By Brian Shane

Staff Writer

Worcester County stands to save millions in borrowing costs for future capital projects after securing a top-level bond rating, the result of paying off its debt on retired employee health plans.

“The commissioners have adhered to an aggressive investment policy to build trusts that are capable of generating the dividends and interest needed to pay anticipated annual (post-employee benefits) costs,” said Ted Elder, president of the Worcester County Board of Commissioners, in a statement.

Federal polices requires counties and municipalities to maintain a dedicated trust fund to pay the cost of promised future medical and pharmacy benefits for retirees. Over the past three years, the County Commissioners increased their annual allocation to this fund, budgeting about $12 million annually.

Three years ago, Worcester County’s debt service for health care retirees – meaning, the dollar amount that would be needed not today, but decades from now, to cover retiree benefit costs – was $437 million. Today, that reserve fund is fully funded after the county aggressively paid down the liability, ensuring no need to dip into the general fund for retiree health care costs.

County employees become eligible for lifetime medical benefits from provider CareFirst after 15 years of service and reaching age 55. While retirees still pay a portion of the cost, the county covers between 80 and 90 percent.

With an assumed 7 percent return on investment, the fully funded trust should generate enough interest to cover all future retiree health benefits indefinitely.

The fund covers benefits for the county’s 650 employees and is separate from a similar trust fund for the Board of Education (BOE), which serves 1,200 employees. The BOE’s $94.8 million liability is expected to be paid off within five to seven years, according to county officials.

This fully funded trust has improved the county’s borrowing power, earning it an AAA bond rating – on par with the State of Maryland and the federal government.

“The existing unfunded (trust) liability has a direct impact on the County’s credit rating, borrowing power, and interest rates on debt for capital construction projects, like the upcoming project to build a new Buckingham Elementary School,” said Weston Young, Worcester County’s Chief Administrative Officer. “Transforming the BOE Trust from a liability to a net asset is critical to ensuring the County’s continued ability to secure low-interest loans for BES and other capital projects.”

Young also said the county is among the best performers among Maryland’s 23 counties and Baltimore City for paying down retiree health benefits.

Looking ahead, the county’s primary capital project is the replacement of Berlin’s aging Buckingham Elementary School. The state is expected to cover 20 percent of the projected $47 million cost, though that funding is uncertain in the face of the state’s looming budget crisis.