Many Marin municipal governments have adopted reforms to address unfunded health care liabilities, according to a new report issued by the Nevada Policy Research Institute, a “free-market” think tank.
The report also notes that Marin governments still have an unfunded pension and retiree health care debt that tops $1 billion.
The institute gave Sausalito and Corte Madera the highest grades for adopting policies it endorses, such as paying down some of their unfunded retiree health care debt and switching to a health savings account instead of paying for health care insurance.
The institute also recognized the county of Marin, San Rafael, Mill Valley, Fairfax and Novato for taking steps to pre-fund their retiree health care liabilities.
“In compiling 2014/2015 figures to provide an updated assessment on the fiscal health of Marin governments, it was unmistakable that several Marin governments had begun taking their retirement health care liabilities more seriously,” wrote Robert Fellner, the institute staff member who wrote the report.
The report was less complimentary regarding the performance of Tiburon, Larkspur, San Anselmo and Belvedere. Fellner wrote that contributions that these municipalities are making toward covering their retiree health care liabilities “are either just the bare minimum required to pay that year’s promises, or when above, are significantly less than the growth in interest on the existing liability.”
Fellner singled out Larkspur, saying officials there should move toward pre-funding as soon as possible “given the size of its current debt in relation both to population served and total tax revenue.”
Fellner said he used the most recent actuarial valuation, which was June 30, 2014, for the Marin cities enrolled in the California Public Employees’ Retirement System and 2015 for the Marin County Employees’ Retirement Association agencies. Larkspur City Manager Dan Schwarz said Fellner’s appraisal of Larkspur’s situation was out of date.
Schwarz said that in January 2015, the city switched its retiree medical program for new hires from a defined benefit to a defined contribution program. He said that earlier this year, Larkspur also deposited $100,000 in a health care liabilities trust, and the City Council established a five-year goal to fund health care at the full annual required contribution rate, which reflects future costs.
“Well, that calls for an update,” Fellner said when informed of the changes. “That is basically the type of reforms that I’m talking about.”
San Anselmo Town Manager Debra Stutsman also said the report provided a less than accurate picture of her town’s liabilities. She said the pension liabilities figure cited in the report for San Anselmo includes police, which is the responsibility of Central Marin Police Authority.
“The remaining obligation for our miscellaneous employees’ pension is $4.6 million,” Stutsman said.
She also said San Anselmo’s unfunded health care liabilities are a fraction of most cities’ because the town has always capped its retiree health benefit at a certain dollar amount, currently at $225 per month.
Fellner said that in fiscal 2012-13 Sausalito deposited $400,000 in a trust dedicated to paying down its health care liabilities, which immediately reduced its liabilities from $5.7 million to $4 million. In addition, he said Sausalito adopted a defined contribution health plan for many employees.
Sausalito City Manager Adam Politzer said, “At a time when most cities were still paying the employee share of pension costs, or negotiating to pay less, Sausalito negotiated that all of its employees not only pay their own share, but up to 50 percent of the employer’s share.”
In addition, Politzer said, “The city lowered all pay ranges so that any new employee replacing a tenured exiting employee would have a 35 percent lower salary. Since the new pension tiers are based on a percentage of payroll, this translates into significant reductions in annual pension costs.”
Fellner said Corte Madera has reduced its health care liabilities from $14.7 million to $9.7 million by creating a trust. Corte Madera Town Manager David Bracken said his town has deposited about $500,000 in the trust annually over the last three years.
Fellner said Corte Madera has also installed a new retirement health savings account program for most employees.
Bracken said, “We also reduced the retiree health benefits for current members to the member plus one, instead of the whole family.”
And Bracken said the town, like Sausalito, has secured an agreement to get most of its employees to pay half of the town’s California Public Employees’ Retirement System annual contribution.
‘Dire’ situation
Paul Premo of Mill Valley, a member of Citizens for Sustainable Pension Plans, however, said he takes little solace from the progress some municipalities have made in addressing their unfunded health care liabilities.
“The pension situation is much more dire,” Premo said. He said the Marin County Employees’ Retirement Association’s assumption that its assets will earn 7.25 percent annually “is overly optimistic and unrealistic.”
Premo noted that the county of Marin was the exception to the rule in that its unfunded health care liabilities of $294 million exceed its unfunded pension liabilities of $243 million.
“The county unfortunately has a terribly high unfunded health care burden,” he said.
In his report, Fellner said that the county of Marin has begun pre-funding its health care liabilities and made reforms, although he says its 27-year amortization period for health care liabilities is too long.
AAA bond rating
Marin County Administrator Matthew Hymel said the county recently adopted new lower costs pension tiers, created a retiree trust fund, increased employee contributions to their pensions, and on a discretionary basis paid down its unfunded liabilities by over $90 million.
Hymel said, “Our efforts have reduced our unfunded liabilities by over $240 million since 2012-13 and resulted in an upgrade in our bond rating to AAA.”
Roland Katz, executive director of the Marin Association of Public Employees, said, “What is not sustainable is working people, regardless of by whom they are employed, not having a decent pension. The critics also ignore the importance of retirees having good pensions and medical benefits to the health of our economy. Retirees spend their pensions in their communities. That’s good for our economy. That’s good for our society.”