Posted At Duluth Superior

BY : Scott Thistle

Minnesota's top financial watchdog Wednesday said Duluth's unfunded retiree health-care debt - expected to cost the city nearly $280 million by 2014 - needs immediate attention.

"This is about the financial survival of the city," state auditor Patricia Anderson told the News Tribune.

Duluth's problem is unique in Minnesota in its size and scope, Anderson said. Failure to quickly figure out how to keep the debt from growing would be a financial disaster for the city and its taxpayers, she said.

Without doing so quickly, the city could face bankruptcy within the next 20 years, Anderson said.

Her call for action on the problem comes days ahead of report from a City Council task force on the issue. The task force will present the report to the City Council on Monday during a 6 p.m. special meeting at City Hall.

The projected debt comes from the lifetime health-care benefits promised by contract to current and retired city employees.

"The size of the problem in Duluth is astronomical," Anderson said. "In my knowledge of the problem, so far, it is the largest (in Minnesota)."

No other city or even county faces a retiree health-care problem close to Duluth's, she said.

"You would have to be sacking away $15 million to$20 million a year for nearly20 years to address this problem," Anderson said. "That's a figure more than two times the city's current property tax levy."

At a minimum, the city needs to eliminate fully paid lifetime health benefits for employees and their spouses in the next round of contract negotiations, Anderson said.

"They need to immediately get this out of the contracts so they don't make the problem any worse," Anderson said.

Ken Loeffler-Kemp, a union representative for city employees with the Association of Federal, State, County and Municipal Employees Minnesota Council 5, said Anderson has no role to play in contract negotiations.

"Her role is to review the plan that will be presented to address and resolve this problem," Loeffler-Kemp said. "But not to come in and say this is how you address it."

AFSCME Council 5 is the city's largest bargaining unit, representing about 450 of the city's estimated 800 workers.

Besides doubling local taxes to help pay for the problem, Anderson suggested the city might consider selling off its assets but offered no specific suggestions. She also cautioned the city about further increasing its debt load without a solid plan to pay for it.

City Council President Donny Ness, one of three councilors who pushed for a task force on the issue, welcomed Anderson's concern but said it wasn't as though the city was ignoring the problem.

"There's no doubt that this is a serious situation, and I agree with her that we need to take action," Ness said. "We understand the urgency here and the importance of us dealing with this directly. The auditor isn't saying anything we don't know."

Ness also agreed with Anderson that the state had no financial responsibility to help solve the problem.

"This is an issue of our own making over the past20 years," Ness said, "and it's incumbent upon our elected leaders and the unions to find a solution that will make a sustainable program."

Mayor Herb Bergson, who campaigned for election on solving the issue, said he too welcomed Anderson's concern.

"I don't believe any city can afford a defined benefit any longer," Bergson said viae-mail. "I don't seem to be making many friends on this effort, even though many of the people who are upset with me would be affected heavily if the city continued its ways of the last two decades."

Previously proposed union solutions to the problem could cut the liability in half,Loeffler-Kemp said. Those proposals included a plan to reimport Canadian prescription drugs for city retirees and workers and a partial takeover of city health insurance by a private company.

He expected parts or all of those proposals would be included in the task force's recommendations Monday, Loeffler-Kemp said.

"Nobody has a greater interest in resolving this issue than city employees," he said. "We are absolutely confident that, working together with the city administration, we will be able to restore long-term financial stability to the city's health-care fund."

While he couldn't disclose any details of the soon-to-be released report, task force chairman Arend Sandbulte agreed with Loeffler-Kemp and Anderson.

"It's definitely time to deal with it, and that's why we will be talking about it Monday night," Sanbulte said. "From here on out, we need the cooperation of everybody involved."