EDITORIAL

The OPEB elephant

Posted 6/18/15

$263 million is a lot of money. It’s a scary number when you consider that’s what the city would need going forward to meet the cost of retiree benefits other than pensions. Those benefits, …

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EDITORIAL

The OPEB elephant

Posted

$263 million is a lot of money. It’s a scary number when you consider that’s what the city would need going forward to meet the cost of retiree benefits other than pensions. Those benefits, largely the cost of retiree health care, are called “other post-employment benefits.” In government lingo, it’s OPEB.

OPEB has become the latest buzz word, and the fact the city has done little to address this growing liability has suddenly become the hot topic, although a number of critics, and most especially former Councilman Robert Cushman, have been talking about “legacy costs” for years.

Cushman and Ward 9 Councilman Steve Merolla, who has also focused on city liabilities and debt, are justified to say “I told you so,” following the report recently released by Jefferson Solutions, Inc. Raymond Cerrone, a principal in the consulting company, appeared before the City Council. Cerrone has no political axe to grind, no agenda. He did his job and presumably will get paid. His numbers were startling and his conclusion leads one to wonder how Warwick is going to get out of this fix.

Presently, the city is on a pay-as-you-go arrangement. The health care bills of current and retired employees are paid as they come due. Nothing is being put aside to cover the cost of future retiree benefits, as is the case with pensions. The city administration budgeted $200,000 to commence an OPEB trust, but the council cut it from the budget.

It doesn’t take a genius to see what’s happening. The ranks of the retirees keeps growing, who unlike active employees are not required to make co-payments for the benefit. In addition, the cost of health care keeps increasing.

According to Cerrone, OPEB is costing the city $7.3 million, but if it were to pay its annual required contribution (ARC, another one of those government words) the amount would need to be $23.1 million. This leaves an unfunded OPEB cost of $15.8 million this year.

Merolla wanted to know when the city would reach the breaking point – when would the cost of benefits surpass the taxpayers’ ability to pay the bills? Cerrone left little doubt we’re close to it already when he answered, “If this was my business model I would run away from it.”

That’s a bleak assessment. Merolla used the words bankruptcy and receivership as a means of washing away the debt. Of course, if the city was forced to choose that course, retirees would lose their benefits, property values would drop and the city would lose significantly.

Yet, we are encouraged by recent developments.

Concessions in city contracts will reduce the benefits of new hires, meaning cost controls in 30 and 40 years. Most encouraging is that OPEB costs are being recognized as a problem. The administration talks about bringing the parties – the unions, the retirees, the council and the administration – together.

There is no quick fix. This is going to require a thoughtful and detailed analysis of the options. It’s going to require some painful changes for retirees accustomed to having the city pay health bills. It may also mean current employees contributing to an OPEB trust.

But for it to work it’s going to need people coming together.

As Cerrone put it in his report, “A cohesive labor relations strategy should be developed and must be supported by elected officials to be effective.”

Now’s the time to do it.

Comments

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  • davebarry109

    Don't look for retirees to agree to anything. You made the deal...live with it.

    Friday, June 19, 2015 Report this

  • patientman

    If only Bob Cushman had a media outlet where he could have reached the people of Warwick in time to warn them. Oh wait, he did and John Howell fired him. I'm sure the mayor wanted him gone and the Warwick Beacon, P.R. office of the city of Warwick mayors office did his bidding. John Howell and the Warwick Beacon own this right along with the mayor.

    John Howell, in theory you're supposed to be a journalist that looks out for the people. What is wrong with you? You more than almost any other person are responsible for this mess. You're supposed to be a watchdog not a lapdog.

    Wednesday, June 24, 2015 Report this

  • wwkvoter

    Lets not slam the Beacon for avoiding the issue in the past, which they did. NOW there is an editorial by that same paper acknowledging the issue, as well as an official finding by experts that it is a serious actual danger to upcoming budgets that puts Warwick taxpayers at serious risk. I'm just saying get after the problem in front of us (paying for these free lifetime health insurance promises to people), and not the previous issue of whether Beacon was on it, which now they are, finally.

    Friday, July 10, 2015 Report this

  • patientman

    I, and others have been calling out The Beacon since Cushman was fired. Don't be surprised if Avedisian has already decided not to run now that his ineptitude has been exposed. I find it hard to believe The Beacon would publish an even mildly critical article without the Mayor's permission. Howell has failed the people of Warwick and he needs to be held accountable. But in the end you are pretty representative of the Warwick electorate. We don't hold our mayor or council responsible and we don't hold our media "watchdog" responsible either. Like the Greeks, we get the government we deserve.

    Monday, July 13, 2015 Report this