Written by California Watch

By Corey Johnson, California Watch

SACRAMENTO -- Most major California cities are failing to address the growing health care costs of government retirees, which have ballooned to more than $1 billion in some areas and soon could threaten municipalities' ability to pay other expenses, according to a recent financial analysis by a nonprofit research group.

Eleven of 20 California cities with the biggest budgets do not set aside funds for future health care costs, the study by California Common Sense found.

Those cities - San Francisco, Oakland, Sacramento, Redding, Santa Ana, Long Beach, Glendale, Fresno, Riverside, Pasadena and Santa Monica - work under pay-as-you-go systems, meaning they pay benefits from their current operating budgets and do not accumulate funds for future payments.

Combined, all 20 cities have promised $16 billion in future non-pension benefits, and $12 billion of that remains unfunded. The 11 pay-as-you-go cities are losing $2.2 billion in savings by not setting aside money, the analysis found. The $2.2 billion figure is derived from an estimate of each city's potential investment earnings at the 7.61 percent return rate set by the California Public Employees' Retirement System.

San Francisco, which is obligated to pay $4.4 billion for its current and future retired public workers' health care costs, is the state's biggest city that doesn't set aside money to help finance benefit payments.

Los Angeles, on the other hand, puts close to 59 percent of its future costs in a trust to begin drawing interest. Other cities that pay toward future costs include San Jose, San Diego, Anaheim, Roseville, Palo Alto, Bakersfield, Burbank and Santa Clara.

The analysis also concluded that retiree health care costs are consuming more of municipalities' operating budgets and aren't likely to decrease because retirees are living longer and fees for medical services are rising. Since 2008, retiree benefit costs have increased by 36 percent.

Such costs are beginning to have an impact. San Jose, for example, spent close to 8 percent of its operating budget on retiree benefits last year - a dramatic 43 percent jump from what it spent three years ago.

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Report: Sacramento not prepared for growing retiree health costs