Aside from an article in the Albuquerque Journal, the staggering unfunded liability for New Mexico “public servants” who get — or expect to get — monthly retirement-income checks has been AWOL in this year’s gubernatorial smackdown.
Surprisingly, and much to his credit, U.S. Rep. Steve Pearce, the GOP nominee, told the Journal that while pensions in the real world “transformed significantly over 20 years ago,” in government, they have “stayed generous and lagged many changes. At a minimum, new employees coming into the government workforce are going to have a very different system. Employees many years away from retirement are going to have to see significant changes.” It was a rare moment of fiscal courage/clarity in a campaign that has featured very little substance on the issue of the state’s woeful financial condition.
But pensions are not the only long-term obligation that legislators and governors have badly bungled. Bureaucrats at the local and state levels are awarded retiree healthcare benefits as well. As the Santa Fe New Mexican noted at the start of this year:
The system provides subsidized health insurance premiums for eligible retirees. There are about 97,000 employees paying into the program today. It provided coverage to about 39,000 retirees as of July.
That includes former state government employees as well as former employees of cities, counties, universities and charter schools.
The amount covered depends on years of service. Retirees can now get the full subsidy after 20 years on the job.
In contrast, retiree healthcare has all but vanished in the private sector. According to a 2016 Kaiser Family Foundation analysis, there was “a significant drop in the share of large employers (200+ workers) offering retiree health coverage, from 66 percent in 1988 to 23 percent in 2015.” (Smaller firms, it can be safely assumed, provide the perk at much lower rates.)
In 1990, rather than eliminate a perk than was disappearing elsewhere, Santa Fe established the New Mexico Retiree Health Care Authority (NMRHCA), to foster “quality of life and peace of mind by responsibly administering affordable, secure health care benefits for public retirees and their families.” Both employees and “employers” — i.e., taxpayers — make payroll-based contributions to the authority.
NMRHCA’s net position at the end of the 2017 fiscal year was $579 million. Not bad, right? Not exactly.
When juxtaposed against the state’s anticipated costs of providing healthcare coverage to the “retired,” $579 million isn’t all that much. The system’s net liability, at the end of FY 2017, was $4.5 billion. That’s correct — in January, lawmakers and the new governor could dump the entire (projected) FY 2020 surplus into the coffers of the NMRHCA, and its debt wouldn’t even be cut in half.
The authority recently gave a presentation to the Legislative Finance Committee, and as the above graph shows, within a few fiscal years, NMRHCA’s annual revenue sources will no longer match its annual expenditures. Then reserves begin to dwindle, and absent meaningful reforms, it’s likely that in the 2030s, insolvency will arrive.
The good news about the NMRHCA is that its enabling legislation provided “that the benefits offered to retired public employees may be modified, diminished, or extinguished by the Legislature,” and that there is no “contract, trust or other rights to public employees for health care benefits.”
So the authority’s board can take actions to shore up its finances. And occasionally, it does. According to its presentation to the LFC, effective January 1, 2020, the minimum age “to receive program subsidy” (excluding “enhanced retirees as defined by statute”) will be 55, and the period for eligibility “to receive maximum subsidy” will be 25, not 20, years.
That’s progress, but it’s not enough. Whether by board initiative, legislative pressure, leadership from the governor’s office, or a combination of the three, New Mexico’s taxpayers need relief. Compensation for local and state employment in the Land of Enchantment, already outrageously generous, is overdue for some judicious pruning. A bracing dose of reality is needed for pensions, but let’s not neglect NMRHCA’s hefty price tag.