Blog Posts > Putting OPEB in Budget Context (Again)
March 9, 2011

Putting OPEB in Budget Context (Again)

The Daily Mail reported today on the fate of legislation to address the state’s OPEB liability and the future of public employee retiree health care. In doing so, they may have confused readers by not putting the OPEB issue in context for its readers.

For example, the lead paragraph states: “Ask West Virginia legislators if they want to pay down or reduce the budget-busting $8 billion the state owes retired public workers for health care over the next three decades, and many will say it’s one of the top issues they face.”

Is OPEB busting the budget? What percent of the budget is retiree health care? Readers need answers to these questions before they can conclude it is a “budget-buster.”

In FY2012, retiree health care (PayGo) will make up about 3.8% of General Revenue spending or about $145 million (About $20 million of this will come from local agencies, lowering amount to 3.3%).  In 1995, retiree health care (PayGo) was about 2% of General Revenue spending. So yes, it is growing – just as all health care related expenditures – but you’d be hard pressed to call this “budget-busting.” For example, this is nothing compared to Medicaid/Medicaid/CHIP at the federal level. These social insurance programs make up 21% of the federal budget. Or take corrections. In 1992, corrections made up 1.1% of direct state government expenditures, compared to 2.8% in 2009. This is a far larger growth than OPEB costs, but I haven’t read one article about “budget-busting” spending in jails and prison.  This is not to say that controlling retiree health care is not a serious
budget concern for the state, it clearly is and we should do everything we can to reign in those costs.

Another point of constant confusion in the article is the assertion that the “state owes” retired public workers $8 billion over the next 30 years. The state is under no contractual obligation to provide these benefits (we don’t have collective bargaining) and they can be taken away by the PEIA Finance Board (this already happened to new hires starting 2010). If the state does owe public employees this money, why not give every covered public employee (75,000) an average check of $107,000 and get rid of the subsidy. This because the $8 billion is not a “fixed” dollar amount like a pension and that we do not owe this money today. Nor is this a “debt” of the state. As Moody’s stated last month in an AP article:

“”While we do include OPEB liabilities in our analysis of states, we have not included them in the current report because they are less binding under state law,” the report explained. “Once accrued, public pension benefits are protected, contractual obligations, sometimes shielded by specific pension provisions in state constitutions.” West Virginia’s OPEB liability is considered a looming problem for the state. But for its analysis, Moody’s concluded that pension shortfalls “have an irrevocable, long-term nature that resembles bonded debt.

Let’s hope someday, somewhere, someone puts OPEB in context.

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