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Retiree Health Benefit Costs Increase 10% Annually For Cities

May 25, 2017

Retiree health care costs for 55 large U.S. cities increased by an average of 10% annually from 1999 through 2004, Moody's Investors Services said in a note issued on Tuesday, the AP/Houston Chronicle reports. According to Moody's, the increase in retiree health care costs for police, firefighters and other city employees exceeded the rate of inflation over the five-year period. In Oakland, Calif., retiree health care costs from 1997 to 2005 increased by 45% annually from $600,000 to $2.6 million. Cities often have "pay as you go" plans for retiree health care costs and do not have funds reserved to cover future costs. As a result, cities have had to spend an increased percentage of their revenue on retiree health care costs in recent years. In 2005, Baltimore spent 7.8% of city revenue on retiree health care costs, and Tampa, Fla., spent 8.9%, according to Moody's. Detroit spent 8.4% of city revenue on retiree health care costs in 2004, Moody's said. Under new accounting rules, U.S. cities in 2009 for the first time will have to report their current and future liabilities for health and other benefits for retirees. Moody's said many cities remain in the "discovery" stage of their efforts to address retiree health care costs, adding, "It is premature to prescribe dogmatic treatment of this new and evolving information within the context of credit ratings" (AP/Houston Chronicle, 1/30).

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