Score: 0 (0/1/0)
Contra Costa County Grand Jury • 2008-2009

To Contra Costa County Board of Supervisors School Boards City Councils District Boards

Published: June 30, 2008 8 pages
View Original PDF

Findings and Recommendations 16 findings

F1
Retiree health benefits have traditionally been a form of compensation earned by County and local government employees (e.g., pension income) over their working career, but paid to them over the years they spend in retirement. In prior years the cost of these benefits was usually recognized as an expense only when actual payments began following an employee’s retirement (This method of recognizing an expense is commonly described as “pay-as-you-go” or “paygo”.)
No recommendations for this finding
F2
GASB 45 now requires that larger governmental entities commence accounting for (but not necessarily funding) these benefits on an Accrual basis – during the employees’ period of active service when the benefits are actually earned.
No recommendations for this finding
F3
GASB 45 requires the following expenses to be recognized: • the current year’s cost to fund that year’s earned benefits, plus • the amount necessary to fund the unfunded OPEB liability for benefits earned but not funded in prior years. In most cases, these rules first became effective for public entities with revenues in excess of $100 million for the fiscal year ended June 30, 2008. Smaller public entities will be required to comply during the following two fiscal years.
No recommendations for this finding
F4
To date in Contra Costa County there has been little or no funding of the OPEB liabilities for most governmental entities offering retiree medical benefits, including County, school districts, cities, and special districts.
No recommendations for this finding
F5
Most larger County governmental employers provide their employees with extraordinarily generous retiree health benefits.
Related Recommendations (4)
R1
Option 1. Implement a new defined contribution type retiree healthcare program for employees hired after July 1, 2009. Under this type of plan, the government employer would contribute annually an agreed upon amount into each covered employee’s separate account. This contribution would grow with investment earnings until withdrawn. Each covered employee would be entitled, at retirement, to draw from this account. The amount withdrawn would be used to purchase a health insurance policy of choice. There would be no employer responsibility to make any payments to, or on behalf of, the retired employee following his/her actual retirement.
R2
Option 2. Freeze the employer-provided portion of the retiree health plan for currently covered active employees, regardless of age. Any future cost increases would be borne by employees when they commence to receive their retiree healthcare benefits. (With the concurrence of legal counsel, this action could also be adopted for current retirees by freezing the employer’s payment at their current premium rate.)
R3
Option 3. Require greater benefit or premium cost sharing from retirees. This could take the form of increases in program deductibles, co-pays, co-insurance and out-of-pocket maximums paid for by retirees, and/or it could require that retirees commence paying a larger portion of the insurance premium amounts.
R4
Option 4. Require retirees to pay all, or a portion, of the cost of dependent coverage. These options are not all inclusive and are intended to be illustrative only. Individual Contra Costa County governmental entities will arrive at different plan design solutions that they deem appropriate for their employee groups and financial situations. The important point is that benefits provided under retiree healthcare plans for most County governmental employees must be reduced.
F6
Property taxes accounted for almost 93% of Contra Costa County tax revenues in the most recent fiscal year with sales and other taxes making up the balance of total tax revenues received. These locally derived taxes also represented a significant portion of the revenue of school districts, cities and special districts located in the County.
No recommendations for this finding
F7
The Board of Supervisors of Contra Costa County has committed to a future OPEB liability funding schedule for the County, including a commitment to contribute $20 million during the 2008-2009 fiscal year. Although no actual payments were made into the County’s OPEB Irrevocable Trust as of January 31, 2009, $10 million is held by the County Treasurer in a designated account.
No recommendations for this finding
F8
As of January 1, 2008 the County’s OPEB obligation was determined to be $2.367 billion, or almost four times the County’s covered payroll (annual payroll of active employees covered by the plan) of $610 million. Its Annual Required Contribution for the fiscal year ended June 30, 2008 was $195 million, or almost 32% of covered payroll.
No recommendations for this finding
F9
The calculation to determine a liability for future payments is primarily dependent upon the interest rate assumption. If the interest rate assumption is higher then the liability is lower; if the interest rate assumption is lower, then the liability is higher. If no funding mechanism is in place, and there is no expectation of putting money aside, the rules under GASB 45 require that a lower interest rate assumption be used. The interest rate assumption that was used for the calculation of the OPEB liability and ARC for the fiscal year 2007-2008 was 4.5%. The basis for allowing the use of a higher interest assumption rate is that the entity will earn a rate of return on investments that can be used to help pay for the future benefits. Because the funding commenced with the current fiscal year, the assumed interest rate was increased to 7.75% in 2008-2009. The result of the assumed interest rate increase was the OPEB liability dropped from $2.3 billion to 1.7 billion, almost solely due to the interest rate assumption change.
No recommendations for this finding
F10
