HomeMy WebLinkAboutMINUTES - 06242008 - D.2 F Contra
'rU: BOARD OF SLIPERVISORS
Costa
FROM: .TUI IN CUL,I.FN. County Achninlst <
Count
DATI;. ,I[_TT\TF 24. 2008
SUBJECT: RI-:SPONSI1: TU GRANT) .I[-RY IZI-U)ORT NO. 0805. ENTITLED
"TI I II SI.J1'I RVISORS Cl.111' AWAAl
TI]]-_-_ COUNTY'S
MOUNTAIN OF I TEAL T H. BF,NEF1'.I DEBT'°
SPFC'll'I(' RFQUIEST(S)OR RGC'OA MF.N1)A'110N(S)&. BACKGROt..'Nl.),1ND.Il!S'111=1Cr\TION
REVOMMENDATION:
APPROVE response to Grand .fury :Report No. 0805, entitled "The Supervisors Chip Away at the
COLl11tV'S Mountain or Health Benefit Debt" and DIRECT the Clerk of' the Board to forward the
response to the Superior Court no later than Aub(Iust 11, ?008.
BAC'KGROIJND:
On May 1?. ?008, the 2007/2008 Grand .ILiry tiled the above-referenced report. .which was reviewed by
the Board of Supervisors and subsequently referred to the County Administrator who prepared the
attached response that clearly specifies:
A. Whether a finding or recommendation is accepted or will be iinplemented;
B. ]fa recommendation Is accepted, a statement as to who will be responsible for
implementation and by what definite target date:.
C. A delineation ol.the coils tral,Ilts r1 a recommendation is ac. clpted but cannot be Implemented
\within a six-month period; and
D. The reason for not accepting or adopting a finding Or recommendation.
CONTINUED ON ATTACHMENT: YES SIGNATURE:
----------------------------------------------------------------------------------------------- OF
-
✓RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOAD OMMITTEE
L,-APPROVE OTHER
SIGNATURE(S):
----------------------- ----------------- ---------- --- --------------------------_------------------------------------------------------------------------------
ACTION OF BOAR N—G(E -7 .4 �!7 APPROVE AS RECOMMENDED C OTHER
Y• IQa�.i�. d.'�� IPS Le,eA>, K14K HtW"', GG'rAYehy&v_5 A'SSoe— .
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT ) AND ENTERED ON THE MINUTES OF THE
BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
ATTESTED: June 24. 2008
CONTACT: LISA DRISCOLL(925)335-1023 JOHN CULLEN,CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
CC: PRESIDING JUDGE OF THE GRAND JURY
GRAND JURY FOREMAN
COUNTY ADMINISTRATOR
AUDITOR-CONTROLLER
TREASURER-TAX COLLECTOR BY DEPUTY
County Chips Away at Health Benefit Debt .Tune 24, 2008
County Response to Grand Jure Report No. 0805 rage. 2
BOARD OF SUPERVISORS RESPONSE TO
GRAND JURY REPORT NO. 0805:
THE SUPERVISORS CHIP AWAY AT THE COUNTY'S
'%IOUNTAIN OF HEALTH BENEFIT DEBT
FINDINGS
A. Defining the OPEB Problem
1. Governmental Accounting Standards Board Statement Number 45 ("GASB 45"), "ACCOLInting
and Financial Reporting by I-nlployers for Post-rnlploynlent Benclits Other Than Pensions"
(OP.CB) sets all aCCOLIntill`.;
County Chips Away at Health Benefit Debt .lune 24, 2008
County Response to Grand .Jure Report No. 0805 Page 3
operating budget of approximately $1.2 billion for fiscal year 2007-08, and is still nearly equal to
the combined health care benefit liabilities for Alameda, Orange, and San Diego Counties.
Response: Partially disagree. The: reduction resides primarilv.fi'oin the Board Of,Supervisors'
action to 1)li1'ticil1l'I)1'C'-11l/1(1 our habilltl' in the FY 008109 hudget ($*?0 million), which allolved
the itse of a lfigher discount rate (0.32(),i;). O/'the M35 million reduction, over 82011(; or $687.5
million is due to partial pre-firllllifig. The nely valiratiol/ assinnplio!l changes and plan changes
.f0/' /1 on-repl'esenled en/1)lovees hath made sinallcr contributions to the liabiliti! savinu. a/ter the
lar(.,er discount rate savings (life to planned pre-lil/tllill
6. According to County officials, the growth in the cost oChcalth care benefits has and will continue
to compromise the County's ability to provide public services since County general funds
earmarked for services will have to be used to pay Ior increasingly costly employee and retiree
health care benefits.
