Transparency—Shedding Light on Government Activities I: How Will Maine Afford Retiree Health Care Benefits for State Employees and Public School Teachers?

Read the full report | Maine is abuzz with the recent news that the state government’s budget deficit has doubled from $95 million to $190 million.  While legislators frantically try to plug this hole in the ship, a much larger iceberg looms in the distance—the funding of retiree health care for Maine’s state employees and public school teachers. In fact, retiree health care will be one of the fastest growing parts of the state budget skyrocketing by a projected 155 percent from fiscal years 2007 to 2016.[1] The best solution for Maine taxpayers would be to reduce the promised level of retiree health care benefits—a necessary step many states have already taken.

Amazingly, only a few years ago, Maine state government was blissfully unaware of this enormous expense because it was under no requirement to calculate the future cost of retiree health care benefits for state employees. Since June 2004, however, the Government Accounting Standards Board (GASB) now requires states to estimate the cost of these types of benefits—technically known as “Other Post-Employment Benefits (OPEB)”. The ruling itself is called GASB 45.

Unfortunately, GASB 45 has brought more bad news to Maine’s taxpayers. According to the report commissioned by Maine state government to comply with GASB 45, Maine has promised to pay its state employees and teachers $4,756,000,000 in retiree health care benefits. Overall, there are three basic ways to deal with this expense: (1) “pay-as-you-go” (PAYGO); (2) enact a pre-funding plan; or (3) reduce benefits…