ORINDA -- The amount taxpayers will have to contribute for retiree health care promised by the Moraga-Orinda Fire District to its employees and their spouses is continuing to grow, because the district hasn't been setting aside enough money to fund it, according to a recent audit.

But fire officials say they are working on a plan for reducing that liability by setting aside money in a trust to fully fund it within 15 years.

Much of that plan hinges on the outcome of contract negotiations with district firefighters and the district's ability to freeze indefinitely how much it spends on retiree medical benefits.

Financial records released in December show the district continues to pay for some -- but not all -- health care expenses, including those incurred by 84 retired workers and their spouses and those of future retirees.

Each year, actuaries calculate how much the district should set aside to prefund retiree benefits while employees are on the job. However, governmental agencies are not actually required to pay that yearly amount, and many agencies -- like the fire district -- don't. The draft audit discussed at a Dec. 13 board meeting shows the district paid $898,937 for health care premiums in the fiscal year that ended June 30, 2012. That's considerably less than the $2.7 million actuaries recommended be set aside to fund health insurance and other benefits earned.


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As a result, the district faces not only the expense of current health care for retirees -- about $900,000 annually -- but also the annual cost of pre-funding future benefits and paying down the old debt. Analysts have estimated the district's overall health care liability at between $24.1 million and $26.3 million.

Before health care costs increased in the early 2000s, officials say, most public agencies chose a "pay as you go" approach to fund lifetime retiree health care, as the benefit was small and negotiable. But after financial analysis showed that health care liabilities were actually extremely high, many governmental agencies were advised by actuaries to set up trust funds to begin to pay down the liability.

The district chose a different approach, said Fire Chief Randy Bradley. Instead of setting the money aside, fire district officials say that for nearly three years, they have been looking at ways of reducing the benefits through a new contract.

"Rather than place that amount of money into a trust fund, we have been negotiating with the union to reduce the $26 million to $11 million by freezing all future medical increases for all employees," Bradley wrote in an e-mail.

However, those contract talks have been suspended since November, when the district announced the two-year-old negotiations had been placed on hold while firefighters and management evaluate the impacts of recent pension reform. The district currently employs 61 firefighters, who receive the same medical benefits as retirees.

The delay isn't stopping officials from refining their plan to begin addressing debt, which includes the health care liability, $24 million in pension debt and $24.7 million the district owes for bonds it issued seven years ago to pay off past pension debt. Officials plan to continue discussing specifics of their draft long-term financial plan, including redirecting a portion of a special "Fire Flow Tax" funding capital projects into a trust fund that will be used to pay the health care debt.

The fire chief said trustees are adamant about beginning to fund the liability.

"Our (draft) long range financial plan will accomplish that goal," Bradley said.