Nassau, Suffolk see ballooning obligations for retiree health benefits

Nassau and Suffolk counties owe a total of $13.1 billion for retiree health care benefits, an obligation that is expected to balloon further over time, government officials and experts said.

The obligation, known as “Other Post Employment Benefits,” was $6.6 billion for Nassau and $6.5 billion for Suffolk at the end of 2021, according to calculations by the two county comptrollers.

The counties’ total obligation has increased by $2 billion since 2017, county records show.

Pension benefits aren’t included in the projections.

Government watchdog groups and independent auditors say they are growing increasingly concerned about the potential for retiree, excluding pensions, to overwhelm municipal budgets in New York.

They said municipalities eventually could lack the funds to keep pace with the obligation, as employees or their beneficiaries continue to live longer, and health care costs grow.

If the expense were to grow exponentially, governments could need to increase taxes or cut services, experts warned.

Thad Calabrese, a professor at NYU’s Robert F. Wagner Graduate School of Public Service, told Newsday when municipalities such as Nassau and Suffolk began to award such benefits to employees years ago, “they were cheap.” 

“And over time, they become more expensive … ,” he said, citing subsequent contracts with employee unions.

Calabrese, who teaches public and nonprofit financial management, continued: “These are significant amounts of money that the governments have to raise every year, and then pay out every year to beneficiaries. In doing so, they are then unable to use that money for other pressing issues.”

The projections aren’t exact, and officials said it’s unlikely the benefit costs could come due all at once.

Actuaries use a complicated formula to produce such estimates annually, including inflation and mortality rates, trends in Medicare and pharmacy pricing and the discount rate used to value money over time.

“The so-called six-billion-dollar liability is not a true liability at all, it is simply an accounting entry,” Andrew Persich, Nassau’s budget director, said in a statement.

“The so-called six-billion-dollar liability is not a true liability at all, it is simply an accounting entry,” Persich said.

“The state of New York and Nassau County would have to go broke before this liability became actionable,” he said. “It is much ado about nothing which every municipality must record in their accounting records.”

Most municipalities aren’t authorized under any state law to set aside funds to cover the obligation, although state Comptroller Thomas DiNapoli has backed proposed state legislation to allow municipalities to create reserve funds to cover the other post employment benefits obligations.

 

New York State received “express statutory authority” in 2017 to set aside funding for state employees’ other post employment benefits, DiNapoli’s office said.

New York placed a first installment of $320 million into a retiree health benefit trust fund in March

The state is expected to deposit $320 million into the fund in 2023, and $375 million each year thereafter, according to the state’s financial plan.

The trust holds $4.6 billion, according to state officials.

According to the Government Finance Officers Association in Chicago, a professional organization of public finance officials, best practice for municipalities is to establish, “a qualified trust fund to prefund [Other Post Employment Benefit] obligations.”

Such obligations vary across the nation, according to a Pew Charitable Trusts report in 2018.

Forty-eight states that recorded the obligation had $696 billion in total nonpension retirement benefits for their employees in 2016, the report found.

Eight states funded 30% of their obligations, 11 funded between 10% and 29% while 10 states had less 10% of the expense set aside.

Nineteen states had no funding set aside for the expense.

Auditors began paying closer attention to the trajectory of other post-employment benefits over the past decade.

In 2004, the Governmental Accounting Standards Board, which sets generally accepted accounting principles for state and local governments, required states and some municipalities to report the amount of the obligations in their year-end financial reviews.

It’s similar to how pension liabilities are recorded in budget documents. That means totaling the benefits “accrued during an employee’s entire period of service,” according to DiNapoli’s office.

According to the accounting board, the method provides a, “more comprehensive, easily understandable snapshot of a government’s financial position at a given moment in time. Without it, users are left with an incomplete picture.”

If the other retirement benefit expense increases, municipalities’ bond ratings could suffer, leading to higher borrowing costs, DiNapoli’s office has said.

Adam Barsky, chairman of the Nassau Interim Finance Authority, a state board that controls Nassau County’s finances, called the county’s obligation for such benefits, a “six billion-dollar, ticking time bomb.”

Barsky has cited the obligation as among the reasons NIFA hasn’t lifted Nassau’s “control period,” which since 2011 has given NIFA the authority to approve or reject county budgets and labor agreements.

“It’s a huge number that’s out there, $6 billion … ,” Barsky told Newsday.

As it grows, “it starts to compete with resources that could be used for current expenses,” Barsky said.

“Either county services will have to be diminished as resources get diverted to pay for post-retirement benefits, or taxes will have to go up exponentially,” he said.

