Today’s Trib story about Mark Winson had a headline which claimed that the City’s former top administrator mad a deal that “cost the city millions.”
How much did it cost Duluth? Most readers will be drawn to his sentence:
“The contracts approved in 2004 appear to have added to the city’s unfunded health-care liability. In 2002, an audit conducted by a Minneapolis-based accounting firm put the unfunded health-care liability at$178.5 million. By January 2005 the liability was at $279 million. By 2006, the liability had swollen to $300 million.”
Because I’m grappling with the cost of the Red Plan, another $300 million liability, I have been very curious about the City government’s fiscal dilemma. I figured there was more to the story and Brandon Stahl, the story’s author, has an interesting blog which I consulted. Sure enough he has an entry giving a little backstory on this deal.
In it Brandon explains that he began covering City government about the time these negotiations were taking place and that he had not fully grasped everything that was going on. I certainly recall some frustration in 03 trying to make heads and tails of the City’s problems. The final line of Brandon’s blog post caught my attention:
“It seems to me that what he did (with approval by then mayor Bergson and the city council) was make a short-term sacrifice– giving employees plan 4 — for a long-term gain that eventually led to getting employees off of retiree health care.”
If the deal cost Duluth over $100 million as a “short term sacrifice” I wondered what the trade off was that might have made this sacrifice justifiable. I called Brandon to ask him if he knew whether any actuaries had calculated the benefit of making the sacrifice. If so, it could certainly go a long way to making Winson’s “deal” look good instead of stupid and would obligate Brandon to do a follow up story.
Brandon took my question seriously but suggested he might wait a couple days for Winson to “cool off” before pursuing it.
So, I called up Winson myself, first at City Hall. I was premature. Mark is still wrapping things up at Lake Superior State.
After I tracked him down Mark gave me a few minutes of his time. If he was exasperated with Brandon he didn’t betray it.
I asked him if there were any actuarys involved in evaluating the tradeoff for reducing the number of health insurance plans from 124 to just a few. No there weren’t but Mark said he did a little calculating on the back of napkins – that’s not quite how he put it – to assure himself Duluth would be better off.
He reminded me that at the time new accounting standards were being forced on all local governments under something called GASBY. It would take up too much space to explain this but check the link for more info. Basically, these were sensible new accounting standards that required government to calculate their future financial obligations or debts. We were wrestling with this on the Duluth School Board at the same time.
The City had negotiated itself into a considerable hole over health insurance and Winson had to navigate the City out of the hole. Whether or not it made sense to incurr additional future debts by simplifying the insurance won’t be known for some years but Winson is confident that it will be an improvement. We are going from an era of “defined benefits” (that can rocket up) to “defined contributions” which puts a serious leash on the future expenses. The City’s new hires will no longer be flying on this rocket.
Winson made two other points which he would be in a better position to know than I would. First, the insistance that the City’s other unions could force AFSCME (Duluth City Government’s main union) to surrender some of their health care benefits was not politically possible even if it would have been desirable. Second, That even if all the employees had retired under another health insurance plan instead of Plan 4, there would still have been a cost. Say that this cost is $100 million whereas the City’s ideal cost under a different hypothetical plan would have been $80 million. Considering this the cost to the city wouldn’t have been the $100 million that the story suggests but the difference between the two plans or – $20 million. I’m a lousy mathemetician and no actuary but I can imagine that what the City eventually got as I’ve described it was a big plus rather than a minus.
The historian in me is glad that the once wet-behind-the-ears Brandon Stahl is getting a do-over on his coverage of the health care crises of 2003. (Much as I hope the Trib’s education reporter gets a chance to reevaluate her coverage of the Red Plan’s early stirrings) Now I hope there is a follow-up story so that the Trib’s dwindling but loyal readership gets a clearer idea about whether the Winson deal of 2003 was a net loss or a net gain.