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The RI Communities With the Highest Post-Employment Benefit Liabilities

Friday, April 10, 2015

 

There has been plenty of attention and scrutiny involving the pension crisis and settlement over the past several years, but there's another liability that’s facing local governments around the country and in Rhode Island. 

In addition to pensions, local governments have promised workers pension benefits, known as OPEB, to cover their bills in their retirement years.

What's OPEB?

Municipal governments have promised workers OPEB benefits, which stands for "other post-employment benefits", the vast majority of which are health care benefits in the form of providing health insurance. There are some other OPEB benefits, such as life insurance, which is provided in some municipalities, but by-and-large, OPEB refers to health insurance promises.

Monique Chartier, who is the spokeswoman for Rhode Island Taxpayers, a good-government group primarily focused on tax and spending issues, said that the problem is serious and years in the making.

"The biggest problem is that we've had decades of politicians who made promises to public employees that had no basis in reality of being fulfilled," said Chartier. "It's going to be the next shoe to fall."

Chartier said that the vast majority of private sector workers don't receive health care benefits when they retire, and therefore adjustments need to be made to OPEB plans throughout the state to make them more affordable for taxpayers.

SEE THE CITIES WITH THE HIGHEST OPEB LIABILITIES IN THE SLIDESHOW BELOW.

In the wake of the pension reform of 2011, a commission was formed to study both municipal pensions and OPEB benefits. The Commission found that there were 52 OPEB benefit packages in the state of Rhode Island that were offered by a municipal form of government, including cities, towns and school districts. Combined, those plans have a combined unfunded liability of $3 billion.

The unfunded liability means that if everyone who is entitled to a benefit were to demand it in full, the state's municipalities would be $3 billion short of what they're owed.

Of those 52 plans, 73 percent of them have no money set aside to help pay for them.

Red Ink

The City of Providence has easily the largest OPEB woes. The capital city has a unfunded liability of roughly $1.1 billion, according to the commission's report released in January. Pawtucket is next, with an unfunded liability of about $312 million. The city and school department of Warwick have a combined $260 million unfunded liability (at the time of the report). Coming in fourth, the city of Woonsocket, along with its school department, has a roughly $216 million unfunded liability. 

The fifth highest unfunded OPEB liability in the state belongs to Johnston, which comes in at $199 million. Newport has an unfunded OPEB liability of about $119 million. The city of East Providence, along with its school department, has an unfunded OPEB liability of almost $105 million. The city of Cranston and its school department combined for an unfunded OPEB liability of roughly $89 million. Narragansett has an OPEB liability of about $77 million. And the tenth highest OPEB liability in Rhode Island belongs to North Providence, at $66 million.

Accounting Principles

But Dave Hanos, who is the President of the Firefighters Union in Newport, said that new, more stringent accounting standards have been put in place by regulatory bodies in order to make public employee benefits look more expensive than they are in reality. The idea behind that movement, he said, is to encourage privatization of more and more government functions, which will end up benefiting the interests of a few business owners interests against the interests of many workers and citizens. 

"It seems like a movement to demonize or make the workforce seem like it's more of a burden than it really is," said Hanos.

Hanos was quick to point out that the unfunded liability represents only what would have to be paid if everyone who was entitled to a benefit demanded one--an unrealistic scenario. Hanos said he's well-aware that funding considerations need to be made, but that, at least as far as his home city of Newport is concerned, he's confident that the current city leadership is acting responsibly and will address the problem.

Hanos also said that his particular union, and most others throughout Rhode Island, have always been willing to make responsible concessions in the best interests of both their members and the taxpayers who employ them.

"Mind Blowing"

Justin Katz, the Research Director for the Rhode Island Center for Freedom and Prosperity, a conservative-leaning think tank, said that the when governments treat the liabilities of the benefits they've promised employees in retirement as regular expenses as opposed to liabilities, it "goes against the principle that taxpayers should only have to pay their employees while they're employees". Katz finds it unbelievable that some government officials see no problem treating the OPEB benefits as an regular expense instead of a liability.

He called the lack of accounting "mind-blowing.”

"For all these years, the state and cities and towns have been agreeing to employee benefits without so much as calculating the value of what they're giving away," said Katz.

The changes in accounting, he said, will force the municipal governments to scale back that which they've promised, because the taxpayers of the cities and towns simply won't be able to afford them.

"The costs are immense, and Governor Raimondo and the labor unions can come up with all the agreements they want, but they won't stand for more than a handful of years.  That's why the judiciary should be taking the opportunity of the current lawsuit to settle important questions one way or another.  Otherwise, they're just layering ambiguity on top of bad planning."

 

Related Slideshow: The Rhode Island Cities With the Highest OPEB Liabilities

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#10.

North Providence

OPEB Liability: $66 Million
 

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#9.

Narragansett

OPEB Liability: $77 Million 

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#8.

Cranston

OPEB Liability: $89 million

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#7.

East Providence

OPEB Liability: $105 million.

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#6.

Newport

OPEB Liability: $119 million.

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#5.

Johnston

OPEB Liability: $199 million

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#4.

Woonsocket

OPEB Liability: $216 million

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#3.

Warwick

OPEB Liability: $260 million

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#2.

Pawtucket

OPEB Liability: $312 million

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#1.

Providence

OPEB Liability: $1.1 billion

 
 

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