Cost of OPEB (and Apathy)

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Union County Director of Finance Lawrence Caroselli shortly before he retired (with free lifetime health benefits).

State governments contributed $18 billion to their retiree health costs in FY2015,  42% of their annual required contributions, according to a new brief by the National Association of State Retirement Administrators (NASRA) and the Center for State and Local Government Excellence (SLGE) which ranks the states based on total Unfunded Actuarial Accrued Liabilities (UAAL) for these Other Postemployment Benefits (OPEB) and Percentage of State Spending with this warning:

FY 15 spending on OPEB in New York and California was below 2 percent, despite both states reporting relatively high UAAL and annual expenditures. By contrast, FY 15 spending on OPEB in Alaska and Hawaii was above 4 percent of spending, despite comparatively lower UAAL and annual expenditures in both states.

No such explanatory footnote for the state that is tops in both categories:

Mercatus Ranks States Fiscal Condition

The Mercatus Center just sent out an email announcing:

The 2016 edition of “Ranking the States by Fiscal Condition” is now available, providing the most comprehensive snapshot to date of the financial health of all 50 states and Puerto Rico. What’s the big news from the latest numbers? Puerto Rico is in trouble, and so are many states if they don’t address their short- and long-term obligations. The rankings reflect the past, present, and future of each state, beyond what one individual politician can control. They serve as an early warning sign for policymakers, journalists, and the public before fiscal issues become bigger problems.

Data was taken from 2014 CAFRs and the Mercatus people were good enough to provide excel spreadsheets that included unfunded pension and OPEB liabilities along with regular state debt.  Totaling those into spreadsheets shows that indeed there are states with higher per-capita long-term debt burdens than Puerto Rico (and Illinois is not one of them).

NJ Benefit Debt Exceeds $300 Billion

With the July 1, 2014 OPEB valuation out showing $81.4 billion as the official unfunded liability the big story (at least in NJWatchdog) is:

Guard your wallets, New Jersey taxpayers! The deficit in state pension and health benefit plans for public employees is fast approaching $200 billion.

The unfunded liabilities have reached a staggering $194.5 billion, according to a New Jersey Watchdog analysis of State Treasury records. The shortfall has increased by $19 billion – or roughly 10 percent – in the past year.

Possibly, based on State Treasury records, but in real life that debt is far above $300 billion as of July 1, 2014.  The pension debt is in the $166 billion range and though the Aon Hewitt OPEB valuation has some useful information on demographics and plan provisions the $81.4 billion unfunded number is not one of them as the report fails to measure some liabilities and mis-values the rest.

What Mercatus Missed

Before Chris Christie starts bragging about New Jersey NOT being last in a Ranking of States by Fiscal Condition that the Mercatus Center released today he should be aware of two things:

1) It was close for last (per the last footnote in their Summary):

New Jersey’s fiscal condition score is –1.8563 and Illinois’s is –1.8586. This is why New Jersey is ranked 49th and Illinois is ranked 50th, though the rounded scores are the same.

2) The comparison was based on 2013 audited financial statements.  In New Jersey’s case that means New Jersey auditors.

OPEB – One Pretty Expensive Benefit

In working up a countywatchers blog comparing insurance costs for county governments in New Jersey I needed a link to an explanation of OPEB in New Jersey and one of my old nj.com blogs came up which I reproduce below word-for-word from 2009.  What strikes me is that:

1. so little has been written explaining governments’ liability for OPEBs that my six-year-old blog would come up near the top of a search; and
2. OPEB liabilities have gone down.

I expected (1) but (2)? The latest OPEB valuation for New Jersey (July 1, 2013) lists total Accrued OPEB Liabilities as $66.8 billion which is less than the $68.8 billion reported back then.  With more people in the system and New Jersey still providing those ‘cadillac’ benefits that supposedly would save the state $3 billion annually if cut back to ‘gold’ how are these liability reductions coming about (if not by actuarial voodoo ordered up by politicians)?

State OPEB Liabilities Might Be $498 Billion

NASRA with SLGE using CAFR data released a 2014 update of their 2013 report on state OPEB UAAL.

However they did not do a direct comparison between the two studies so I did.

New Jersey’s Pension System Debt Hits $300 Billion

NewJerseyWatchdog.org just posted a scare-story pinning New Jersey’s total pension debt under the new GASB rules at $170 billion.

They missed some things.