In 2021, Nassau paid $163.1 million for retiree health benefits — $136.3 million for health insurance premiums, $26 million for Medicare reimbursement and $794,043 for vision insurance, according to the county Comptroller’s Office.

In Suffolk, the county pays 100% of retiree health care benefits on a pay-as-you-go basis, according to the comptroller’s office.

Suffolk County paid an average $16,800 per employee in 2021, and $411 million total in other post-employment benefits, officials said. By comparison, the bill totaled $378 million in 2018.

Nassau County covers health care for 8,005 current employees, and 11,260 retirees or their beneficiaries, according to the state Department of Civil Service, which administers the New York State Health Insurance Program, in which county workers and retirees are enrolled.

Suffolk’s plan covers 8,724 current employees and 11,046 retired employees and their beneficiaries.

DiNapoli said New York counties’ obligations are “significant and growing.” 

Municipalities such as Nassau and Suffolk have been covering benefits costs “on a pay-as-you go basis,” DiNapoli told Newsday.

“But when you look at the increasing longevity and life span of employees, there’s no doubt that folks who retire today from public service, many of them are going to live well into their 90s,” DiNapoli said. “And as we know, the older you get, the more you’re going to access the health care benefits.”

DiNapoli argued, “to just wait for these costs to continue to grow and not put money aside in reserve to be able to manage and pay for those costs, in the long run, that could be disruptive to sound financial planning, and in the long run, could cost more.”

He continued: ” If it’s a ballooning expense, and if you haven’t put anything aside to help deal with it, it’ll crowd out money that perhaps people would want to see spent on other programs, or on tax relief, or whatever competing interests may be out there.”

Suffolk County Comptroller John Kennedy Jr. said the post-employment “number is an important number to continue to report out and be mindful of, but it is predicated on a 30-year projection.”

Overall, the “cost of care is going up. This does have the potential to become an ever-increasing liability for us, and it is something that will reflect ever-increasing portions of our budget,” Kennedy told Newsday.

Nassau and Suffolk counties owe a total of $13.1 billion for retiree health care benefits, an obligation that is expected to balloon further over time, government officials and experts said.

The obligation, known as “Other Post Employment Benefits,” was $6.6 billion for Nassau and $6.5 billion for Suffolk at the end of 2021, according to calculations by the two county comptrollers.

The counties’ total obligation has increased by $2 billion since 2017, county records show.

Pension benefits aren’t included in the projections.

WHAT TO KNOW

  • Nassau and Suffolk counties owe a total of $13.1 billion for retiree health care benefits, an obligation that is expected to balloon further over time.
  • The $13.1 billion obligation — $6.6 billion in Nassau and $6.5 billion in Suffolk — has jumped by $2 billion since 2017, county records show.
  • The projections estimate what counties will owe retirees and their eligible dependents and survivors over the course of individuals’ lives for benefits such as health care, disability and life insurance.

Government watchdog groups and independent auditors say they are growing increasingly concerned about the potential for retiree, excluding pensions, to overwhelm municipal budgets in New York.

They said municipalities eventually could lack the funds to keep pace with the obligation, as employees or their beneficiaries continue to live longer, and health care costs grow.

If the expense were to grow exponentially, governments could need to increase taxes or cut services, experts warned.

Thad Calabrese, a professor at NYU’s Robert F. Wagner Graduate School of Public Service, told Newsday when municipalities such as Nassau and Suffolk began to award such benefits to employees years ago, “they were cheap.” 

“And over time, they become more expensive … ,” he said, citing subsequent contracts with employee unions.

Calabrese, who teaches public and nonprofit financial management, continued: “These are significant amounts of money that the governments have to raise every year, and then pay out every year to beneficiaries. In doing so, they are then unable to use that money for other pressing issues.”

The projections aren’t exact, and officials said it’s unlikely the benefit costs could come due all at once.

Actuaries use a complicated formula to produce such estimates annually, including inflation and mortality rates, trends in Medicare and pharmacy pricing and the discount rate used to value money over time.

“The so-called six-billion-dollar liability is not a true liability at all, it is simply an accounting entry,” Andrew Persich, Nassau’s budget director, said in a statement.

“The so-called six-billion-dollar liability is not a true liability at all, it is simply an accounting entry,” Persich said.

“The state of New York and Nassau County would have to go broke before this liability became actionable,” he said. “It is much ado about nothing which every municipality must record in their accounting records.”

Counties can’t rely on reserve funds

Most municipalities aren’t authorized under any state law to set aside funds to cover the obligation, although state Comptroller Thomas DiNapoli has backed proposed state legislation to allow municipalities to create reserve funds to cover the other post employment benefits obligations.

 

New York State received “express statutory authority” in 2017 to set aside funding for state employees’ other post employment benefits, DiNapoli’s office said.

