Don’t Erase OPEB Victory
West Virginians received news in the almost-too-good-to-be-true category last week. If we are not careful, that will prove to be the case.
Several years ago, local and state governments throughout the nation were jolted by another revelation regarding unfunded liabilities – programs for which not enough money had been set aside to cover expenses. This time, other post-employment benefits, or OPEB, were the culprits.
Most OPEB challenges involve promises to provide health insurance for retirees from the public sector. Standard & Poor’s Rating Services calculated West Virginia’s OPEB liability at the end of the 2010 fiscal year at $7.43 billion.
But by the close of 2012, the state’s OPEB liability stood at $3.75 billion, according to Standard & Poor’s. That was one of the best performances of any state.
Did West Virginia legislators stumble upon a gigantic pot of money allowing them to cut the OPEB debt nearly in half? No.
What happened was that state officials approved changes to reduce expected spending in programs falling under the OPEB label.
A key change was made by the Public Employees Insurance Agency’s Finance Board, even before Standard & Poor’s began monitoring the situation. The board placed a cap on taxpayer subsidies for retirees’ health insurance premiums. The subsidies are to increase by no more than 3 percent a year.
Another change, made last year, eliminates subsidies entirely for public employees hired after June 1, 2010.
Those changes, along with plans to use about $30 million a year to pay down the OPEB liability, are responsible for the dramatic change during a single year.
Ironically, tough fiscal times such as those state government is experiencing made it easier to implement limits on public employee and retiree benefits. But if the state’s finances ever pick up, count on unions representing government workers to demand the limits be eased or erased.
That also would put the state back under billions of dollars in OPEB benefits it now appears have been eliminated.
Governors and legislators in the future will have to be mindful of that. So will voters – who should make it clear it is unacceptable to go back to the bad old days of providing public employee benefits without ensuring they are funded fully.