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%.