Capitol Weekly: City bankruptcies target retirees' health costs

Capitol Weekly: City bankruptcies target retirees' health costs

City bankruptcies target retirees' health costs

By Ed Mendel | 08/06/12 1:00 AM PST

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The cost of retiree health care promised state and local government employees, growing at a faster pace than more-publicized public pensions, has become a common target for cuts in a string of California city bankruptcies.

San Bernardino, which filed for bankruptcy last week, lists a $2.2 million savings from a deferred retiree health payment in a three-month fiscal emergency plan said to be needed to allow the city to make payroll.

In a lengthy bankruptcy that began in May 2008 and ended last November, Vallejo cut monthly retiree health care payments to $300 from as much as $1,500, saving an estimated $100 million over time.

Stockton, in a June bankruptcy, would end all retiree health care payments, citing overly generous and costly benefits: immediate eligibility, uncapped payments, less than half of retirees covered, and a cost equal to 31 percent of payroll for proper pre-funding.

Unlike pensions, there is no widely held view that promised retiree health care is a “vested right,” protected by contract law, under a long series of court decisions. Some think promised retiree health care can be cut, depending on circumstances.