California is facing a $51.8 billion bill for medical and dental benefits for state retirees, according to a report issued February 9 by State Controller John Chiang's office. The report highlights the growing divide between what the state owes retirees for health and dental benefits and what it has saved to date.
"Even as we try to claw our way out of the recession and provide needed cash to the state's coffers, we cannot ignore the promise that we made to pay health and dental benefits for current state employees and retirees," Chiang said in a press release. "As I have since 2007, I urge lawmakers to reduce the impact on future generations by putting additional dollars into the annual payments so that we can invest those funds, grow that money, and tackle our obligation in a responsible manner."
Unlike state pensions, which are covered by prefunding and investment returns, California pays for state retiree health benefits on a "pay-as-you-go" basis as the costs come due each year.
California should have set aside $3.9 billion this year to cover its annual obligation, the report noted, but the current budget only provides $1.3 billion for retirees' health and dental benefits. Switching to a full-funding approach would mean the state would only have to contribute $2.8 billion to meet its obligations for the year, according to Chiang.
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