Michigan Counties OPEB Liabilities

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1 Michigan Counties OPEB Liabilities Where Do They Stand? November 8, 2010 Eric Lupher, Director of Local Affairs / elupher@crcmich.org

2 Citizens Research Council of Michigan Founded in 1916 Statewide Nonpartisan Private not-for-profit Promotes sound policy for state and local governments through factual research Relies on charitable contributions from Michigan foundations, businesses, organizations, and individuals 2

3 The Fiscal Climate Ongoing recession Declining revenues: Headlee Proposal A Revenue Sharing Escalating health care costs Increasing number of retirees Whether to pay for current services or legacy cost? 3

4 Health Care for Retirees When state and local governments began offering health care as a post employment benefit the cost was relatively insignificant Historically accounted for the cost of OPEB on a cash basis Few governments put money aside in recognition of deferred cost Expense recognized as current expense in each year 4

5 New Accounting Rules In 2004, GASB issued Statements 43 and 45, creating guidelines for OPEB accounting on an accrual basis 3-year phased implementation ( ) by size of the local government s total revenues is now complete Advantages: transparency, accuracy, ability to pay certainty Disadvantages: weakened reported financial position 5

6 Policy Issues How many county governments offer full health care benefits to retirees as OPEB? What is the looming cost of those promises? What actions are being taken to address this issue? 6

7 Do all counties provide OPEB? Saginaw County survey 29 counties full retiree health care benefits 15 counties limited retiree health care benefits 39 counties no retiree health care benefits 7

8 29 of 83 Michigan counties offer full retiree health insurance 8

9 The Data Citizens Research Council survey: Concentrated on 29 counties that offer full retiree health care benefits Supplemented with other counties that provide partial/limited or no health care benefits Supplemented survey data with counties comprehensive annual financial reports (CAFRs) and budgets 9

10 Fewer Workers More Retirees Finding: Ratio of active to retired employees has decreased over time Aging of Baby Boomers Efficiencies in office and general operations No correlation between size of government and ratio Average 2009 ratio for surveyed counties is 1.8:1 10

11 Ratio of Active to Retired Employees in MERS,

12 Ratio of Retired to Active County Employees County Resident Population Active Employees Retired Employees Ratio of Active to Retired County Employees Oakland 1,203,042 3,101 2, :1 Macomb 829,436 2,142 1, :1 Ingham 278,285 1, :1 Kalamazoo 244, :1 Saginaw 202, :1 Jackson 161, :1 Monroe 153, :1 49, :1 Newaygo 12

13 Ratio of Retired to Active County Employees Ratio of Active Active Employees Retired Employees 10,788 6, :1 Partial/Limited Health Care Benefits 1, :1 No Health Care Benefits 2, :1 Total Surveyed Counties 14,616 7, :1 Full Health Care Benefits to Retired Employees 13

14 Employee Health Care Cost Active > Retired Health care costs as a percent of General Fund: Average of 11% for active employees Average of 4% for retired employees Contributions to health care costs Average of Active employees pay 10% Average of Retired employees pay 11% Active employees pay a larger nominal amount than retired employees 14

15 Costs to the Counties of Health Care for Active and Retired County Employees County Expense for Active Employees Active Employees as Percent of General Fund Expense for Retired Employees Retired Employees as Percent of General Fund Ingham $8,878, % $2,268, % Jackson $4,654, % $3,183, % Marquette $2,332, % $1,638, % Midland $2,628, % $1,182, % Oakland $37,563, % $20,012, % Saginaw $7,160, % $4,396, % 15

16 Defraying the Cost for Active Employees Effort to have active employees assume more of the cost of their health care benefits Most costs still borne by county governments Ingham County stands out with health care costs for active employees split 50/50 16

17 Distribution of Health Care Costs for Active Employees County County Contribution Active Employees Contributions Percent of Cost Paid by the County Ingham $8,878,032 $8,893, % Jackson $4,654,654 $404, % Kalamazoo $6,185,109 $643, % Midland $2,628,483 $128, % Oakland $34,200,000 $3,600, % Saginaw $7,160,555 $707, % 17

