Robbing future to pay present: Retiree benefits

By David McGrath Schwartz

Friday, April 11, 2008 | 2 a.m.

Among the victims of Nevada’s latest round of budget cuts will be the future generations who pay state employees’ retirement benefits.

The cuts announced Wednesday include $17.5 million the Legislature and Gov. Jim Gibbons had committed to reduce the state’s future bill for retiree health costs.

The budget reduction will increase the long-term bill for the state’s plan by far more than the $17.5 million saved in the short term, officials said, though by how much more is unclear.

The most recent estimate for the state’s unfunded liability for the program is $3.3 billion. But that estimate came after the state had committed to setting aside and investing $53 million to help defray future costs.

A new liability figure won’t be calculated until near the end of May, said Jon Hager, chief financial officer for the state’s Public Employee Benefit Program.

But the result of this week’s budget cut could be dramatic. In 2006, before the Legislature set aside the money to pay down future costs, the state’s unfunded liability was estimated at $4.1 billion. The $53 million commitment, however, reduced the state’s liability by $800 million.

State Sen. Bob Beers, R-Las Vegas, has a blunt explanation for the cut.

“Our grandchildren don’t vote,” Beers said.

The additional budget cuts announced Wednesday by Gibbons and legislative leaders rely heavily on deferring one-time budget expenses to deal with a $900 million-plus shortfall.

A spokesman for Gibbons said the decision to pull back some of the prefunding for retirees’ benefits was made to ease cuts in more immediate services.

“Obviously we have to balance long-term needs with immediate needs,” said Ben Kieckhefer, the governor’s spokesman. “We hope to go back to find additional funding when it’s economically feasible. Right now that $17.5 million really is needed to fill this current gap in the budget.”

Health benefits for retired government workers have become a national problem as people live longer and health care costs skyrocket. New accounting rules for governments require public agencies to report future costs, causing concern that Wall Street will downgrade credit ratings and make borrowing money more expensive.

But Kieckhefer said Gibbons’ office is confident the money already set aside will be sufficient to preserve the state’s credit rating.

State governments nationwide have pledged at least $2.73 trillion in pension, health care and other retirement benefits for employees, according to a study conducted by the Pew Charitable Trusts’ Center on the States.

“In the best of all possible worlds,” states should be setting aside money to invest to meet the future costs, said Richard Greene, the study’s co-author.

“We don’t live in the best of all possible worlds,” Greene said. “Frequently, rational decisions have to be made in any given year to take care of short-term needs versus defraying long-term liabilities.”