SMC — The Santa Monica College Board of Trustees requested its administration to return with multiple plans to deal with a projected $87 million in unfunded healthcare liability that will weigh down the college’s budget for the next three decades.
Full-time employees are guaranteed lifetime health benefits and contribute nothing toward the cost of those benefits at this time. It’s an expensive proposition, and one that college leaders have been struggling with unsuccessfully for almost eight years, said Trustee Susan Aminoff.
“We’ve run out of road down which to kick the can,” she said.
The college covers the expense of retiree health benefits in the year that they are paid without budgeting for the future. That cost is $2.8 million this year, but expected to rise to $5.8 million by 2020.
Setting aside money now will help cut down future uncertainty and ensure that SMC can meet the promises it has made to its faculty and staff, but that, too, comes at a price.
To fully pre-fund healthcare costs will require another $5.3 million this year, money that the college would be hard-pressed to set aside given its $6.27 million operating deficit.
Solutions are in short supply, but the “status quo is unacceptable,” said Trustee David Finkel.
“We have to change something about what we’re doing, and the question is what and how. I haven’t a clue,” he said. “The best thing to do under the circumstances is to instruct staff to prepare a plan and make recommendations on the inevitable need to meet these obligations so we have something concrete to act upon.”
SMC President Chui Tsang told trustees that there are two ways to approach the problem, reduce costs and bring in new revenues. Officials hope to come back with plans that include both strategies in time for the June budget adoption.
Attempts to reduce obligations will have to go through the college’s unions.
New requirements for college accreditation require a plan to fund such liabilities, said Randal Lawson, vice president of the college.
SMC is not alone in its healthcare cost woes. State Controller John Chiang released a report in late February detailing the state’s own liability of $63.84 billion over the next 30 years.
If the state pre-funded just 10 percent of that obligation, it would need to pay $170 million more than its current pay-as-you-go contribution, but it would cut that liability by $2.74 billion, according to the report.