What's New

Zack Hutchins
Director of Communications

August 21, 2006

State’s liability for retiree health care: $47 billion

New York taxpayers "owe" an estimated $47 billion or more to cover health insurance for current and future state retirees, according to a preliminary report by a consultant to the state Budget Division.

The estimated obligation is included in the division’s first quarterly update to the state’s 2006-07 financial plan.

Under newly required accounting rules, state and local governments across the country are starting to estimate the cost of providing health coverage to retired public employees. Like most states, New York pays such costs on a year-to-year basis and has never calculated its total, long-term obligation to current and future retirees.

State officials expect to spend $1 billion this fiscal year on health insurance for retirees, and $1.6 billion for active employees. Those figures have risen steadily in recent years, and are expected to reach a combined $3 billion in 2008-09.

The Budget Division retained an actuarial consultant to estimate the present value of currently obligated, long-term coverage for retirees, absent any changes to such coverage.

"The preliminary analysis indicates that the present value of the actuarial accrued liability for benefits to date would be roughly $47 billion under two actuarial methods and $54 billion under another method," the division reported in its budget update.

Those estimates are nearly the same as Albany’s "net overall asset condition," or combined value of assets and liabilities, the Budget Division noted. The Office of the State Comptroller estimates the state’s net assets at $49.1 billion. That figure includes assets such as park lands, office buildings and cash holdings, along with debt, unpaid tax refunds and other liabilities, but excludes retiree health costs.

Counties, cities, school districts and other public employers in New York and across the country will be required to estimate their accumulated liability for retiree health-care costs in coming years. Governments with total annual revenues of $100 million or more must report such liability starting in 2007. Those with revenues of $10 million to $100 million must report starting in 2008, and smaller governments starting in 2009.

New York City officials have estimated the city's liability for retiree health care at $50 billion or more. Including other localities and school districts, the overall statewide cost for taxpayers may approach $250 billion.

The Budget Division's new report projects a $3.2 billion gap between expected spending and revenues for the fiscal year starting April 1, and a shortfall of $5.4 billion the following year. Those estimates do not include projected gaps in funding for the Health Care Reform Act program of $900 million in 2007-08 and $2.2 billion the following year.

Meanwhile, a report from the Nelson A. Rockefeller Institute of Government showed that New York’s tax revenues are rising faster than those in most states.

Albany’s overall tax revenue for the April-June quarter of this year was up 11.6 percent from the previous year, the Rockefeller Institute said. The average increase in all states’ tax revenues was 10.2 percent.