Just when you thought things could not get any worse in New York, they do. A new report by the Empire Center for New York State Policy shows that New York's state and local governments have promised their employees $205 billion in retiree health benefits, but have not set aside any of the funds necessary to pay for those benefits.
"New York taxpayers spend billions of dollars a year on health insurance coverage for retired state and local government employees, many of whom are too young to be eligible for Medicare," the report states. "But the mounting “pay-as-you-go” bill for retiree healthcare is just the tip of a much larger iceberg. Now, thanks to a new government accounting standard, the true cost of this long-term entitlement is finally emerging from the murky depths of state and local finances."
The report finds that for New York City, the largest local governments and school districts outside New York City and the largest public authorities, the unfunded liabilities total $165.3 billion. For all other local governments and school districts in New York State, the unfunded liabilities amount to an estimated $39.7 billion.
While New York does not have to come up with the $205 billion right away, the huge cost could be unsustainable over the long term. New York's state and local governments have not shown much willingness to reduce benefits or take other measures necessary to bring the costs of the health benefits under control. The rising cost of health care could reach a level above what the state can afford, leading to a default on the benefits. The prospect of what a default might mean for the state and taxpayers in terms of litigation, higher taxes, loss of benefits, and turmoil in municipal bond markets, is worrisome.
At some point, New York's state and local governments have to get serious about reforming public employee benefits. Hopefully, this report will get them thinking about it sooner rather than later.