Portland retiree health care tab: $86 million to $98 million
For some time now, we have been noting that the City of Portland would soon be required to quantify and report the subsidies that it provides to retired municipal employees toward the cost of health insurance for them and their families. The Government Accounting Standards Board is requiring all state and local governments to report this number annually beginning this year.
In an offering document released this week for a new round of city borrowing, the city has finally released an estimate of its "actuarial accrued liability" for these subsidies as of July 1, 2007. Depending on how one calculates it, the liability is somewhere between $86.3 million and $98 million. We'll be adding the average of those two amounts ($92.15 million) to our City of Portland debt clock later today.
In the meantime, for the wonkier among us, here is the discussion of this issue from the bond sales document:
Distinct from the PERS program, the City is currently assessing its liability for other post-employment benefits ("OPEB") in anticipation of expanded reporting requirements specified by GASB Statement No. 45 ("GASB 45").
Oregon municipalities, including the City, are required to allow retirees and their dependents to continue to receive health insurance by paying the premiums themselves at a rate that is blended with the rate for current employees until retirees and spouses are eligible for federal Medicare coverage and until children reach the age of 18. GASB 45 refers to this as an implicit subsidy and therefore requires the corresponding liability to be determined and reported.The City’s actuary for its non-PERS OPEB, AON Employee Benefits Consulting, has completed a final actuarial valuation for purposes of complying with the GASB 45 standards. The final valuation was prepared using the Entry Age Normal actuarial cost method under two basis: (1) spreading future normal costs evenly over future service ("EAN-Service"), or (2) spreading normal costs as a level percent of pay ("EAN-Pay"). The final valuation was also prepared using an amortization period of 30 years and an assumed discount rate of five percent. The City’s actuarial accrued liability for OPEB is solely attributable to the implicit subsidies and at the valuation date of July 1, 2007, is estimated to be $98 million on an EAN-Service basis and $86.3 million on an EAN-Pay basis. For fiscal year 2007, the annual required contribution ("ARC") of the employer to be recognized as the annual employer OPEB cost is estimated to be $10.9 million on an EAN-Service basis and $10.2 million on an EAN-Pay basis and for fiscal year 2008, the ARC is estimated to be $11.5 million on an EAN-Service basis. At this time, the City has not determined whether to implement the GASB 45 standards on an the EAN-Service basis or the EAN-Pay basis.
UPDATE, 9:25 a.m.: We've rolled the accrued retiree health care liability in with the unfunded police and fire pension and disability number on our debt clock. That category will now be called "Unfunded pension and retiree healthcare." As of July 1, 2007, that combined amount stood at more than $2 billion. We'll continue to "grow" that figure at an annual rate of 6.5%. We've also made a slight decrease on the "long-term debt and interim financing" figure to reflect the latest numbers in the bond offering document. That figure on the clock will grow at 6.20%, rather than 6.22%.
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Comments (6)
And if municipalities in Oregon could cut their retirees loose, it would lower the insurance rate for their active employees. Since they are required to by statute, I'm surprised Bill Sizemore hasn't jumped all over this and started petitioning to repeal the statute.
Of course the retirees might not be too happy about it, but they can at least look forward to the soon to be bankrupt Medicare system.
Posted by LMG | June 5, 2008 7:22 AM
This is a bit off the subject.
Cityhall just passed a $3.1 billion budget for the upcoming fiscal year. There are so many special interest services in the budget that other cities don't incorporate in their budgets. $250k for Hurricane Katrina folks (It's now almost three years but we still pay the bills), millions for new art programs, and $80k to tell people about the home foreclosure process are just a few examples. Most Portlanders benefit very little from these programs. You have to ask yourself why do I want to live here, and pay for a whole bunch of services I haven't ever used and am very unlikely to ever use relative to other cities or locations. The answer may be that we haven't really paid the full price for these services yet because they've been indirectly and largely financed with increasing debt.
Posted by Bob Clark | June 5, 2008 9:57 AM
To help out the less wonkier of you the $98 million dollar figure is for non-PERS retirees. That means police and fire retirees.
Since police & fire represent about 1/3 of active City employees you can probably triple this number and have a swag as to the total subsidy for the all retirees.
The courts would probably not allow Sizemore or anyone else to cut off current retirees (I hope)so the savings would accrue slowly and thus maybe not be very attractive to the right wing initiative machine.
I pay just under $1,000 a month for my "subsidized" two person City retiree health plan. But it's a good one.
Greg C
Posted by Greg C | June 5, 2008 12:13 PM
Since police & fire represent about 1/3 of active City employees you can probably triple this number and have a swag as to the total subsidy for the all retirees.
Actually, I don't think that's the case. According to the bond document, the city estimates its allocated share of the unfunded actuarial liability of PERS's retirement health insurance account at $9,600,622.
Posted by Jack Bog | June 5, 2008 2:08 PM
Jack,
I read the part on retiree health as being in three parts.
1. The RHIA program: It is a program that subsidizes Medicare supplement health care costs for PERS retirees over age 65. That cost is set at $9.6 million.
2. PERS Retirees: That part simply acknowledges that PERS retirees are receiving an "implicit subsidy" but doesn't seem to list a dollar amount.
3. Non-PERS OPEB retirees: The rest of the section seems to be talking about "non-PERS OPEB" folks (Police & Fire) and lists the $86 million to $98 million figure.
But I could be wrong. And after reading the gobbltey gook I think I need to go take an aspirin.
Greg C
Posted by Greg C | June 5, 2008 4:34 PM
Greg, you are correct about No.1 and No.2. I was going to point out the same thing about RHIA. While the RHIA medicare subsidy comes from PERS, it is funded by the employers. And for No.2, there aren't enough non-fire/non-police pre-Medicare retirees actually self-paying for the City's policy to generate the numbers cited.
Posted by Paul G | June 5, 2008 8:32 PM