Response': .9,,,I'ee.
7. As early as 1994, the Supervisors were brieled by administrative staff about the pending OI'EF3
crisis, but tool: no action Obi-more than a decade.
Res/l0/Ise: /71e /'es1.)On(lc'/1l is 1r11(ihle to verilj,S'trperi'vi.cnr bric�fhigs from 1x)94.
8. The OPER liability results primarily from labor agreements in which retirees and their dependents
receive the same Increasingly costly health care benefits as active employees and their
dependents. Other factors that contribute to the OPER liability include longer lite spans, earlier
retirement ages, as well as medical costs and health insurance premlLmis that have escalated
dramatically compared to overall inflation.
Response: .(gree, lvith the clan f/callon that the OPER li(ihilit►, resultc.froni henefits not being
./irlll•finlded on an annital hasis (pre-fiinded the benefit wither than pa--go).
9. The Supervisors have the authority and responsibility to establish the labor negotiation policy, to
explain it clearly to the County's negotiating team, and to ensure that the negotiating team carries
It out.
Response: Ag!-ee.
10. There have been occasions in the past in which individual supervisors have had conversations
With union leaders about matters beim negotiated. Reportedly, these conversations have on
occasion undermined the Supervisors' labor negotiation policy, causing a weakening, of that
body's resolve, resulting in labor contracts that were not fiscally prudent.
Rea),onset Partialll, disagree. Individual sitj)ervisors have had conversations irith union leaders
aboul inatters being negotiated: hoivever these conversations, rather than widermmulg the
negoihnion1)olicy have, o!1 several occasions, encl)ural ed inlio!/ leallel'.S to CO11ti7111C negrotiating when
then- would have olhertvise taken unproductive actions..
3
County ('hips Away of l-lealth Benefit Debt June 24, 2008
County Response to Grand .lure Report No. 0805 Page 4
11. The subject of the County's unfluldedi OPLB liability has been the topic of' Cow• previous Contra
Costa COLIIItV Grand Jury reports:
• 2004: "Take Action Now to Reduce Costs ol'Retiree Health Insurance."
• 2005: "Code Blue: County Health Care Costs."
• 2006: "COLInt-V Ignores Retiree I lealth (:'are Costs: The Financial Tidal Wave."
• 2007: "Mayday, Mayday, Mayday! The County Drifts Haver Closer to the O.PLB Rocks."
Response: Agree. .
12. The Govcnlmental Accounting Standards Board recommends public agencies account For
unfLnxded OPF'B costs over the active service 1111c ol'benctiting employees, rather than reporting
current year OPCB costs Cor existing retirees.
Response: Agl-ec.
13. Currently, there is no universal County requirement Im- eligible retirees to enroll in .Medicare
Parts A (hospital coverage) and B (physician and ancillary medical coverage), and assign benefits
to County sponsored health insurance carriers. When Medicare benefits are assigned to the
C'Ountv'S health insurance carriers by retirees,by meals of a carrier-provided form, Medicare
becomes the primary payer, leaving the County responsible only as a secondary payer. Currently,
Medicare licalth benefits are not uniformly assigned to the C'OLlnty'S llcalth insurance carriers to
help pay fol• the participants' medical t'al'e. This reSLIIIS in higher InSllrance premium costs for the
COL111ty.
Response: Pal•tiall,v disagree. Alcclicai-e Part A is required Ing the .Social Sec111•it . Act Tor all
incliviclaals, including C'ountY r•etii,ees. ,1ledicare Part A is automatic and requires no
emrollment. Aledlcal•e Pint B i-equii-es the 1•ctil•ee to em-oll. llle(licarc is In-imal.1,Jbi— 1-etirees
LvIiether or not assigned, even if flic retiree is only covered hip tlledicare Part A. Assignment of
henefits to the carriers means that a retil-ee can use their kfetlieare ealyd orrly for pror idcrc 11.1111111
Their specific netivork. Non-assignluunl means the Aledicare c•ca•cl can he used for both network
and non-nctll,ork pmviclei-s. ' It is tl•cre that the Coantiv does not universally require the assignmelll
ofthese benefits to the Countv's health 1ns111'a11Ce cal•1Ycrs.
14. The County provides combined medical and dental benchts to approximately 8600 active
employees, 5800 retirees, plus dependents and sin•viving spouses oCretirecs. Approximately 7400
(86'.Vo) ol' the active employees are represented by labor unions. The remaining 1200 (14%) are
unrepresented.
Response: A-Fee.
15. The County's S1.2 billion, fiscal year 2007-08 budget Inellldes S130 million, 10.714) ol'the total
budget, to pay health premium costs on a pay-as-you-go plan ($36 million Cor retirees and S94
million for active employees).
