Medicare, Social Security Policy Jolts Governments

At first glance, the paragraph buried in the congressional budget agreement seems routine. It requires employees of local government, for the first time, to join most of the nation’s workers and begin paying into Medicare and Social Security.

But in California, a state with 1.5 million teachers, police officers and other public employees, the few local officials who have analyzed the new policy are predicting a financial impact on cities and counties that might be severe enough to require service cutbacks later this year.

Officials of Los Angeles County estimate that the new rule will drain the county’s budget of $25 million to $30 million the first year. The county budget totals $6.7 billion, but the chief administrative officer, James C. Hankla, said it contains only $20 million in reserves.

Added to other fiscal reverses that local governments suffered this year--including a costly new federal regulation requiring overtime pay for most police officers and firefighters--the Medicare and Social Security requirements could force service cuts and employee layoffs, Hankla said. He declined to speculate in what areas he would recommend cuts.

The new policy, which was inserted into the budget fray near the end of negotiations, caught many local officials by surprise. Attempts to digest and fully analyze the fiscal impact have been difficult because Congress, and much of Washington, went on vacation immediately after the budget conference committee announced it had reached an agreement.

In Orange County, for instance, Personnel Director Russ Patton said officials were unable to learn enough details to make a cost estimate.

“I’ve never seen this level of chaos trying to figure out what Congress did,” said Doug Ford, director of the Los Angeles city Community Development Department.

However, Los Angeles city officials estimated that the first year of Medicare payments for their 30,000 employees will cost the treasury $13 million, plus another $5 million to cover employees of the city’s independent Department of Water and Power.

The Medicare and Social Security requirement did not become part of congressional budget deliberations until last month, when Senate Republicans endorsed it as a way to raise about $8.4 billion in new revenue over three years to reduce the federal deficit.

Under the plan, all current public employees would be forced to enroll in Medicare. Only new employees would have to begin paying into both Medicare and Social Security, until gradually all workers would belong to both systems.

About 70% of state and local government workers nationwide are already enrolled in both systems, according to congressional reports. But in California, only 40% participate in the federal retirement programs, leaving about 1 million government workers who would be affected.

Congress could modify the new policy when it returns from its summer recess, but local government officials concede that is unlikely because the $8.4 billion in anticipated new revenue is an essential ingredient in the budget compromise that settled months of wrangling over federal spending.

The decision to join Social Security and Medicare has been a local option. Los Angeles County, for example, pulled its work force out of Social Security three years ago as a money-saving move. In San Diego, all county employees are enrolled in Social Security.

Workers not covered by Medicare and Social Security are, for the most part, now included in state and local government retirement systems.

Paycheck deductions for most workers would not be greatly increased with the switch. Under the new federal policy, state and local employees would have 1.45% of their pay deducted for Medicare and an additional 7.15% if they are new workers required to join Social Security.

Newly hired civilian Los Angeles city employees currently pay 6% of their income into the city’s retirement plan. Los Angeles police officers pay 7%.

But while the cost for individuals would not rise sharply, the cost for local government would. Local governments would be required to match all employee contributions.

Even before Congress announced its budget agreements, local government officials were bemoaning the fiscal woes brought on by a U.S. Supreme Court decision last February changing the work rules for many public employees.

The decision, handed down in the case of a San Antonio transit worker, brought city and county workers under the federal Fair Labor Standards Act. Subsequent regulations imposed recently by the Reagan Administration require local governments to begin paying overtime to such workers as firefighters and police officers next March and provide some retroactive payments.

In Los Angeles, which depends heavily on police and firefighters working overtime, Mayor Tom Bradley has estimated that the ruling will cost $100 million a year. The city’s practice of paying regular wages to firefighters for extra days, and compensating police overtime with days off, would be outlawed under the new regulations.

Bradley’s staff attorneys have recommended an aggressive legal strategy to fight the new rules. A memo prepared for Bradley by his chief of staff, Thomas K. Houston, and counsel to the mayor, Mark Fabiani, urged the city not to comply until legal challenges to the regulations have been exhausted.

Los Angeles County officials estimate their tab under the new labor rules would run $50 million the first year.

At the same time, Congress this year approved a 15% cut in one of the remaining major programs left intact by cuts in federal aid to cities and counties during the Reagan years--the housing and community development block grant.

The House-Senate conference committee, which completed work Aug. 1, also voted to end another major source of federal money for localities--general revenue sharing--beginning next year.

Times staff writers Jeffrey A. Perlman and Lorena Oropeza contributed to this story.