Franklin told the audience the city's annual budget needs to grow by $250 million, or about 40 percent, to improve city services and cover retiree health-care costs. Then she said, "One of the best ways to find funds is to look in other people's pockets." She said she'd look to state and federal government and the private sector for funding.
Look for versions of Franklin's speech across the state as local governments report their indebtedness. Their newfound honesty comes by virtue of a federal Government Accounting Standards Board requirement. "GASB 45" forces disclosure of the funding commitment (beyond pensions) that our cities, counties and state have made for the next 30 years to workers "post-employment" — after they leave or retire.
Governor Sonny Perdue told Georgians in his State of the State address that in the fiscal '08 budget, "We are also planning to set aside $100 million to meet our future obligations for state employee benefits. It may not be a shiny new program, but it is the right thing to do for our state's long-term fiscal health and for our state's retirees."
Bain and Co., pro bono consultants to the city of Atlanta, found an $82 million funding gap when Franklin took office in 2002. In her fourth week in office, Franklin promised that she would "stop making commitments the City cannot fund" and would cut costs and waste. In 2003, Bain reported the city had improved from a position of having 37 percent more employees per capita than comparable cities to about 5 percent more. The city then had 1,348 personnel per 100,000 residents, versus 983 for the average of Bain's benchmark sample.
But this week, the mayor noted the city has more than 8,000 employees and a half-million residents — a whopping 1,600 workers per 100,000 residents. Where have all the employer savings gone, and what will this mean to future taxpayers who must fund these "post-employment" benefits?
Individuals have to work within their budgets or eventually declare bankruptcy. Government, on the other hand, simply digs deeper into taxpayers' pockets when it comes up short, with the usual either-or warning: either higher taxes or fewer/worse government services.
Local governments challenged by rising retiree costs and the transparency of GASB requirements - which will also threaten their credit ratings — need to be pre-emptive. Looking to privatization of services, outsourcing and vendor contracts would be another long-term opportunity to shrink government and, consequently, taxpayer commitments to government employees as they leave and retire. Plus, as Ronald Reagan noted, "the truth is that outside of its legitimate function, government does nothing as well or economically as the private sector of the economy."
The new city of Sandy Springs, for example, successfully outsources care of streets, water and sewage systems, property development regulation, traffic engineering, permitting, revenue collections and other basic services — and residents saw service improvements. (By law, Georgia public safety cannot be outsourced.)
Why keep digging when you find yourself in a hole? Atlanta looking to find additional funding for MARTA, for museums and greenspace projects is one example. Continuing budget-crippling compensation for public sector employees is another example. The city — and state — could learn from Cobb County's forward-thinking, firm, taxpayer-friendly approach to the federal requirement. It is vesting employees, raising premiums and setting aside surplus funds.
In 2006, Cobb decided to offer retirees continued medical coverage after 20 years of employment. Only the retiree and one family member will be covered, and retirees must pay the full premium for additional family members. Beginning this year, premiums for current employees were raised 30 percent to offset costs. Beginning his year, employees with less than seven years of employment must have 15 years of service to retire with benefits; employees with more than seven years can retire with health benefits after 10 years of service.
It is true that GASB requirements don't leave much room for government creativity. While GASB's inflexibility in reporting future commitment may not reflect the innovative financing opportunities governments have for meeting the debt, it serves as a warning regarding the growing force of former government employees whose increasing longevity makes them government's commitment long after they've left the job. It also serves as an eye-opener to Georgians, for the scary truth is that we have seen the "other people" who must fund this. Whether it's federal or state funding, as Pogo would say, the "other people" is us.
Benita M. Dodd is vice president of the Georgia Public Policy Foundation. Geoffrey Segal is the director of government reform policy at Reason Foundation and an adjunct scholar with the Georgia Public Policy Foundation. An archive of Segal's work is here, and Reason's government reform research and commentary is here.