Fairfax Faces Crunch In Retiree Benefits
Thursday, February 7, 2008
Fairfax County, facing huge costs for health-care benefits promised to current and future retirees, is considering pooling some of its investments with other local governments in Virginia to economize.
Fairfax is carrying a $395 million unfunded liability, the value of a future obligation that it doesn't have the money to meet, for retiree health care over the next 30 years. The county is not as deep in the hole as other state and local governments. Arlington County could owe $783 million; Maryland is facing a potential $2.6 billion bill.
It has been no secret that state and local governments face these long-term costs. But until recently, the numbers were quietly kept from public view. New accounting regulations imposed last year require localities to explicitly state the future cost of post-employment benefits (excluding pensions) such as medical care, life insurance and disability payments.
Fairfax has been setting aside money each year to deal with the funding gap, about $48 million to date. But state law limits counties to relatively conservative investments (Treasury bills, certificates of deposit) for money in its general operating fund. Last year, the General Assembly gave localities the authority to set up special trusts to place the money in higher-return investments, such as hedge and equity funds.
But county officials said they weren't happy with the administrative costs involved. Instead, they are proposing to collaborate with Henrico County and form an investment trust through the Virginia Association of Counties and the Virginia Municipal League.
With more latitude to invest, officials said, they could earn close to 7.5 percent on the money instead of three percent under the general fund. That would reduce the estimated liability over the next 30 years from $395 million to $191 million, Finance Director Robert L. Mears said.
If the county continues to set aside money, the balance would presumably continue to decline. Fairfax and Henrico counties are the sole members of the trust, which will be governed by a board of financial officials from each jurisdiction. The Fairfax schools system is considering the option, and officials expect other local governments to follow.
"It's going to be a very appealing option for other localities, especially smaller jurisdictions that don't have a lot of expertise in investments or trusts," said Deputy County Executive Edward L. Long Jr.
Long said the recent volatility of the stock market has not given him pause about the idea. "Everything runs in cycles," he said. "Over time, it's been well shown that things tend to equal out."
The Fairfax County Board of Supervisors is scheduled to have a public hearing on the investment trust proposal Feb. 25 at 3:30 p.m. at its regular public meeting in board chambers.