By Doug Fletcher,Staff Writer

Change is coming in the way governments account for their retirees’ health insurance.

In Maine’s case, the change means setting up an account that will show the state has a liability that could exceed $2 billion by the time the accounting rule takes effect for fiscal 2008.

A note to the state’s fiscal 2004 audited financial statements pointed out that an actuarial study issued for fiscal 2003 estimated Maine’s liability for current and future retirees’ health insurance totalled $1.2 billion. With health care inflation running at up to 20 percent annually, the estimate could more than double in the five years between the time it was made and when the accounting rule change takes effect.

The reason for the change: to make sure potential lenders know a state’s future debt when it goes out to bond, according to Deputy State Controller Terry Brann. An added benefit is that it shows taxpayers the debt load facing the state.

The rule change – Statement No. 45 of the Government Accounting Standards Board – is very similar to another GASB rule change made in the 1990s that requires governments to list liabilities of their projected retirement plan costs.

Rep. Sawin Millett, a Republican from Waterford and the ranking minority member on the Legislature’s Appropriations Committee, noted that when retirement pension costs were included on the state’s books it represented about a $3 billion unfunded liability.

“I think we have concerns always when we have future commitments,” Millett said Wednesday. “It’s a significant amount of debt as we sit,” he added of the two retirement benefits.

Millett said the state moved toward funding some of the liability at one point during former Gov. Angus King’s administration, but then when the economy faltered, that money was used for other purposes.

“It was a good idea,” he said, “but we couldn’t afford it.”

With budget projections turning rosier for the coming year, Millett suggested that the time might be at hand to again start saving to meet future bills.

Millett said union agreements with state employees, along with amendments to the state’s constitution, pretty much prevent lawmakers from tinkering with the retirement benefits.

In Maine, those benefits are generous. The state pays the full tab for its employees and retirees health insurance. To qualify for the benefit, someone must have worked for the state for a minimum of 10 years. That time period was shorter, but the Legislature lengthened the vesting period after determining that people were seeking state jobs a few years prior to retiring in order to gain the health insurance coverage.

As with retirement costs, the accounting rule change affects cities and towns as well as states. Lewiston and Auburn officials, however, said the change will have little or no effect.

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