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Residents face $20b retiree health tab

Study finds most cities, towns don’t put enough aside

By Sean P. Murphy
Globe Staff / February 16, 2011

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Massachusetts residents face potentially devastating tax increases in the coming years to pay health insurance benefits for retired police, firefighters, and other municipal employees, according to a new study that finds the 50 largest cities and towns alone face a retiree health care bill of $20 billion over the next 30 years.

The Massachusetts Taxpayers Foundation study found that virtually no municipality is putting aside nearly enough money to pay the ballooning cost of health insurance promised to their retired employees, as well as those who will retire. If the biggest cities and towns wanted to set aside enough money in trust funds to cover future insurance costs, they would have to double their annual spending on health care, to about $1.5 billion.

“It’s the equivalent of a gigantic credit card debt which grows and grows the longer it is ignored,’’ said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded nonprofit research organization.

The Taxpayers Foundation yesterday released its first-of-its-kind report, which measures the size of the unfunded liability cities and towns face over the next 30 years for retiree health care benefits. The foundation based its findings on actuarial studies for each city and town looking at the long-term costs of paying health insurance benefits.

The Taxpayers Foundation determined that the 50 largest municipalities will need to pay an extra $20 billion for retiree health care than they have budgeted for. Boston has an unfunded health insurance liability of more than $4.5 billion over the next 30 years, the study found, which translates to $97,827 in extra tax payments for the average single-family homeowner over the 30 years.

“It’s shocking,’’ said Widmer. “We can’t pay for these kinds of benefits and at the same time provide basic service.’’

The city of Brockton’s unfunded health care liability is $700 million, which is seven times more than the city’s annual tax collections and equal to about 15 percent of value of all property in the city.

The city shucks out $20 million in health care premiums for its current retirees, but that’s only about half of what the city needs to create a fund for future health care costs. However, to spend money at that pace would require a boost in the average household tax bill from about $2,700 a year to almost $5,000, according to John Condon, city finance director.

“There’s no way that’s going to happen,’’ said Condon. “Do you think the taxpayers of Brockton are going to agree to pay thousands more in extra taxes for the kind of health care benefits that they don’t get on their own jobs?’’

To fix the problem, Condon said, “we have to hack away at the benefit.’’

Brockton is not alone. All of the 50 municipalities surveyed by the Taxpayers Foundation would require sizeable tax increases to fund their accumulated liabilities fully, ranging from a low of an 8 percent increase for Falmouth, to a high of a 255 percent for Lawrence.

Many municipal officials say that their costs are rising faster than in the private sector because municipalities have historically paid such a high percentage of the total insurance bill, requiring only small employee contributions. For generations, mayors and managers agreed to contracts with municipal unions covering 90 percent or more of premiums, with $5 copayments for office visits.

As medical inflation quickened after 2000, municipalities were forced to devote an ever-greater share of their budgets — in some cases 20 percent — to insuring workers, retirees, and elected officials.

Now, municipal funding of health care benefits has become one of the most contentious issues on Beacon Hill, pitting the state’s well-entrenched organized labor against a powerful coalition of city mayors and town managers, led by Mayor Thomas M. Menino.

Brad Tenney of the Professional Firefighters of Massachusetts yesterday said the cost of health care insurance was a tough issue for the public and private sector alike. But he pointed out that public employees often gave up pay and other increases in their contracts to get such favorable health care plans.

“We have been willing to compromise and continue to be,’’ he said. “We are dedicated to finding a comprehensive solution we can all live with.’’

Governor Deval Patrick showed little appetite to challenge labor leaders in his first term, but his newest budget proposal tackles the insurance issue head on. Patrick included a provision that would force municipalities to join the state’s less expensive health care insurance program, or create less expensive plans on the local level.

“There is a new fiscal reality,’’ said Jay Gonzalez, Patrick’s secretary of administration and finance. “I would expect legislation on health care to be passed in this session.’’

House Speaker Robert A. DeLeo, in a formal address to members last month, came out in favor of legislation to control municipal health care insurance benefits. Therese Murray, state Senate president, declined comment yesterday, but the new Senate cochairman of the committee that would review health insurance legislation said the foundation report is a call to action.

“This report underscores the need for change,’’ said Senator Katherine Clark, chairwoman of the Legislature’s Joint Committee on Public Service “We in the Senate are hearing the urgency expressed out in the cities and towns. They are fighting to preserve critical basic services.’’

Sean P. Murphy can be reached at smurphy@globe.com.