Thursday, August 18, 2011

'Haley Public Employment Tax' levied on public employees

From the beginning of her political career -- seems like only months ago -- Governor Nikki Haley has made it clear that she thinks taxes are too high and should be cut.

Which made it stunning news last week to hear that she had initiated, supported and led passage of a brand-new tax on public employees. Apparently, some taxes are good and fine, depending on who is subject to pay them.

This is a tax that only affects public employees, so it is appropriate to call it a Public Employment Tax.

And, as Haley was its inventor, it's entirely appropriate to call it the Haley Public Employment Tax.

It will be interesting to hear Haley deny that it's a tax of her invention; I understand that the proposal came to the Budget and Control Board as an agenda item from her board staff, she gives final approval to the agenda, she chose the director of the board, and she chairs the board. Therefore, it's her proposal, and she led it through to passage by the board.

So the Haley Public Employment Tax is hers to own.

I've read and re-read the coverage by The State to understand this tax:

Families covered by the state’s health insurance plan will pay $143 a year more for health insurance under a new plan approved Tuesday by the State Budget and Control Board.

The 9 percent increase will be spread equally between employees and employers, with each paying 4.5 percent more.

But why was nine percent necessary? According to the board's consultants, only 4.5 percent was necessary, and that was fully funded in the budget this year. Why was it necessary to tax public employees another 4.5 percent out of their pockets?

We have never increased rates unnecessarily. This is the first time. It is unprecedented in state government,” said Sam Griswold, president emeritus of the State Retirees Association. “To me, you are building a profit into the system.”

Haley denied the system was turning a profit, saying any money left over automatically goes to pay down state pension debt.

Pension debt? Has anyone ever heard of this? If the system is fully funded and healthy, there shouldn't be any such thing as pension debt, should there? Which means that the additional 4.5 percent tax on public employees' salaries is, in fact, a profit to the system.

The insurance plan insures 408,605 people, close to 10 percent of the state’s population. That includes employees, retirees and their families. In addition to state employees, the plan also covers teachers and some employees for local governments and school districts.

Employees covered by the plan were hit with huge increases in the mid 2000s, including a 39.6 percent increase in 2003, according to the Budget and Control Board. Historically, employers – the state, city, county or school system – have borne the brunt of premium increases, with nine increases since 1999. Employees’ costs only have been increased five times since 1999, the last one coming in 2005.

Only five times since 1999? That's five times in 12 years, or, an average of slightly less than every other year during that period.

Henry Price, a retired USC journalism professor, attended Tuesday’s meeting to hear for himself the future of his health insurance premiums. He said he pays about $250 a month for his and his wife’s health insurance, and the increases will add an extra $120 a year to his bill.

“I think 3 1/2 (percent) covers the problem. Four-and-a-half is adding extra money into the system,” Price said. “You can say, ‘Well, it’s just pennies.’ But pennies mount up.”

Quite right. And the net result is going to be that next legislative session, when budget writers see that the health plan is now receiving a profit thanks to the Haley Public Employment Tax, they're going to feel compelled to take back some of the state's employer contribution. Mark my words.

Well, that was The State's coverage, but I trust what Sam Griswold says about public employment and employee benefits. He's the president emeritus of the Retired State Employees Association, and beyond that, he's neck-deep in experience working with the Budget and Control Board and the state treasury.

"The premise of our concern with the increase in health insurance premiums of 4.5% is that they were not needed to fund the program and were thus unnecessary," Sam wrote in a message to retired state employees and others last week.

Sam is so well-versed in this business that he prepared data to present to the Budget and Control Board last week -- but his data never made it into the agenda materials given to the board members, and were not posted on the board's website.

Want to see his data document for yourself?

Griswold PageAnd here's his explanation of it:

I will explain this page to you and show you why this increase was not needed.

Focus on the two columns labeled Scenario 1 and Scenario 2 (s1 and s2). S1 assumes the imposition of the 4.5% employee rate increase. S2 assumes NO rate increase. The program is required by law to maintain a reserve fund to pay claims for up to 45 days in case an epidemic occurs or some other projection of claims costs is in error. The first line is the amount of that reserve fund being carried over from 2011. The second line is the amount available to pay claims. The difference between the two columns is $19 million and represents the increase of 4.5% from employees in s1.

The third line is interesting. This line transfers $158.9 million out of plan income to the Other Post Employment Benefits Trust Fund. This Fund was set up a couple of years ago to conform to new government accounting standards requiring that the projected cost of providing health insurance to retirees be included in the State's liabilities on its balance sheet. This fund was set up to reflect that the State acknowledged this liability. The law states that each year any funds not needed to run the insurance program will be transferred into the OPEB fund. Last year the transfer was $16 million. So this year, 2012, in this particular line, is $158.9 million not needed to run the insurance program.

Go to the last line in the top box. This is the amount we have available in 2012 to pay claims. S1 is $19 million larger than s2. Your increase.

The second line in the second box shows how much we expect to pay in claims. Subtracting the claims from the revenue ends up with Projected Ending Claims Reserve at 12/31/2012. That amount is $233 million in s1 and $214 million in s2 (your $19 million showing up again and it has NOT been spent). This is the amount of the operating reserve that is supposed to be able to fund an additional 45 days of claims payments if needed.

Now the fun part: go to the bottom line of the third box. This line tells you how many days of reserve we have and the excess days that are funded. Under s1, we see 51.8 days which is 6.8 days more than the 45 day reserve required by law. Under s2 (remember this is the figure with NO rate increase) we see 47.6 days which is 2.6 days more than the 45 day reserve needed.

THE CONCLUSION: Had no increase been imposed on employees/retirees, the program would have had enough funds to pay every claim, maintain an operating reserve that complies with state law--even exceeds it, and still transfer a record amount of $158.9 million into the OPEB Trust Fund. The 4.5% increase on employees/retirees was not needed.

Sam Griswold is no joke.

The same cannot be said for those occupying our seats of power.

So, I wondered if my interpretation of the Haley Public Employment Tax was accurate. And Sam said, "It was an increase not needed by the program to operate at full funding. It is the imposition of a tax."

So there is a tax that Haley has found she can love and can raise. It happens to be levied against all the men and women who do the state's work for meager compensation, and pray daily not to get sick and require health care provided by the state's ever-more-costly, ever-weakening health plan.

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