18 Defraying the Cost for Retired Employees Same type of effort to have retired employees assume more of the cost of their health care benefits Again, most costs still borne by county governments Again, Ingham County stands out with health care costs for active employees split roughly 50/50 18

19 Percent of Health Care Costs for Retired Employees Paid by Counties County County Contribution Retired Employees Contributions Percent of Cost Paid by the County Ingham $2,268,188 $2,410, % Jackson $3,183,000 $17, % Kalamazoo $3,010,461 $292, % Midland $1,182,368 $74, % Oakland $20,012,863 $105, % Saginaw $4,396,757 $207, % 19

20 Vesting + Medicare Coordination = Cost Savings While specific vesting requirements vary widely, 85% of counties require a threshold number of years of employment and age of retirement 82% of counties surveyed coordinate benefits with Medicare at age 65 Change benefits to be based on Medicare copays and/or deductibles Decrease benefits Eliminate benefits 20

21 Age Requirements Related to Retirement County Enforced Medicare Coordination? 8 Gen l Empl 25/30 Sheriff 30 Other Bay Jackson Minimum Years of Service Minimum Age of Retirement 60 Gen l Employees 55/0 Sheriff 55 Other Yes 21 Kalamazoo Yes 8 Gen l Empl and Other 10 Sheriff Midland Yes or total of 85 Oakland Yes 25 55/60 Gen l Employees No min. Sheriff s Employees Saginaw Yes if hired before 2009, 60 if hired after

22 Closing Retiree Health Care Plans About 1/3 of counties have stopped offering retiree health care benefits to new hires A long-term, not short-term, cost saving strategy Given the political difficulty, staggering plan closings among unions may be most feasible 22

23 Retiree Health Care Plans Open vs. Closed County Open to New Hires? Date Closed Active Employees in Closed Plan Charlevoix No Marquette No Midland No Monroe No Newaygo No Oakland No ,933 Saginaw No

24 ARCs Significant and Unfunded On average, the ARC is 8.4% of the General Fund budget 2/3 of counties surveyed attempt to pre-fund their ARC Counties that pre-fund usually do so regularly and are more likely to fully fund On average, counties paid 51% of ARC in

25 Pre Funding OPEB County Pre-Funds OPEB? Pre-Funding Basis Percent of ARC Funded in 2009 Ingham Yes Regular 6% Jackson No Kalamazoo Yes Regular 75% Marquette Yes Intermittent 41% Midland Yes Regular 33% Oakland Yes Regular 100% Saginaw No 73% 50% 25

26 Balancing Legacy Costs with Operating Costs 2009 ARC as a percent of Total Budget 0.2% in Clare County 13.3% in Midland County 2009 ARC as a percent of General Fund Budget 0.5% in Barry County 22.2% in Marquette County 26

27 OPEB Annual Required Contribution vs. Budget County Payment of Annual Required Contribution Ingham $6,309,871 $204,355, % $79,845, % Jackson $5,124,605 $66,819, % $41,618, % Kalamazoo $4,267,777 $85,598, % $64,206, % Marquette $4,865,272 $46,831, % $21,906, % Midland $3,689,109 $27,729, % $17,593, % Oakland $47,500,000 $762,233, % $383,199, % Saginaw $9,074,989 $151,873, % $44,003, % Total Budget ARC as percent of Total Budget General Fund Budget ARC as Percent of General Fund Budget 27

28 Finding: Insufficient Actuarial Value of Assets No county has amassed sufficient assets to cover its Actuarial Accrued Liability Clinton County is in the best position with 53% of the necessary assets 28

29 Actuarial Value of Assets vs. Actuarial Accrued Liability Actuarial Accrued Liability Actuarial Value of Assets as a percent of the Actuarial Accrued Liability County Actuarial Value of Assets Bay $22,302,000 $145,746, % Clinton $3,647,447 $6,830, % Eaton $3,870,082 $36,472, % Ingham $5,100,000 $79,274, % Jackson $2,955,983 $67,867, % Kalamazoo $5,934,587 $74,753, % Macomb $77,353,942 $595,309, % Midland $15,585,217 $45,736, % Monroe $26,350,668 $87,155, % Oakland $425,500,000 $818,900, % Saginaw $11,544,398 $98,501, % 29

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