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Count the ARC for Looming OPEB Obligations

Friday May 13th, 2016   •   Posted by K. Lloyd Billingsley at 10:51am PDT   •  

StethoscopeCash_MLWhen counting the cost of government, taxpayers should pay close attention to OPEB, the “Other Post-Employment Benefits” of government employees aside from their pensions but including their health care costs. Now taxpayers have a calculating tool, State Retiree Health Plan Spending: An examination of funding trends and plan provisions, a new report from the Pew Charitable Trusts. As the report notes, only 28 percent of large U.S. employers offer retiree health benefits, but “49 states continue to include these benefits as a key part of state compensation programs.” The retiree health benefits, in turn, “account for the majority of states’ OPEB obligations” and many states have implemented policy changes to address “looming OPEB obligations.”

In 2013, the combined OPEB liability was $627 billion, and the report finds much of this liability concentrated in 13 states: Alaska, California, Connecticut, Georgia, Illinois, Maine, Michigan, North Carolina, New Jersey, New York, Ohio, Pennsylvania and Texas. In 2013 these 13 states represented about half of the U.S. population but “accounted for 81 percent of the total OPEB liabilities for all 50 states.” To meet these obligations requires ARC or “annual required contributions.”

According to the Pew Report, California will have to spend an annual $6.6 billion, to cover in full the current unfunded liabilities of $80.3 billion. As Dan Walters of the Sacramento Bee notes, that would be more than three times the $2 billion a year California currently spends, and that number, according to Gov. Brown’s budget, is up more than 80 percent in the last decade. Walters also recalls that, until recently, California was one of just 18 states that have “set aside nothing to cover those future obligations.”

When they use the Pew report to run the numbers for their state, taxpayers should keep in mind that these “looming” obligations are aside from government pension costs. For an assessment of government pension obligations, now more than $4 trillion nationwide, see California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, by Lawrence J. McQuillan.

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May 2016