SAN FRANCISCO - The bill is coming due for years of generous benefits bestowed upon the nation's public employees, and it's a stunner: hundreds of billions of dollars over the next three decades, threatening some local governments with bankruptcy and all but guaranteeing cuts in services like education and public safety.

This staggering burden is coming to light because of new accounting rules issued by the Government Accounting Standards Board. They require public agencies to disclose the future cost of health care and other benefits - such as dental, vision and life insurance - promised alongside traditional pensions to the nation's estimated 24.5 million active and retired state and local public employees.

Retiree health care costs have been quietly mounting for decades while public agencies have passed out generous retirement benefits during labor negotiations - often in lieu of salary increases. But government negotiators rarely considered the long-term financial consequences of awarding such perks, said Brian Whitworth, a retirement benefits specialist with JP Morgan Chase and Co.

"A surprising number of public entities didn't even make informal estimates of long-term costs prior to the new accounting rules," Mr. Whitworth said.

Many cities and state agencies already are struggling to fully fund their pension obligations, but experts say those liabilities pale in comparison to the debt accumulated for other retirement benefits.

Last month, JP Morgan released what it considers the most comprehensive preliminary estimate. It projects the current value of unfunded health care and other nonpension benefits at between $600 billion and $1.3 trillion.

"There's a good chance some government entities are going to go bankrupt," said California Assemblyman Keith Richman, a Republican from Chatsworth. "But the issue isn't just bankruptcy, it's governments dying of a thousand cuts in services."

"This is a monumental problem, and government is going to have to deal with it," said Steve Regenstrief of the American Federation of State, County and Municipal Employees.

When the new accounting rules take effect in 2008, taxpayers will be able to see for the first time how much they're paying to provide benefits to active and retired state and local public employees.

"When the numbers are produced, they're going to be shocking," said Ronald Snell, director of state services for the National Conference of State Legislatures. "They'll be in the hundreds of billions, and it's definitely something that policy-makers are going to have to take notice of."

The Government Accounting Standards Board is an independent nonprofit organization that establishes accounting standards for public agencies. Seeing a need to bring public sector disclosure rules in line with those of the private sector, the board unveiled the rules change in 2004 and gave governments several years to implement them.

The new rules don't require governments to come up with the money right away, just to disclose the current value of the future costs and estimate how much more money is needed to pay for them. To prepare for these disclosures, public officials across the country are beginning to calculate how much they might owe.

So far, California, New York, and Maryland appear to have the biggest burdens, but that could change when estimates begin trickling in from Florida, Texas, Illinois and Pennsylvania. Of the country's 10 most populous states, none has completed a formal estimate of their liabilities, but those that have completed preliminary assessments are reporting astounding numbers.

Other states have reported significant amounts: Alabama estimates $19.8 billion, Massachusetts $13.2 billion, Alaska at least $7.9 billion, and Nevada between $1.62 billion and $4.1 billion.

How this will affect residents depends upon the size of their government's obligation and how it's handled. At the least, experts say, the public can expect increased taxes and fees or reduced public safety and public works services as governments adjust their budgets to amortize the debt.

They probably can't expect much in the way of concessions from public employee unions, said Suzi Rader, director of district and financial services for the California School Boards Association. Any attempt to limit benefits already granted in future negotiations will be a contentious issue.

Most governments now fund retiree health care on a pay-as-you-go basis, with annual appropriations from their general funds, focusing most of their attention on current expenses.

Under the new accounting rules, the liability can be paid over 30 years like homeowners do a mortgage, but it forces public officials to recognize the debt and calculate an annual payment.

If officials choose not to set aside additional money each year to cover the payment, it counts against net assets, potentially putting a city or agency deeper into the red. Because assets are a critical component in the credit ratings that allow governments to borrow money at lower interest rates, governments that don't handle their liability properly could end up insolvent. This text is invisible on the page, but this text is affected by the invisible item's flow. This text is invisible on the page, but this text is affected by the invisible item's flow. More headlines...

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