Duluth mayor reports progress on retiree health care liabilityActuarial reports don’t usually make for the most exciting news, but Duluth Mayor Don Ness eagerly called a news conference Thursday morning to talk about his administration’s continued progress in driving down a massive financial liability that, he said, threatened to bankrupt the city unless it was addressed.
By: Peter Passi, Duluth News Tribune
Actuarial reports don’t usually make for the most exciting news, but Duluth Mayor Don Ness eagerly called a news conference Thursday morning to talk about his administration’s continued progress in driving down a massive financial liability that, he said, threatened to bankrupt the city unless it was addressed.
Duluth continues to face a $182 million unfunded liability related to obligations it has made to former municipal employees. But the size of that obligation has been shrinking for the past nine years, thanks to a restructuring of benefits and a court ruling that upheld the city’s right to move retirees to a health insurance plan consistent with what it offers employees today.
Since 2005, when the city was saddled with an unfunded liability of about $280 million in retiree benefits, that financial obligation has since been reduced by about 35 percent.
Left unchecked, the city’s unfunded liability was projected to grow and was on course to reach an estimated $405 million by 2013.
Ness conceded that shifting retirees and their spouses to a single unified health plan has produced some ill will.
“(But) I’ve also talked to retirees who are grateful for the benefits they receive, and they’re thankful the city is on a sustainable path, because we weren’t before.”
Ness noted that some other cities faced with mounting retirement liabilities have sought bankruptcy protection as a means to shed costs.
“We took a more proactive approach, and we now feel confident we’ll be able to provide these benefits going forward,” he said.
But David Montgomery, Duluth’s chief administrative officer, observed that meeting its obligations to past employees still will stretch the city’s finances.
He said the city now spends about $8.5 million per year on retiree benefits, and that annual expenditure is forecast to gradually climb and then crest in 2033 at more than $17 million before beginning to decline. Duluth’s costs associated with retirement benefits should wane over the long haul, as new city employees are being offered defined contributions to medical savings accounts that they can then use to purchase their own insurance in retirement. The city is no longer making open-ended commitments to provide lifelong health coverage.
“We’re going to have to look at how we can reduce that peak,” Montgomery said of the 2033 cost projections.
Unless it can control its growing costs, Ness warned that the city could be forced to reduce the services it provides or to increase its revenue, most likely through higher taxes.
All told, the city now spends about $20 million annually on health care benefits, with a little more than 40 percent of that sum going to cover retirees.
To put that in perspective, health care now represents about 27 percent of Duluth’s total annual budget of roughly $75 million.
But former police chief Eli Miletich said the impact of retiree worker benefits was not as crippling as some claim.
“Why is he (Mayor Ness) harping on this subject now?” Miletich said. “The unfunded liability is basically a political myth.”