Based on information available to the Grand Jury, the current Actuarial Accrued Liability for OPEB benefits due to employees of all larger Contra Costa County local governmental entities, including those promised by the County, school districts, cities and special districts, now exceeds $3.1 billion. These liabilities are summarized and shown graphically as follows: Liabilities of Contra Costa County and Local Government Entities Contra Costa County $1,737,000,000 Contra Costa County School Districts 1,060,000,000 Contra Costa County Cities 199,000,000 Contra Costa County Special Districts 124,000,000 Actuarial accrued liability for OPEB benefits $3,120,000,000 Liabilities of CC County and Local Governments $3,500,000,000 $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 $500,000,000 $- Total County School Cities Special Liabilities Districts Districts
No recommendations for this finding
F11
Based on the same sources, the current Annual Required Contribution (ARC) and the actual expense recognized (generally the current year’s payment of health, dental and vision insurance premiums for retirees receiving benefits) are summarized as follows: Annual Required Contribution Contra Costa County $129,638,000 Contra Costa County School Districts 73,326,000 Contra Costa County Cities 21,199,000 Contra Costa County Special Districts 21,161,000 Total annual required contributions under GASB 45 $245,324,000 Annual Actual Expense Recognized (Actual Contributions) Contra Costa County $36,000,000 Contra Costa County School Districts 31,699,000 Contra Costa County Cities 6,986,000 Contra Costa County Special Districts 8,663,000 Total actual annual expenses paid for OPEBs $83,348,000 Annual Required Contributions Versus Actual Contributions $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $- County School Cities Special Districts Districts Required Actual
No recommendations for this finding
F12
As the summary numbers shown in Finding 11 indicate, County local governments are currently only paying 34% ($83,348,000 / $245,324,000) of the Annual Required Contribution set forth in GASB 45. This means that the unpaid balance of the Annual Required Contribution, ($245,324,000 - $83,348,000) $161,976,000, is being transferred to future taxpayers. This transfer to future taxpayers takes place every year.
No recommendations for this finding
F13
The 2007-2008 property tax revenue for the entire County was $2.077 billion. Projections are that this amount will decline significantly during the next several fiscal years because of the current widespread decline in property values.
No recommendations for this finding
F14
Larger Contra Costa County governmental entities with identified retiree healthcare plans are: • County: Contra Costa County • School Districts: Lafayette Elementary, Acalanes Union, John Swett Unified, Mt. Diablo Unified, Pittsburg Unified, San Ramon Valley Unified, West Contra Costa Unified and Contra Costa Community College. • Cities: Antioch, Brentwood, Concord, Martinez, Pittsburg and Richmond. • Special Districts: Central Contra Costa Sanitary, Delta Diablo Sanitary and East Bay Regional Parks.
No recommendations for this finding
F15
Recent information provided to the Contra Costa County Board of Supervisors makes clear that tax revenues and state support to the County are likely to decline for at least the next several years. This reduction in projected revenue has been currently offset by County Departments reducing their budgeted 2009-2010 full-time equivalent headcount by 191 public safety, health care and social services positions. If the County were to commence fully funding its ARC, its only practical source of near term future funding would be to further lower its staffing levels.
No recommendations for this finding
F16
On May 6, 2008, the Contra Costa County Administrator presented the following challenge to the Board of Supervisors: “The ever growing health care expense demand on the general fund will consume our ability to provide public services. Given the size of our liability, we cannot responsibly eliminate enough programs to fund our current health care programs; we must contain and change the County’s cost of health care.” CONCLUSIONS A number of County governmental entities do not offer their employees retiree healthcare benefits. Moreover, in a few cases local governments have substantially funded those benefits. The conclusions and recommendations contained in this report do not pertain to them. A significant number of the larger governmental entities in the County offer very generous retiree healthcare benefits, and most have provided little or no funding to pay for those benefits. These local governments must adopt a new paradigm – a new framework to deal with this issue. Given the present economic environment facing Contra Costa County government entities, funding the accumulated and accruing benefits under these plans is not a realistic option. The Grand Jury concurs with the inherent solution to the challenge made by the County Administrator to the Board of Supervisors on May 6, 2008 - the only practical solution for both the County, and other affected County governmental entities, is to reduce the benefits offered under these programs. The plan documents, plan descriptions and underlying legal documents differ widely. Retiree healthcare benefits are frequently subject to collective bargaining. Consequently, each separate governmental entity will have to consult with its own counsel and advisors to determine what design changes should be made or negotiated for its various employee groups. A “business-as-usual” position with respect to continuing to offer the same retiree health plans is not a sustainable strategy.
No recommendations for this finding

Conclusions 2

Agency Responses 1

Government agencies' official responses to this report's findings and recommendations. Click on a response to see the structured breakdown.

No Responses Found 17

Government entities assigned to respond to this report. No response documents have been linked in our database.

Acalanes Union High School District School District
Antioch City
Brentwood City
Byron Sanitary District (Contra Costa) Special District
Central Contra Costa Sanitary District (Contra Costa) Special District
Concord City
Contra Costa Community College District School District
Discovery Bay West Parking District Other
John Swett Unified School District School District
Lafayette Elementary School District School District
Martinez City
Mt. Diablo Unified School District
Pittsburg City
Pittsburg Unified School District School District
Richmond City
San Ramon Valley Unified School District School District
West Contra Costa Unified School District School District