New York placed a first installment of $320 million into a retiree health benefit trust fund in March

The state is expected to deposit $320 million into the fund in 2023, and $375 million each year thereafter, according to the state’s financial plan.

The trust holds $4.6 billion, according to state officials.

According to the Government Finance Officers Association in Chicago, a professional organization of public finance officials, best practice for municipalities is to establish, “a qualified trust fund to prefund [Other Post Employment Benefit] obligations.”

Such obligations vary across the nation, according to a Pew Charitable Trusts report in 2018.

Forty-eight states that recorded the obligation had $696 billion in total nonpension retirement benefits for their employees in 2016, the report found.

Eight states funded 30% of their obligations, 11 funded between 10% and 29% while 10 states had less 10% of the expense set aside.

Nineteen states had no funding set aside for the expense.

A “ticking time bomb”

Auditors began paying closer attention to the trajectory of other post-employment benefits over the past decade.

In 2004, the Governmental Accounting Standards Board, which sets generally accepted accounting principles for state and local governments, required states and some municipalities to report the amount of the obligations in their year-end financial reviews.

It’s similar to how pension liabilities are recorded in budget documents. That means totaling the benefits “accrued during an employee’s entire period of service,” according to DiNapoli’s office.

According to the accounting board, the method provides a, “more comprehensive, easily understandable snapshot of a government’s financial position at a given moment in time. Without it, users are left with an incomplete picture.”

If the other retirement benefit expense increases, municipalities’ bond ratings could suffer, leading to higher borrowing costs, DiNapoli’s office has said.

Adam Barsky, chairman of the Nassau Interim Finance Authority, a state board that controls Nassau County’s finances, called the county’s obligation for such benefits, a “six billion-dollar, ticking time bomb.”

Barsky has cited the obligation as among the reasons NIFA hasn’t lifted Nassau’s “control period,” which since 2011 has given NIFA the authority to approve or reject county budgets and labor agreements.

“It’s a huge number that’s out there, $6 billion … ,” Barsky told Newsday.

As it grows, “it starts to compete with resources that could be used for current expenses,” Barsky said.

“Either county services will have to be diminished as resources get diverted to pay for post-retirement benefits, or taxes will have to go up exponentially,” he said.

In 2021, Nassau paid $163.1 million for retiree health benefits — $136.3 million for health insurance premiums, $26 million for Medicare reimbursement and $794,043 for vision insurance, according to the county Comptroller’s Office.

In Suffolk, the county pays 100% of retiree health care benefits on a pay-as-you-go basis, according to the comptroller’s office.

Suffolk County paid an average $16,800 per employee in 2021, and $411 million total in other post-employment benefits, officials said. By comparison, the bill totaled $378 million in 2018.

Nassau County covers health care for 8,005 current employees, and 11,260 retirees or their beneficiaries, according to the state Department of Civil Service, which administers the New York State Health Insurance Program, in which county workers and retirees are enrolled.

Suffolk’s plan covers 8,724 current employees and 11,046 retired employees and their beneficiaries.

Benefits obligations “significant and growing”

DiNapoli said New York counties’ obligations are “significant and growing.” 

Municipalities such as Nassau and Suffolk have been covering benefits costs “on a pay-as-you go basis,” DiNapoli told Newsday.

“But when you look at the increasing longevity and life span of employees, there’s no doubt that folks who retire today from public service, many of them are going to live well into their 90s,” DiNapoli said. “And as we know, the older you get, the more you’re going to access the health care benefits.”

DiNapoli argued, “to just wait for these costs to continue to grow and not put money aside in reserve to be able to manage and pay for those costs, in the long run, that could be disruptive to sound financial planning, and in the long run, could cost more.”

He continued: ” If it’s a ballooning expense, and if you haven’t put anything aside to help deal with it, it’ll crowd out money that perhaps people would want to see spent on other programs, or on tax relief, or whatever competing interests may be out there.”

Suffolk County Comptroller John Kennedy Jr. said the post-employment “number is an important number to continue to report out and be mindful of, but it is predicated on a 30-year projection.”

Overall, the “cost of care is going up. This does have the potential to become an ever-increasing liability for us, and it is something that will reflect ever-increasing portions of our budget,” Kennedy told Newsday.

Retiree health care, disability and life insurance obligations

Nassau County

2021: $6,580,900

2020: $6,311,284

2019: $5,207,599

2018: $6,317,941

2017: $5,623,397

Suffolk County

2021: $6.543 billion

2020: $6.901 billion

2019: $5.996 billion

2018: $5.116 billion

2017: $5.575 billion

Source: Nassau and Suffolk County Annual Comprehensive Financial Reports

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