Council wants trust fund for retiree medical costs

Council wants trust fund for retiree medical costs

Michele Ellson

Members of the City Council said they want to set up a trust fund to help cover the city’s $86.4 million retiree health care liability. They just need to find money to put into it.

Funding ideas put forward by council members included savings from rolling blackouts of libraries and parks, unexpected windfall money and revenues from development at Alameda Point; additional suggestions could come from the city’s employee unions, whose leaders City Manager John Russo plans to engage on the issue over the rest of the summer.

“The goal is to have a plan, to put the city on a footing to follow this plan, rather than kicking the can down the road,” Mayor Marie Gilmore said.

City staffers said they’ll come back with more information about a trust fund in the fall.

City staffers offered a list of potential solutions to address the city’s retiree health care costs, several of them directed at reducing benefits for future workers. The list of options also includes asking workers to help pay down the liability or to accept a limit on benefits for retirees’ spouses. Another option: Setting up a voluntary buyout program for retirees that would be funded by bonds, similar to one conducted by Beverly Hills.

Council members only offered opposition to one of the nine suggestions offered: Reducing benefits for public safety retirees to the minimum amount now paid to cover benefits for non-safety workers. They said they want more information about the pluses and minuses of the solutions offered by staffers, and the potential savings each could produce; that information could also be presented in the fall.

City Manager John Russo said he didn’t think solutions would be ready for council sign-off until next spring.

City Treasurer Kevin Kennedy, who has long pushed the council to address Alameda’s growing retiree health care costs, said the city needs to negotiate with employee unions to reduce existing benefits.

“The scary thing is, if you never hired another employee, it does nothing to that liability,” Kennedy said. “The only way you directly impact that liability is by impacting the benefits of current employees, and that’s a very difficult thing.”

Gilmore said the city would seek to negotiate solutions with unions, rather than imposing them unilaterally, while Russo said that he thinks the city’s good relationships with its unions will make that possible.

“If we can do this in a way that it’s a little bit here and a little bit there, I’m absolutely confident that we can show a program that’s above and beyond anything our neighbors can construct,” Russo said.

City leaders began discussing ways to address retiree health costs in 2008, as Alameda, like other cities, began reporting those costs under new accounting rules. While council members agreed then they needed to start paying the liabilities down, no action was taken.

“We don’t have any money to fund this. That’s why we haven’t funded it,” Kennedy said Tuesday.

Currently, the city pays its annual tab for retiree benefits, which was $2.4 million in 2011-2012, though the city should have paid all of the liability accrued for that year – estimated at $7.6 million.

Councilman Tony Daysog asked that park and library closures be considered and the savings directed into the trust fund, while Vice Mayor Marilyn Ezzy Ashcraft suggested banking windfalls to pay the costs and Gilmore, using Alameda Point revenue.

Alameda’s public safety unions agreed in 2011 to a reduction in benefits for new employees; they jettisoned health benefits for future retirees’ spouses, and those workers won’t qualify for the benefits until they have worked for the city for a decade. The city’s bill for covering public safety retirees’ benefits is about ten times that of non-safety retirees.

Separately, unions representing all of the city’s workers also agreed to start shouldering a portion of premium increases.

Councilwoman Lena Tam said the city lost a lawsuit filed by its police union in the 1990s after city leaders sought to modify existing retirees’ benefits. Gilmore said she wants changes to existing retirees’ benefits placed at the bottom of the list for consideration, while Councilman Stewart Chen said city staffers need to consider the difficulties older retirees may have in seeking affordable care.

But Kennedy said a pair of cities that have declared bankruptcy – Stockton and Vallejo – slashed their retiree medical benefits. And three counties are in court with their retirees over proposed benefit caps.

Russo said he’s asked City Attorney Janet Kern to draft a memo on the legal landscape for such changes, though he said that would be a low priority and “we’re not going to be breaking any ground in that area.”

Besides saving money, a plan to address retiree health costs could help the city improve its bond rating, something that could prove critically important as the redevelopment of Alameda Point proceeds and bonds sought to fund utilities and roads there.

Related: Council considers cost cuts for retiree medical care