July 10, 2014: OPEB: The Future (part 2)

July 10, 2014: Belmont Citizen-Herald

Last week, I discussed the burgeoning debt that Belmont faces because of its unfunded post-retirement health care obligations. These obligations are called “OPEB”, Other Post-Employment Benefits. From June 2010 to June 2013, Belmont’s net OPEB obligation increased by $35 million (from $23 to $58 million). It is expected to grow further, to nearly $72 million, by the end of June 2014.

OPEB isn’t likely a topic of most dinner conversations.  And yet, Belmont’s OPEB obligations present three problems that should worry all Belmont taxpayers, residents and employees.

First, someday, the bill will come due.  When that happens, Belmont will not have the money to pay its obligations.  Our treatment of OPEB is, in its essence, a form of deficit spending. The Town delivers services today, and residents use those services without completely paying for them.

When OPEB obligations are deferred to the future, the effect is to push onto our children and grandchildren the costs of providing today’s services.  Doing this is not like a capital investment such as a school.  When we borrow money to build a school, we pay off that debt over time, a result that is justified because the school delivers service over time.

In contrast, with OPEB, future Belmont taxpayers will be paying the bill for services delivered today, with no current benefits received in exchange for their payments.

Second, future OPEB payments will seriously impede Belmont’s future ability to deliver basic municipal services, whether that involves hiring teachers or paving streets.  Since an ever-increasing proportion of Belmont’s future budgets will be needed to pay the OPEB obligations, less and less of those budgets will be left-over to pay for current services.

Not only will future Belmont taxpayers be required to pay for the services we used today, in other words, but because of those obligations, future Belmont residents will experience a significant reduction in the services that the Town and schools will be able to deliver to them.

Third, there is the human problem.  Belmont’s employees today are making life plans based on the promises that have been made, as part of their employment contract, about the Town paying health care benefits in their retirement.  Current savings decisions, spending decisions, even employment decisions, are being made by these individuals based on those promises.

It is not possible for these employees, now, to go back to unmake what has been a lifetime of decisions, such as where to live, where to work, or what college to send their kid to.  Older workers have an insufficient number of working years left –current retirees have none– to make-up for their lifetime of decisions made in reliance upon Belmont’s promise to pay their post-retirement health care.

Belmont’s leadership could take several steps today to reduce the OPEB problem.

  • Belmont should carefully control its use of part-time employees.  Since retired part-time employees receive the same OPEB benefits that full-time employees do, the use of part-time workers should be avoided wherever possible.
  • Belmont should pro rate service time based on full-time status.  If a full-time employee earns one year of service for each year of employment, a half-time employee should earn half that (one year of service for each two years of employment).
  • Belmont should impose a continuous service requirement for post-retirement benefits.  Years of loyal service to Belmont should be rewarded. But we need not provide full benefits to someone who “retires” at 55, only to work for a different employer for another decade.

Continuing to incur the current rate of unfunded OPEB obligations, with the hope that “the state” might someday relieve us of those commitments, unreasonably threatens Belmont taxpayers, residents and employees.

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