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Worse Than the Pension Crisis: California's $62 Billion Retiree Health Care Problem

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    NEWSLETTERS

    You've heard about California's pension crisis, but are you aware of the state's $62 billion reitree health care problem?

    California seems unable to reckon with its pension crisis, particularly at the local government level.

    While some state legislation has been passed and several cities have negotiated small improvements with their unions, a comprehensive fix seems unlikely.

    So maybe it's time to stop beating our heads against the pension wall and look at  retiree health care, a potentially more serious, long-term, fiscal problem:

    A recent report from the state controller's office found that the 30-year cost for providing health and dental benefits for state workers is $62.1 billion.

    That is less than the $100 billion-plus estimates for unfunded pension obligations. But this problem may be more severe because there's been so little planning for dealing with it.

    After all, California governments -- and in many cases their employees as well -- are contributing money towards pensions, money which in turn is invested in markets. It's not enough, but it's something.

    But there's no similar savings and investment for retiree health care. California pays for retiree health benefits on a "pay-as-you-go" basis.

    It's quite possible that, given this lack of advance planning and the rise in health care costs, government budgets ultimately will take a much bigger hit from retiree health than from pensions.

    That's why state and local governments need to start setting aside money now -- even in down times -- so that the ultimate bill is manageable.

    The controller's office says that if we pre-funded benefits fully now, the cost of future unfunded obligations could be cut by one-third, to $40 billion.

    That's a step worth taking. Even smaller efforts to sock away money today will save California money in the long run.

    Let us know what you think. Comment below, send us your thoughts via Twitter @PropZero or add your comment to our Facebook page.