4
Comity Chips Away at Health Benefit Debt June 24, 2008
County Response to Grand Jury Report No. 0805 Page 5
Response: .9gree.
B. Addressing the OPEB Problem
16. On September 25, 2007, the Supervisors adopted a plan to finally begin addressing the County's
unfunded OPEI3 liability. It included the lbflowing:
• A Strategic Plan and timetable addressing, the 0Pi-F3 problem.
• An Il-revocable l•rUst Account for pre-furid111g a portion of the County's OPEB liability.
• An initial goal to pre-fund, i.e., deposit into the trust, 40'.%) of the total OPLB liability over the
course of the next 30 years. This i111101111t represents only the costs Ol current retirees' health
care costs during,that period,not future retirees.
• A pledge to deposit $588 million between Fiscal years 200;-09 and 2022-23), 1.5 years, into the
irrevocable Trust Account.
Response: Uisa—l•ce. The Board o/'Slipc i—visors' took its.f%rst action to rc(llice the C omav's
.fiitlu'e OPEB liabiliti, oil August 15, 2000. Hic C'iVI AIOU a(/opled oil. that da.v inchi le(/ 'nue too'
language. The 'nue loo' langliage stated that 'the: C'ountV agrees that erli,ciihility rcyuireillellts ane/
implementation (late for retiree health./or emploYees covered lily this iIIOU hill be the scene as
agree(I to by the majority o'Colul/v emp/oi�ees'. On October 31, 006 when they adopted a nely
fifteen t'e'al' Vesting i-eq il- meilt fol' the receipt of re.'lil'ee health c,ai•e fon' the Inalorill' of C'ollilty
emploi•ees, this ehange beccime pall of the CiV 1 MOIJ chic.,to the 'rile too'clause..
The., Board's next actioil, on June 0, 2007 set (I timetable /or achlressin, the OPER program, cul
iilitiall)I'e-flrl](ling goalOf ltl(1"u ofthe potential liabilitl•.for the retiree populalion (cul'/"chill' 4Wo'
of the total liability), and ple(lged an allocation of'resolrrces (k588 million hchreen fisecrl�ear.�
2008-09 cull/022-23 and$100 million annitally thercaftel).
The Boara 's ne.w action, on September 25, 007 approved the selection of an irrevocable trust
structure (IRS Code Section 115). The .Januar• 15, 008 Board action establishc(l the
Irrevocable !iwst Account.
17. 1 flcctivc January 1, 2007, the COLnty increased the eligibility requirement for retiree health care
benefits. Since then, employees, other than deputy sheriffs and firefighters, must Nvork for the
County for 15 years. Previously, some new employees had become eligible for retiree health
bencf.its atter as little as one day on the job.
Response: A,ree, lvilh the clarification Mat the new tier eATlii(le(l al/ emplo gees covered biv
C aIPERS health plans nol.just depwv sheriff.~•aml fil'elighlers.
18. On January 15, 2008, the Supervisors established an Irrevocable Trust Account, under t11e
provisions of internal Revenue Code Section 115, to deposit future OPEB funds. The .finds in
such accounts may not be used for any other purpose than as directed in the trust document. The
County Chips Away at Health Benefit-Debt .lune 24, 2008
County Response to Grand Jure Report No. 0805 Page 6
trustees are: the County's Administrator, Auditor-Controller, "treasurer-Tax Collector, Director of
Finance, and Health Services Departments Chien Financial Officer.
Response: .,9
County Chips Away at Health Benefit Debt June 24, 2008
County Response to Grand Jure Report No. 0805 Page 7
• Provide that upon retirement: M the County would not contribute toward the cost of health
care for employees that retire before the age of 65, and, b)the County would permit retirees to
enroll in County health plans at their own expense until age 65, when employees are eligible
to enroll in Medicare Parts A&B.
Response: Partially dis(Wree. 'The Januarl, 23, 20081w,ecentation deseribe(l(1l)ossib/e second
tier ol)tion that couhl re(htce the (7ountv's.11tture /iabi/ih,; it(li(l not In-olJoye that the new tier be
inll.Veniewed as described. The A-ho, 0, 2008 11oard.-lotion established a neer hculth cure tier.for
1tm-epre sen rl c:1111Vol-ctes(m(/officials hll-c(l. aly)ointe(l. or elecle(l after December 31, 2008.
