Retirees' Costs Worry Officials

In 2004, the Governmental Accounting Standards Board, a little-known but influential nonprofit organization formed in 1984 to promote good fiscal management in the public sector, ruled that state and local governments had to calculate how much they will owe for retiree health care over the next 30 years, because that expense has an important effect on the government's financial position.

"Health care is a very expensive promise to provide, and the cost grows rapidly over time," said Dean Mead, research director for the Norwalk, Conn.-based group. "If you want to have a complete and accurate picture of a government's financial health, you can't ignore a big obligation like that."

The so-called GASB Rule 45 went into effect just this year for jurisdictions with more than $100 million a year in annual revenue. However, municipalities were given three years to adjust. Mead said GASB officials are aware it is causing a seismic shift in government accounting standards and could cause significant belt-tightening on retiree health benefits.

"The obligation is quite large in some cases," Mead said. "It's not a minor issue. It's not chicken feed."

Montgomery County's estimated health-care liability is high compared with other jurisdictions, but officials said it included not just the county and the public schools, as in the other communities, but also Montgomery College and the county's portion of the Maryland-National Capital Park and Planning Commission.

Arlington's obligation is higher than other Northern Virginia jurisdictions, Carlee said, because the county offers "a more generous retiree benefit" than others.

"Some of us are very generous in trying to maintain a continuity of health care and some don't do a thing," he said.

J. Walter Tejada, vice chairman of the Arlington board and a candidate for a board seat, said residents should not be worried about whether the county will be able to pay and said officials are planning how to handle the situation.

"We have a track record of paying our bills," he said.

Though governments have agreed to follow GASB's standards when preparing their financial statements, some governments have rebelled at adding the big number to their financial statement calculations. In Texas, legislators angry over the rules said governments didn't need to follow them. Connecticut created an alternative rule-making organization.

But bond-ratings agencies such as Moody's Investors Service, Fitch Ratings and Standard & Poor's have made it clear they expect local and state governments to take some action to show they have acknowledged the full liability and are trying to make sure their budgets are balanced. San Diego, for example, has eliminated health benefits for some city employees; North Carolina now requires new state employees to work for the state for 20 years instead of five years to receive health benefits in retirement.

Fairfax County has put aside $48.2 million toward its retirement health benefits, said Robert L. Mears, the county's director of finance.

"We've been way out ahead on this issue for years and carefully setting aside funding," he said. "We're comfortable in this first year of implementation."