If the city of Duluth were to spend $20 million, most citizens would expect the city to first gain approval from the City Council. And yet, the city has, in effect, spent more than $20 million by doing nothing.
The unfunded liability for retired city employees' health care was $279.9 million when the Post Employment Health Care Benefits Task Force issued its report on Dec. 12, 2005. The report included 14 recommendations to solve the problem. The report also said that the cost of inaction was steep, that the liability had increased $100 million in the past three years alone.
On May 22, the City Council asked the task force to reconvene in order to assess how much progress has been made in implementing the task force recommendations. Its answer, released Monday in a report of several thousand words, can actually be boiled down to two words: Not much.
The report found that on July 1 the unfunded liability had increased to $301.6 million and is now growing by $40,000 per day. That is the cost of inaction.
Unless something is done soon to stem the rising tide, all other city operations will be engulfed. The mayor has moved to eliminate an additional 30 employees, which reduces some costs. It is notable that layoffs were not part of the task force's equation last winter.
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The most difficult of the task force's recommendations are persuading the city's retired and active employees of the need to reduce their benefits. Those difficulties are understandable, given the magnitude of the problem and the direct pocketbook pain such changes will create. However, those changes are only a few of the 14 recommendations.
The city has done nothing to increase utility rates, as recommended, nor has it moved forward to ask a court how much it can force retirees to accept a reduced benefit. Nor has the city done anything to establish an importation program to save on prescription drugs.
The city was unable to persuade the Legislature to create an irrevocable trust to hold the funds that will be needed for retiree health care, but then did nothing to set up a designated fund to hold the needed funds until the trust is enacted.
No single recommendation is going to solve this problem; all 14 are needed. However, the sooner the city gets started on some of the recommendations, the sooner the rampaging unfunded liability will be brought under control.
The city has hired an internal auditor to its credit. However, the pace of change remains agonizingly slow.
The city needs to enact at least a few of the recommendations to make it clear that it is serious about implementing the entire plan. Inaction is clearly unaffordable.