The sclwr(ae rale pools erre inten(Icd to elitllinale over (Vr()1t1)s1(bSi(1iZiI1g file aetltul costs of
anolher-roul), not to snore accuratelil c(ticltl(lle costs. Finally. ul)on retirement, these elnplovees
crud officials wi11 have access to County health plans, but no CounlY prenliuni subsidy frill be
pail fin-anY health or dental plan bt�fure or Offer the a,,e (?1'05. Retil-ees alut eli( nuily
tllunlherc 1vill I)w-licil ile(1t their oil n cW)(?tlse.
23. 'File January 23, 2005 report proposed the establishment of a Benefit Design Task Force to
develop a new health benefit program for the County. On May 6, 2005, the Supervisors approved:
• The establishment oil a task. force to ileal with health care benefits Por unrepresented
employees. Members of the task illi-CC would include unrepresented employees and retirees,
(.'0LIIltV suhjer.t matter experts, Independent benefit ileslgn, actuary, and tax consultants.
• Setting specific achievement goals and parameters to recommend options for sound health
care benefits within the County's budgetary limits.
• . completn ioofany rc-design recornmendatlolls before 2010.
Setting specific target dates .I:or
• Pursuing the means to assure portability of employeehealth coverage and access to health
savings mechanisms for Unrepresented County employees, retirees, and their dependents.
Response: A ree, with the clarification that.the J(nurcrrr,23, 2008m-esent(llion (lescl-ibe(/I1o11,the
eStablishment of'a task.fin-ce could be rtse(I to he'll) to plan benerfit dc�sian chun-C.,s titin counteract
1hetlic:•al costrolwth in order 'to preserve a balance between provi(lin, sowul health cal-e
c'ovei-age f01'0111'elnpl0)'ees mul 1`etlrees a ll(1111(11771(1717 141(11('111.17111'I)rogi- ins an(I services.
24. The County Administrator implemented a hiring ti-eeze effective February 1, 2005, subject to
case-by-case exceptions only he and his chief deputies have the authority to grant.
Response: .-fgi-ce.
25. On May 6, 2005, the Supervisors approved a fiscal year 2005-09 budget that directs ,S`20 million to
the OPF,B trust.
Response: : i-ee.
26. The County has 39 labor contracts with .17 diPPcrent employee organizations. Most of the
contracts expire on September 30, 2005.
County Chips Away at Health Benefit Debt June 24, 2008
Coll nt• Response to Grand Jury Report No. 0805 Page 8
Response: :-1 free.
27. The County Ilunlan Resources Department's labor relations services unit coordinates the
activities ol•both in-house staff and contracted labor c011SUltalltS.
ResponsE': .9 g 1•ee.
C. The OPF,B Problem Continues
28. In October 2007, the Supervisors approved a new contract with the I Inited Professional
l.irefiohters, Local 1230 that did 110t I11CILKII any c}lallges In health benefits,
Response: :41.,ree.
29. In December 2007, the Supervisors approved a new contract with the Costa County Deputy
District Attorneys Association that did not include Substantive changes in health benefits.
Response: it true, with the clari/iC(16011 that the 17CIV contracl eliminale(I dual coverage Jor
Contra Costa CountY Delmh, emI.VoYees.
-,0. In April 2008, the Supervisors approved a new contract with the California Nurses Association
that did not include SIIbStallt1Ve chan-cs in health bellellts.
Response: :t wee, frith the clavi/ic.•ation that the new contract Climinate(I (Mal covcrauIt,e /or
California Nursing Association emplol-ces not enrolled in chtal eovera),e as of iWau•ch 71, 008.
ID
31. Based on 2008 estimates from the independent actuary hired by the Supervisors, the County will
need to set aside $130 million per year, lbr 30 _years, to pay down 40% ol•the OPFB liability. The
Supervisor-approved 40' target level represents the estimated cost of the County's current retiree
health care benefits, not the total alllollllt required to also cover the health cafe bellellt costs for all
luture retirees. RCCellt Steps by the SuperviSorS, including the May (i, 2008 approval of the fiscal
year 2008-09 budget, IV]]] reduce the liabilit:v over time. However. in the absence of , nv Jbi-thee
action by the Supervisors to increase the target level, the gap between the required and planned
contributi0llS is estimated to he S54 million per year.
Response: Partictlh, (lis•auree. The 5130 million annual.fimdin `Tal) to reach thc County's 40%;
tar,ct 11�a•s calculate(/bl' C/10staff: not theinclel)c�n(lent ac•tum_i�. ,�Idclitionalh•, the al)1)rovc(140',
filmling to lget rel)re'sentl• 100% o/'the estimated cost of the Countv's curi,ent retirees' health card
benefits or 40?; of the total anmuntt requirc:rd to cover the health care bene fits cost.( for the
Coernlr• 's cur/,int active am/retired polntictli.on.
