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February 2, 2010

PACC looks for solution to $93 million liability



By Sherry Koonce

The News staff writer

Faced with a staggering $93 million dollar liability for retiree’s current and future health care benefits, Port Arthur City Council members on Tuesday said they knew something had to be done, and quickly, to bring the cost down.

That something very likely will be as radical as it is painful, Morris Albright II, District 2 city councilman, said.

At a workshop session, the City Council was presented with the latest figures associated with providing retiree health insurance at a subsidized rate.

“For this city, and most others, historically, the contribution to retiree health insurance was viewed as a minor additional cost,” Becky Underhill, co-assistant city manager, said.

Over the years, an increasing retiree population and soaring health care costs combined to dramatically impact the liability, and put Port Arthur in a tenuous position, Underhill said.

New accounting standards instituted by the Government Accounting Standards Board now require the liability be reported on cities’ books. Municipalities not complying would risk losing a favorable bond rating.

In an effort to decrease the liability, the city in September opted to unblend health insurance premiums paid by current and retired employees. In the process, retirees will pay a higher share of the premium while the action whittles down the city’s annual contribution toward the $93 million liability.

The shift will save the city an estimated 25 percent on the projected liability. The measure, is a first step toward decreasing the liability.

Harvey Robinson, former HR manager and assistant city manager, attended Tuesday’s workshop, and voiced concerns about whether the unblending of plans was legal, and why it took the city so long to start addressing the liability.

“I agree we do have an enormous problem we need to deal with,” he said. “My primary concern today is talking about 70 employees that have an earned benefits rate. I expect for you to continue that,” he said.

City Manager Steve Fitzgibbons said a prominent pension and employee benefits firm hired to study whether it was legal to make the changes in retirees health plans, had determined the city was on firm legal ground.

Underhill said GASB cannot require the city to fund the liability. If the City Council chooses to continue to provide the same level of benefit, with no funding, the liability will only increase over time and erode the city’s overall financial strength.

“The longer we take to make any change, the more expensive it is going to be,” Underhill said. “There is no law that says you have to fund it. You can just let it grow and grow and grow.”

Underhill said city staff will continue to study the issue and come back with recommended plan changes by late spring or early summer. The funding plan should be presented in time to be adopted and implemented by the 2010-2011 budget cycle.

“The Council must understand that this is a real financial issue,” Underhill said. “During recent bond review, both Moody’s and Standard and Poor’s expressed concern over the of our liability. We assured them that the City was evaluating the liability and methods of reducing it, and would have a funding plan in the next budget.”

skoonce@panews.com

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