STATE REPRESENTATIVE
PAUL C. CASEY

A View from the Hill

FOR IMMEDIATE RELEASE: October 9, 1999
CONTACT: Tommy Voltero (617) 722-2240

BRAVING THE UNCHARTED WATERS OF THE 21ST CENTURY

Back in 1492 when Christopher Columbus was preparing to set sail for the Orient, he undoubtedly had a lot on his mind. The enormity of his daring adventure required that he forecast a variety of situations and scenarios that lay ahead in the cold, dangerous, and uncharted waters of the Atlantic. Provisions could run out, the ships could sink, pirates could hijack the fleet, sea monsters could smash the ships to pieces (this was the 15th Century, after all), and if predictions were wrong about the shape of the earth, the men might sail off of the end of the world. Preparation was the key to a successful expedition.

Despite Columbus's efforts to ready his fleet, the voyage was not without problems or surprises. After weeks of sailing, the crew came close to a mutiny due to worries of dropping off the face of the planet. Columbus assuaged their fears for the time being, and shortly thereafter, sighted land in the horizon. As he disembarked from the Santa Maria, Columbus observed that the appearance of the land was inconsistent with Marco Polo's description of the Orient. We, of course, know that Columbus was in fact on the shores of the "new world." The explorer was not aware of this miscalculation, nor did he have time to think about it since he ran into another little problem on the voyage home when the Santa Maria was run aground on a coral reef.

Columbus's voyage is a useful example to legislators making public policy in that it demonstrates the importance of forethought. One must look not only to present issues and concerns, but also to those problems and crises which have not yet materialized. Although something appears to be working well, there is no guarantee that there will be smooth sailing in the years ahead. One must always account for that unknown variable, that unexpected storm that could drive the ship off course.

We have the benefit of learning from past experiences when attempting to create new policies. One issue that has been the focus of my committee is pension obligations. About ten years ago, the legislature found problems with public retirement systems that operated on a "pay-as-you-go" basis, where the contributions of active employees funded existing pension obligations. The problem, which is similar to the federal Social Security policy, is that the "pay as you go" format cannot sustain itself, and in time will go bust. Thinking back to the Depression when banks simply did not have the liquid assets to support widespread, simultaneous withdrawals, a similar situation can easily be conceived if retirement payments exceed contributions. In such a scenario, drastic and unpleasant measures would have to be taken. Either pensions would be reduced, current contributions be increased, or funds be taken from other places in order to satisfy the obligations.

In light of such gloomy prospects , the state government- in conjunction with municipal leaders- established policies that would put public pension systems back on track. Plans were laid out to make all public pension systems "fully funded" by the year 2018. Even in the unlikely situation that everyone retired at once, the pension system would stay afloat. As it stands, some communities are already fully funded and others (including the state) are on their way. Compared with ten years ago, the system has made incredible progress. This demonstrates that with intelligent planning, crises can be averted in a relatively short period of time.

Just as we leaped over the pension obligation hurdle, another obstacle appears to be in our path. Health insurance costs look to be an important issue for the 21st century as people are living longer and requiring more and more medical services. These costs have already been rising over the years, and some predict that in less than 40 years, state and municipal health insurance appropriations will take up the lion's share of tax revenues. Since public employers must cover health insurance payments for past and present employees, they will begin to feel hard-pressed to pay for this benefit.

Provided that the state and its cities and towns still concern themselves with the health and welfare of their employees, something must be done to prepare for the rough waters ahead. A potential solution would be to adopt measures similar to the pension obligation issue. A health insurance trust account could be established that would "pre-fund" future obligations to heath care premiums. In this way, public employers could begin setting aside money now to meet future payments. Such an approach would make the state and its municipalities better prepared to counter rising health care costs.

The million dollar question remains as to how this program could possibly be funded. One idea is to take the funds from the tobacco settlement (once they materialize) and to put them in state and municipal trust funds. Because smoking contributes to health care expenses, settlement monies could be targeted specifically in this area. Another source of funding could be a portion of the excess actuarial gains from the retirement system. As systems become fully funded, contributions which exceed the requirements could be channeled into the health insurance trust fund. Once monies begin to pour into this fund they can be invested in other ventures, and the interest will add to the principal.

However we decide to handle the matter, the important thing is that we make ourselves aware of the situation. In the case of pension liability we never suffered a major crisis. If one were to occur, however unlikely as that may be, public employers would be all the more prepared as a result of the legislature's foresight. The key is knowing the "nature of the beast" and taking the necessary steps to stop it in its path.

We still cannot see into the future, as much as we would like to. There may be an impending crisis in health care insurance; there also may not be. The worst thing that could be done would be to completely ignore the situation, leaving us completely defenseless in times of economic crisis. What we must do is discuss the situation and begin to prepare for the uncharted waters ahead. While we always hope for the best, we must prepare for the worst. To refuse to do so is to gamble with the future of this Commonwealth and its noble citizenry. Even Columbus brought along extra canvas, wood, and provisions, just in case!