Sarah Curry, JLF’s director of fiscal policy studies, lays out a looming fiscal problem for our state that has been building for many years: taxpayer liability for state employee health care and retirement benefits.

These benefit plans are considered by the state to be liabilities, meaning they are payments that must be made using state tax dollars. While the General Fund has a specific amount of debt capacity it can manage, pensions and benefit plans are not within that capacity. Benefit plans are not considered “hard” liabilities (PDF) because they are based upon estimates of costs the state will incur in the future and because the payment timetable is uncertain. 

Since these liabilities are not part of the state’s debt capacity calculation, any unfunded obligations do not represent a hard liability in the same way debt service does. So in essence, these future payments funded with tax dollars to retired state employees are hidden from the General Fund’s accounting ledger and are putting a large burden on future taxpayers in North Carolina without them even knowing.

While offering both retirement and health care benefits to employees is a reasonable and expected part of employment, the state needs to re-evaluate its method of paying for these benefits. There are two main ways these benefit plans can be maintained for future generations of state employees while still offering the benefits promised to those who have already retired: first, changing the way these plans are funded; and second, changing the way they are paid to retired employees.