classroom. What does she get in return? The kid's parent calls the next day saying that her daughter's arm is hurting and saying that the teacher used excessive force. Give me a freakin' break! My wife saw the incident occur and this teacher did not physically injure this kid in any way, there was no lawsuit pursued but the school actually suspended this teacher for 3 days, unbelievable. What the classrooms are turning into are a babysitting service for parents free of charge, teachers can't teach-they don't have the time. All the time they have is devoted to behavioral management of these kids who shouldn't probably be in a regular classroom in the first place, it's a real shame that our educational system has come to this. Now, please keep in mind that my wife does teach at a 'low preforming' school, but I don't think her and other teacher's problems are restricted to this one school, it seems like it's a system wide problem. I definitely now understand why so many parents are home-schooling their children, or going the private school route if they can afford it.
Oh yeah, we also expelled those who didn't come to school to get an education.
Let them get their education on the street instead of allowing them to bring the street to our educational ins utions.
...and my son had a kindergarten teacher in NISD that picked him up, shook him and screamed (at a 5 year old mind you) "YESTERDAY WAS THE BEST DAY OF THE SCHOOL YEAR! DO YOU KNOW WHY? BECAUSE YOU WEREN'T HERE!!!!"
I only found out at a birthday party my boy was invited to a month later when I heard two mothers talking about it (it had been witnessed).
The administration knew about it, but didn't tell us, and the teacher, as far as I know wasn't punished, and is still teaching kindergarten in NISD to this day.
It swings both ways.
Hey, maybe it was the best day of the school year because of his absence. I wouldn't have assaulted him, but damn, I've seen enough crappy Kinders to know I would also rejoice if a few of them missed a couple of days of school.
So, of course, the boys family has filed an administrative complaint with the school district and a criminal complaint at the courthouse, right?
^ Hey, I'm in no way saying all teachers are top notch, there are definitely some bad teachers out there who take inappropriate actions with kids. It's just that from being around a teacher it seems like the bigger problem is the kids and their parents. Maybe these parents can take the time to get to know their kid's teachers a little bit, talk to them about some of the behavioral problems their kid has had, work together towards creating a partnership between teacher and parent that will hopefully allow the student to thrive educationally?
But probably much more in the direction of abusive students (they exploit the system to the nth degree... and then bend it some more)
And, in some cases, drive otherwise kind and gentle Kindergarten teachers into ranting, shoulder-shaking, rages.
Ballcox - I taught for two years and all that you say is very close to my experience. The lack of respect (ie. moral education by parents - I like how you phrased it - parents in a co-dependent relationship with their children rather than parenting them) is impacting greatly on the education system.
Today it's all about rights, but no-one wants to take on the responsibilities that come along with them...
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