MONTGOMERY - The state of Alabama will
pay more than $2 billion next year to help provide pensions and health
insurance for more than 200,000 active and retired teachers and other
public employees, state budget forecasts show.
The cost to taxpayers of providing these
benefits has mushroomed in recent years, more than tripling from 1996 to
next year's budgeted total.
"This is unsustainable in the long
term on the current path that we're going," said Marc Reynolds,
deputy director of the Retirement Systems of Alabama.
Unless the growth in costs slows,
benefits for public employees and retirees will consume bigger and
bigger shares of total government spending, making it harder to hire
teachers, build roads and provide other services without raising taxes.
"It is a concern because we don't
want to have to cut programs," said state Finance Director Jim
Main.
State government is budgeted to pay $2.13
billion in the 2008 fiscal year, which starts Oct. 1, to two public
insurance programs and the Retirement Systems of Alabama, which cover
public employees and retirees.
By contrast, the state paid $689 million
to the insurance programs and RSA in fiscal 1996, for an expected growth
in state costs of $1.44 billion, 209 percent, in 12 years.
The rapid growth in state payments for
pensions and health insurance has outstripped the growth in overall
state spending in recent years, according to reviews of state records by
The Birmingham News.
For instance, payments for pensions and
health insurance in fiscal 1996 consumed 11.9 percent of the Education
Trust Fund, the largest source of state tax dollars for public schools,
colleges and universities.
Next year, those payments are forecast to
consume 19.5 percent of the fund's $6.7 billion budgeted spending.
If current growth trends for benefit
costs and total trust-fund spending continue, payments for pensions and
health insurance will consume 32 percent of total trust-fund spending by
2020.
For the General Fund, the largest source
of state money for non-education agencies, payments for pensions and
health insurance in fiscal 1996 consumed 7.6 percent of total spending.
Next year, those payments are forecast to consume 9.5 percent of the
$1.83 billion budgeted spending.
If current trends for benefit costs and
total spending continue, payments for pensions and health insurance will
consume 11.8 percent of total General Fund spending by 2020.
State school Superintendent Joe Morton
said he's concerned that, as more of the Education Trust Fund is used to
pay for employee benefits, less of it will be available for programs to
boost high school graduation rates and improve the value of a diploma.
"If that benefit pie gets bigger,
I'm real worried about the classroom pie getting smaller," Morton
said.
$30.9 billion in assets:
The two public insurance programs and RSA
cover employees and retirees of state agencies and public schools,
colleges and universities, although most active university employees get
health insurance elsewhere.
Besides getting money from state
government, the insurance programs collect premiums from many employees
and retirees, and RSA collects payroll deductions from employees and
earns money from investments. RSA on Sept. 30 managed $30.9 billion in
stocks, bonds and other assets, although some of that money is reserved
for uses other than future pension costs.
Reynolds said he thinks state payments to
RSA could stop rising within a few years, if stock and bond markets stay
healthy and if lawmakers hold off on cost-of-living increases for
pensions.
State payments to the retirement systems
for teachers, state employees and judges are budgeted to total $809.8
million next year, an increase of 126 percent since fiscal 1996, when
the payments were $358.4 million.
Most of that increase has occurred in the
past three years. State payments to RSA in fiscal 2005 were $419
million.
The recent jump has been partly caused by
lawmakers. They voted to boost future pension payments for retirees by 4
percent starting in October 2005 and by 7 percent starting last fall.
But they didn't increase the payroll deductions from active employees to
help pay for the increases.
Also, RSA's investments lost money in the
bear market of 2001-02, and state payments to the retirement funds
generally rise when investment returns drop. Reynolds said steady growth
in stocks and bonds in coming years could help lessen state payments.
Insurance-cost fears:
Morton and Reynolds said they were more
worried about the rapid rise in health insurance costs, which they noted
was a national problem.
State payments to the Public Education
Employees' Health Insurance Plan, which is run by RSA and covers about
102,000 active employees and 55,000 retirees, are budgeted to reach
$977.95 million next year. That would be an increase of 356 percent
since fiscal 1996, when the state paid $214.6 million to the plan.
"That is just a big problem that,
again, is unsustainable," Reynolds said. "It's got to change.
How that's going to change at the national level, I don't know. But it's
not just an Alabama problem."
State payments to the State Employees'
Insurance Board, which covers about 36,700 active employees and 17,900
retirees of non-education state agencies, are budgeted to reach $344.4
million next year. That would be an increase of 197 percent since fiscal
1996, when the state paid $116.0 million.
Options exist:
Reynolds and Morton said premium
increases on active employees and retirees, reductions in coverage, and
escalating state payments, possibly fueled by tax increases, all are
options, maybe in combination.
David Stout, a spokesman for the Alabama
Education Association, said the teachers' lobby would support higher
premiums "as a last resort." But he asked how fair that would
be to a school lunchroom worker or bus driver making less than $20,000 a
year.
He said the skyrocketing cost of benefits
is largely due to the rising cost of health insurance, which he said
needs a national answer.
"State efforts alone cannot solve a
national crisis that impacts all of state funding," Stout said.
But Main, the state finance director,
said cost-cutting measures approved by lawmakers in late 2004 for the
two state insurance boards are starting to show results. Among other
things, the changes forced people who work elsewhere after retiring from
the state to use their new employer's insurance, if that employer pays
at least half of the total insurance cost.
Main said he also has high hopes that a
wellness plan for public employees and retirees with diabetes, which
would involve free monthly consultations with pharmacists, will lead to
lower costs. That program may start by late this year.
Main said he thinks the state cost of
benefits for employees and retirees won't rise nearly as fast in coming
years because of recent insurance changes, especially if RSA gets good
returns on its investments.
Even so, Morton said, "I don't know
where the cost of benefits ever ends."
