The union that represents California Highway Patrol officers did something remarkable the other day, something other public employee unions in the state should take note of. It agreed to trim members' pay by 0.5 percent, give up another 0.5 percent in raises approved for this year and forgo an additional 2 percent hike due in 2010, and to redirect those funds to begin prepaying the cost of their members' health care in retirement. The state agreed to match the employee contributions but won't make its first contribution until 2012.
This is not a done deal yet. Some 6,100 or so CHP officers still have to ratify the changes. If they do — and they are expected to — they will be the first state employees to take steps to address California's $48 billion unfunded liability for retiree health care. That's a very good thing.
In recent months, with so much attention focused on the state's immediate budget problems, the looming retiree health care funding crisis has been largely ignored.
Unlike public employee pensions, which are financed in part by investment earnings, retiree health care has not been pre-funded. It has no investment earnings to draw upon. The state pays for retiree health costs on a pay-as-you-go basis. As more and more baby boomers retire and health care costs continue to outstrip inflation, retiree health has become one of the fastest growing items in the budget, rising at a rate of 10 percent a year on average. Last year alone, it cost taxpayers $1.3 billion.
One way to stem the upward spiral is to create a fund that can be invested, with earnings from those investments eventually made available to help reduce the state's retiree health care payout.
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