The East Bay Times reporting on the 2017-2018 Grand Jury Final Report — 7/2/2018
Grand Jury: Oakland short $860 million for retiree benefits
OAKLAND — Oakland is short $860 million to cover future retiree benefits and needs to figure out a solution soon, or risk having to cut city services, according to a civil grand jury report.
An Alameda County civil grand jury report issued this week found Oakland has only been paying for current retirees’ health care. The city also should have been putting money away to fund retiree healthcare benefits for current employees — especially since healthcare costs are rapidly increasing, the report said.
That debt for “other post-employment benefits,” or OPEB, increases by about $40 million annually, the report said. As of the 2016 fiscal year, the total liability for future retiree healthcare benefits hit $860 million.
“To put this in perspective, the shortfall of nearly $40 million each year equals the total budgets for all city libraries along with parks and recreation, or the equivalent of the cost of nearly 200 police officers or firefighters,” the report said.
Oakland city spokeswoman Karen Boyd said the city appreciates the grand jury’s findings and recommendations and agrees that it is crucial for the city to develop a plan and policy to address the growing deficit.
“To properly address and develop a comprehensive plan to tackle the OPEB unfunded liabilities, the city will be engaging all prospective stakeholders, such as labor unions, employees, management and City Council,” Boyd said.
The City Council last week allocated $150,000 to pay industry experts to help the city explore its options and strategies to deal with the unfunded liabilities. The consultants will present recommendations in line with the grand jury’s findings to the council no later than January 2019, Boyd said.
In 2004, the city established a trust to set aside money to pay for future retirees’ healthcare costs — but those funds only account for about 3 percent of the total liability. The city doesn’t generate enough revenue to make sufficient payments on the unfunded liability, the report said.
“The grand jury is concerned that, without radical changes, the city will never be able to pay for what it promised,” the report said. “This dilemma is already starting to crowd out essential government services.”
The solutions are complicated, the report said. Concord and Sausalito face similar challenges, and have had to cut back on retiree healthcare benefits or have employees pay into healthcare programs.
“At this point, Oakland’s unfunded liability of nearly $1 billion is too large to tackle without using a combination of solutions, yet the city currently has no viable plan in place,” the report said. ”The city must immediately develop a long-term, multifaceted plan to address (unfunded retiree healthcare benefits) or accept that municipal bankruptcy is an option in the future.”
The report recommends that the city’s long-term plan include discussing additional funding for future retiree benefits and how they are structured.
Oakland’s long-term plan should also look to options discussed by the League of California Cities as well as other California cities facing healthcare funding woes. Those options include capping or reducing city premium contributions for current employees, replacing future retiree benefits with plans that employees pay into, eliminating some benefits such as dental and vision care, limiting the length of medical coverage, and eliminating or reducing coverage for spouses and children.
The city also must require current and future employees to help pay for the cost of retiree healthcare benefits, the report said.
The report recommends city staff provide elected officials and the public with “clear and understandable reports” illustrating the impact of retiree healthcare funding decisions as well as the impact of deferring those costs over a 15-year to 20-year time period.
In addition to the retiree benefits crisis, the civil grand jury report also highlighted other challenges in the city, including its aging sewer system, which has caused sewage to spill into Lake Temescal and lead to toxic algae blooms. That problem hasn’t been adequately conveyed to the public, the report said.
The report also included information on how mismanagement of affordable housing developments can lead to “substandard” living conditions for tenants, as it did with the E.C. Reems Apartments, and how the Oakland City Council bypassed the workforce development board in 2016 by giving public funds directly to favored job programs without proper accountability.