City defends use of retiree health funds

$10 million set aside used to buy up freeway interchange debt
By: Jon Brines, Placer Herald Correspondent
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Rising health care costs are forcing the city of Rocklin into a bond deal that would leverage a $10 million fund set aside to pay retired city workers’ health insurance costs. “We do not have sufficient dollars to cover the future costs of retirees’ health with the $10 million (fund),” City Manager Rick Horst said. “We have not been growing the pot. We’ve just been paying as you go.” A large underfunded liability for cities around the nation is retiree health costs. By Rocklin City Council resolutions and through agreements with its labor units, the city contributes a fixed amount toward CalPERS medical plan premiums for all eligible retirees. Starting in 2001, the city put aside $300,000 and currently maintains $10 million in an undeclared trust to help fund retiree health care costs, but the city acknowledges even that isn’t enough. The city wants to grow its fund and may need an additional $20 million to cover the accrued liability. That’s tough to swing when Rocklin’s annual operating budget is about $44 million with this year’s current budget gap of $500,000, according to the city. With last month’s direction from the city council, Rocklin is using the $10 million set aside to buy debt associated with the construction of the Sierra College Blvd interchange with Interstate 80 as a way to grow the fund. “It’s the balance of the cost to build the interchange, originally $28-29 million,” Horst explained. “With the state and everyone paying their share, it’s about $9 million that’s being refinanced through the infrastructure district in that area (Sierra College Interchange Community Facilities District No. 11). The property owners will pay for it.” With nearly one-million square feet of retail space planned, including a Walmart, along the Interstate 80/Sierra College Boulevard corridor, the city is expecting growth in the commercial Mello-Roos district. Horst expects the $10 million fund to grow by an estimated $500,000 a year, instead of the $28,000 it garnered before the bond deal. “Rather than go out on the market and sell that as a bond, we’re buying it in house. So the $10 million sitting in our retirees’ health fund collecting 0.04 percent interest a year, by buying the bond in-house, we’ll be able to pay ourselves .08 percent interest a year,” Horst said. Horst believes citizens need not worry about the deal, particularly in the wake of the nationwide mortgage-backed security scandal. Horst said the money coming back to the city will be dedicated to the Retiree Health Trust Fund, which will be untouchable by any future Rocklin City Council members who might get the idea to use it for another purpose. “It will be restricted to retirees’ health — put into a trust so it is not susceptible to any future council dipping into it for something,” Horst said. “It will be dedicated.” In a similar size city, Folsom city leaders maintain a $2.2 million trust fund and acknowledge their retiree health costs could exceed $42 million, according to Folsom city officials. In his second year on the job, Horst hopes to reduce the city’s expenses even further. Right now the city is working on pension reform and is currently in negotiations with the labor unions to reduce personnel costs on the 224 full-time employees who make up 66 percent of the city’s budget, according to the city. ________ Rocklin retiree health care fund June 2011 balance: $10,016,358 City reported interest rate: 4 percent Estimated fund yearly income: $28,000 Estimated long term need: $30 million Sierra College/Interstate 80 Interchange Bond Deal Construction debt: $9 million City to buy in-house rather than on bond market Estimated Interest rate: 8 percent Estimated yearly income: $500,000 Source: City of Rocklin