4
County Chips Away at Health Benefit Debt June 24, 2008
County Response to Grand ,lure Report No. 0805 Nage 9
RECOMMENDAT:iONS
The 2007/08 Contra Costa County Grand Jury rccoll mends that:
1. The Supervisors establish the C'Ounty'S labor negotlatlon policy, explain it clearly to its
negotiating team, and see that the negotiating team carries it out.
Response: Has been implemented. The establishment and policy of labor necoliations has ahvgys
been within the purview of the Board o/'Supervis'ors.
2. The Supervisors refrain from individually communicating .with labor leaders regarding ally
contract Item belly negotiated.
Response: it'ill not be implemented. There are policy and management reasons for elecled
o/lielals to e.ommunlcale with labor leaders on pending negotiation.(. Additionally, it is within the
pta•view of'eueh individrrul elected official to deckle /what thcr ivish to communicate to labor
leaders as long (is per the Brown Ad) the/• do "trot disclose cmifldenlial hifot•mallon that has
been acquired by being present in a Closed session ... to a person not entilled to receive it, unless
the le; is•lalive bode authorizes disclosure 0/'1/1(1.1 confidential in/urtttatio/t. " (Corernment Coda,
seC. 54963(a)).
3. 'The Supervisors only approve labor contracts that are fiscally prudent and that reduce the
COUllty'S lllltUllded O.P.i'R liability.
Response: Ifill not be implemented because it is not reasonable to expect c i-ei-i, labor contract to
reduce the Count 's• unfirnded OPEB liability. Some labor contraels•, JUS'S for cwample, contain
no provision .for retiree health card and there/ore have no impact on the Cotuttv's• rtnfirnded
OPBB liability: this recommendation would eliminate tire. Supervisors ahilitl, to upprove labor
contracts with these organi_alions•. The Strperrisors hill continue to onlY upprove labor contracts
shat are fiscally prudent.
4. The Supervisors develop and iniplement a new health benclit program for County employees and
retirees that will reduce. t:he OPER liability.
Response: This recommendation is in process. The C'ount'y Administrator is workin to win c1. task
fi)rce to assist in. the development of'u nely health benefit prc�rcrm fur C'otnlh- emplovees and retirees.
The work o%'the task fo/c e is then slrhjeel to negotiation trills the cttk'cled intions', whose contructc erre
mostly.scheduled to eal)ire at the end of'Septembe l•, 2008.
5. All Medicare eligible employees, retirees, and their dependants receiving health care benel.its
from the C:'ounty be required to enroll in Medicare .Parts A and R, and to assign their Medicare
benetits to the County's authorized health illsurance carriers.
Response: Will.not be implemented because older retirees who have never enrolled in Wedicare
Part B lvould pay more in extra Medicare premittins than the benefil of their fedicarc
us.ci�nmcnt lvorrld s(n�e. "1'hi.c 1'c'C(1nl/llellll(ll1011 !,4 ber/l�f purstic(d fur.firture rcdu•ces•.
County Chips Away at Health Benefit Debt June 24, 2008
County Response to Grand Jury Report No. 0805 Page 10
6. The Supervisors approve-only County budgets that incorporate features of the approved OPER
funding strate�ty_y. These must include reductions and/or containment of.' employee and retiree
health plan costs, program and service I-edrlCtlons, and redirecting lands into the OPEB
irrevocable trust.
Response: The recommendation has been implemented in the FY 20008/09 bud et. The FY
2008/(1) hud�=et includes 20 million ill partial pre junding ivhic•h significantli• impacted the
County's OPER liabilitY and a.fixed health care bruket.
7. Within six months of' this report, the Supervisors develop a plan to incrementally increase the
OPEB Irrevocable TRISt Funding from the current 40'%0 target level to 85'1)1(, over the course of the
next 30 years.
Response: f "ill not be implemented because it is not c•urreillhv warranted or r easoluble to set an
85;'„Jinlding reit,et. .Ill 85`%;Jwlcling ter het is higher than. C'C'CI:RA 's cltrivni Jiindina level. The
C.'ountl'.'s goal is to reduce the unfunded liabilrti, not attempt to fi.ind it cit its c.•Ir1'r'ent level.
Additionalli', the Coimly diel not adopt a fired 40N'.1iinding goerl. 7'11e,funding goal is haled upon
100')i,)0')i,) Of the llahllitv.Jol'.its c..'iti-rent retirees. Over tulle, the combination of c'urrent resolil'Ce
redirection, new tiers Jbi- nell' hires, and a blicllret for health cure. costs 1vill flllh' /turd the
Coirnh''.c liability.
ltl
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