Obligations Could Soar to $5 Billion within Decade
MacIver News Service | August 24, 2010[Milwaukee, Wisc…] The Milwaukee Public School district has nearly $2.4 billion in long-term, non-pension obligations to retirees and their spouses, according to new figures released Tuesday night.
For the troubled Milwaukee Public School System, now recalling laid off teachers only because of a federal bailout, the projected costs for health care and life insurance benefits for retirees and their surviving spouses pose a financial time-bomb that could overwhelm the District.
Worse yet, consultants hired by MPS warn those costs could soar past $5 billion in the next 8 years.
“The independent financial analysis paints a bleak picture for MPS and should cause every Wisconsin taxpayer to lie awake at night,” said Brett Healy, President of the John K. MacIver Institute for Public Policy. “This problem will not go away and urgently requires leadership and decisive action now.”
The MacIver Institute, which operates MacIver News Service, is a free market Think Tank located in Madison, Wisconsin that promotes free markets, individual freedom, personal responsibility and limited government.
The figures were revealed by, Gabriel, Roeder, Smith and Company—a firm hired by MPS—which briefed the board’s Committee on Accountability, Finance and Personnel Tuesday evening. A copy of their actuarial estimate on post-employment benefits can be found here.
MPS provides lifetime health insurance benefits for retirees from age 55 who have at least 15 years of service. The District also provides retiree life insurance benefits.
As of July 1, 2009 MPS provided benefits for 6,136 retirees and surviving spouses, more than half as much of the 11,037 active employees for which they provide benefits.
“The children of Milwaukee are the true victims,” said Healy. “Soon MPS will have no choice but to spend the vast majority of our precious tax dollars on retiree pension and benefits, with very little left over to spend in the actual classroom educating our children.”
The Governmental Accounting Standards Board (GASB) is the body that sets the accounting standards for state and local governments. To monitor their adherence to GASB reporting standards, MPS hired Gabriel, Roeder, Smith, and Company to provide actuarial valuations of the District’s non-pension or “other post-employment benefits” (OPEB) liabilities for the 2010 fiscal year.
- MPS accrued a nearly $175 million liability in post-employment benefits between 2007 and 2009. A mere fraction of the $2.4 billion the state is in the hole overall.
- The end result was a total actuarial liability of $2.398 billion that MPS will owe its retirees and their surviving spouses for post-employment benefits, not including the costs of their actual retirement pensions.
- This cost reflects the expense of funding these programs, as well as the amortized costs of the unfunded actuarial liability – essentially the expense of covering the shortfall that the program doesn’t have the funds for. It applies to over 17,000 teachers and their surviving spouses.
- This represented a 7.9% increase over a two year span –but also fell short of a predicted 12.3% increase that had been projected in 2007. Thanks to changes in demographic assumptions, lowered health care costs, and other experiences, the most recent accrual figure is actually $99.6 million less than experts had assumed.
The findings hover over a school system beset with low graduation rates, high truancy, stagnant performance on the state’s standardized test scores and the highest gap in the nation between the scores of minority students and their Caucasian peers.
If this current trend continues, this expense will overshadow MPS’ annual operating budget, now at about $1.1 billion a year.
A conservative estimate of growth in accrued liability, calculated by MPS’ consultants puts the non-pension related benefit package for non current employees at $4.911 billion in just eight years.
“If School Board does not make dramatic changes soon to stem the benefit tsunami, MPS will have no other option but to declare bankruptcy,” said Healy.
Coming soon: Further analysis and reaction from MPS board members, state officials and others.