Pending Budget’s Social Security Clause Could Cause Local Cutbacks

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 pending policy are predicting a financial impact on cities and counties that might be severe enough to require service cutbacks later this year.

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

Late Insertion

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.

Officials of Los Angeles County, the nation’s largest, estimate the new rule will drain the county’s budget of $25 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.

In Orange County, where the supervisors are in the midst of public hearings on the county’s proposed $1.15-billion 1985-86 budget, officials said Friday they were caught by surprise and have not figured out what the financial impact would be on county government.

“We’re getting together with people from the county administrative office and our Washington legislative advocate on Monday to go over this and see what’s happening, but right now we don’t have any figures,” said Orange County Personnel Director Russ Patton.

Confusion Among Officials

He said there is confusion among public officials about whether the final budget approved in Washington would require all local government employees to be covered by both Social Security and Medicare, or only new employees hired after Jan. 1.

“There’s a big difference between the two, and we just don’t know what’s really involved yet,” Patton said.

Any new payroll tax will open up a “can of worms” because public employee unions will demand that the county cover not only the employer’s share of payments into the Social Security system, but also the workers’ contribution, Patton added.

The county’s 12,000 employees currently participate in an independent pension fund administered by the county Retirement Board.

Several Orange County municipal officials said they, too, were caught off guard, with some finding out about the proposed Social Security requirement for the first time when they attended a meeting of the Orange County division of the California League of Cities Thursday night.

Anaheim’s Cost Figured

However, Ron Bates, assistant city manager in Anaheim, said initial calculations show that it would cost the county’s largest city a minimum of $850,000 a year and possibly as much as $4 million annually on top of existing pension costs, depending upon whether all of Anaheim’s 1,906 employees must be covered by Social Security and Medicare.

Anaheim’s employees belong to the statewide Public Employee Retirement System (PERS).

Asked if Anaheim could afford to pay the additional costs of joining the Social Security system, Bates replied:

“I think you already know the answer to that is no. . . . We’ll catch it from both ends, with the employees putting upward pressure on salaries to counteract their new payroll deduction, and the city having to pay the employer’s share into the Social Security system.”

The entire issue would have to be settled through collective bargaining, city and county officials predicted.

Revenue-Raising Measure

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 over three years in new revenue 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 are enrolled already 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 new revenue to be raised is an essential ingredient in the budget compromise which settled months of wrangling over federal spending.

Has Been Local Option

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.