Ladd Gives His Take on Retiree Benefit Reform

The following is from the November edition of a monthly column written by Anne Arundel County Councilman Dick Ladd (R-5th District), a resident of the Broadneck peninsula.

A number of interesting bills have come before the Council in the last month. 

During the last Council meeting, the Council approved some changes to Critical Area restrictions based on the Critical Area Commission’s review of Bill 93-12.  Of note to waterfront residents in Severna Park and Broadneck is that the strict constraints on what maintenance you can do without explicit approval on your lot (developed or lived upon)  that is more than 100 feet from the water’s edge have been relaxed.  Very tight, unchanged restrictions still apply to the “critical area buffer” or the first 100 feet back from the water.  Planning and Zoning is preparing a “plain English” explanation of one’s “property rights” and property responsibilities.  If you have waterfront property, I strongly recommend that you familiarize yourself with it when it is ready.

Another bill that passed will provide the Police Chief the latitude to personally select his leadership team, as has become the practice in many other local police departments.  This change allows the Chief to appoint his Assistant Chief, the three Majors who directly supervise daily operations and a civilian Chief of Staff.  All five officials will serve concurrently with and at the will of the Chief.  The Majors have the right to revert to a Captain’s position if not reappointed by a succeeding Chief.  I strongly support this change, expect it to be a valuable adjustment to Departmental policy and anticipate supporting a similar change for the Fire Department.

Another bill up for discussion is Bill 79-13, which would change the zoning code to permit the raising of a limited number of chickens or ducks on residential lots less than one acre.  A public hearing was held on October 15 on this bill, amendments were introduced, and the public hearing on the amended bill is scheduled for November 5th.

The Council will start hearing testimony on a bill to address the County’s unfunded liability for retiree health care benefits.  All other large counties have started this process in one form or another.  Anne Arundel started setting aside funds before the economy slowed down but had to stop. 

In fact, these funds were ‘borrowed” over the past several years to fund operations and were restored in the last budget.  It is important to note that this occurred before approval was obtained on the 2012 ballot to create a “lock box” or trust for these funds.  This “lock box” authority was sought in anticipation of establishing a funding mechanism for County retiree health care obligations.

The numbers and complexity of funding the County retiree health program are daunting when combined with the prospect of employees living longer in retirement with increasingly advanced and expensive care.  Our actuarially estimated liability is about $1.2B if we have to pay it directly out of tax revenue as the cost is incurred.  If funded over 30 years at 8% return through the lock box/trust established for that purpose, the annual bill would be about $69 million per year.  (It is $110 million at 4% return on investment.) Included in this number is roughly $21-22 million for current, “pay-go” costs for retiree health care.

A Committee of stakeholders I help establish has been working on this issue for nearly two years.  The unions have participated fully and openly with representatives from the County staff, the Council and outside experts.  The premise of the process was that any savings or cost avoidance would be applied to funding the liability or the Annual Required Contribution (ARC). As a result of extensive changes in the health insurance market, changes in health delivery enterprises plus the continued awareness in the Unions of the size of the problem, a lot of progress can be made.

As the $69 million ARC estimate includes roughly $22 million for current costs, there is a nominal $47 million shortfall for which there is a $12 million budget allocation already.  Therefore, there remains a difference of $35 million to be addressed.

A bill (85-13) introduced recently outlines one approach to a restructured retiree health plan which includes $25 million in cost avoidances for the retiree health insurance plan.  Another bill, drafted by the County Executive, outlines another approach that will bound the discussion on coming up with the last $10-15 million for our Annual Required Contribution.  The Council will consider the policy, timing/phasing and fiscal implications through a series of amendments to Bill 85-13 between now and January.

The need to start reducing the County retiree health plan liabilities is very real and well understood by the County Executive and County Council.  With improving economic and budgetary expectations, now – not later – is the time to start providing for these responsibilities.