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Community Corner

The Growing Payment For Non-Work

With the introduction of "other post-employment benefits" to accounting standards, RI towns have a better (if more frightening) view of their looming responsibilities.

A relatively new acronym has entered the lexicon of Rhode Islanders who strive to comprehend the financial condition of the state and its cities and towns. OPEB stands for "other post-employment benefits" and, in Tiverton for example, includes health, dental and life insurance covering employees and their families after their retirement.

According to a press release announcing the issuance of the final report from the Rhode Island Senate Municipal Pension Study Commission, the unfunded OPEB promises that cities and towns have made to their employees amount to $2.4 billion. As the Providence Journal highlighted when reporting on the release, this is on top of about $2 billion in unfunded pension liabilities that cities and towns have incurred.

Pensions and other after-retirement benefits have long been an attractive area of compromise for public-sector unions and the elected officials with whom they negotiate. The unions get a defined, ostensibly guaranteed benefit, and the politicians are able to promise payments that future elected officials will have to figure out how to fund. Effectively, it wasn't until calendar year 2007 that the Government Accounting Standards Board (GASB) began requiring governments to comply with its Statement No. 45, whereby OPEBs are reported as liabilities. For governments the size of Tiverton's, the requirement came a year later.

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Residents who've more or less left local governance to their neighbors may be surprised that councils, mayors, administrators, and treasurers haven't been tracking their mounting liability all along. One expects that, as a matter of course, long-range decisions would be accompanied by such questions as: Where will this leave the town in ten years? Twenty? Thirty?

Decisions related to employee retirements will tend to compound and adjust automatically based on everything from negotiated salaries to insurance premiums. But elaborate spreadsheets displaying the effects of new projections of interest, premiums, population trends, and so on apparently do not exist. Thus does a small town like Tiverton wind up with an accrued $36 million in retiree medical, dental, and life insurance, calculated as a thirty-year liability, according to the town's official 2010 audit report.

Find out what's happening in Tiverton-Little Comptonwith free, real-time updates from Patch.

Because the distinct groups have each negotiated their own contracts, eligibility and lucrativeness varies depending upon department. Police have it best, becoming eligible for the benefits at any age, after twenty years of service, and paying only $400 per year for medical coverage, whether for individual or family plans. Employees of the fire department are eligible after 20 years or at age 55, whichever comes first, and pay a whopping $520 per year, individual, and $1,040, family.

School employees need only put in 10 years, or reach age 55, but their coshares are between 25 and 50%, depending on longevity. Lastly, other town employees are eligible after 10 years, or age 58, with $525/1,100 coshares, individual/family, but only if they were hired before 1993. (Those in the Teamsters Union were cut off in 1994 but pay nothing.)

Eventually, of course, the bills begin to come due. Tiverton currently covers its OPEB responsibilities on a year-to-year, pay-as-you-go basis, amounting to nearly a million and a half dollars annually. For fiscal 2010, the expense was $1,362,886. That's more than 4% of the tax levy, for that year. It's also only 42% of the GASB-suggested payment (technically called an "annual required contribution"), which was $3,222,448. A payment of that size would have been 10% of the levy.

The extent of the problem facing governments at all levels comes into focus when one begins to calculate the payments necessary for completely solvent retirement systems. On top of its OPEBs, Tiverton pays into a state Employees' Retirement System for teachers, a state Municipal Employees' Retirement System (MERS), and its own police pension plan. Had the town made its required contributions to all four of these funds, it would have spent $5,556,354, or nearly 18% of that year's tax levy --- all to pay people for years that they are no longer working for the town.

Worse yet, these are all estimates. If, for example, health care costs increase by more than 9%, the required payments will rise. If continued deficits lead the town to lighten its staffing load through attrition, fewer employee contributions to the various retirement systems will require the town to make up the difference.

The same result would be necessary if investment returns come in below 8.25%, annually. WPRI journalist Ted Nesi pointed out, in October, that the state's pension fund, which also assumes 8.25% growth, only experienced 2.02% annually from 1999 to 2009. In the past few years, he writes, it's been 4%.

Even meeting today's required contributions, in other words, is very likely not to be sufficient tomorrow. In the absence of dramatic changes in the deals that Tiverton and every other government entity in Rhode Island has promised to people who are no longer providing services to taxpayers, the percentages of budgets available actually to support those services will continue to shrink. Otherwise, our crippling tax burden will have to grow ever greater, even as prospects of any retirement at all continue to wane for the folks who pay the public-sector's bills.

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