As New Haven faces crippling debt and spending controversies, funding for employees’ other post-employment benefits, or OPEBs, is causing another headache for city officials.
OPEBs mostly refer to health care benefits received by retired city employees, who usually leave the workforce before Medicare kicks in. Advising for the OPEB budget falls under the jurisdiction of the Financial Review and Audit Commission, which is chaired by Mohit Agrawal GRD ’20. According to Agrawal, the city of New Haven restructured its budget in August of this year but still lacks the capacity to pay for OPEBs.
“Why do we care to save for these things rather than just pay for them out of the annual budget every year? And the answer to that is equity, is inter-generational equity,” Agrawal said in an interview with the News.
OPEBs exist because of city workers’ relatively early retirements. New Haven protective employees like police tend to retire in their early fifties, whereas nonprotective employees generally retire in their early sixties, according to Agrawal. Since Medicare only applies to individuals 65 and older, OPEBs span the age gap and insure retirees until they reach the required age.
Agrawal discussed a new government accounting standard, GASB 74, that requires information about OPEBs to be reported to the same extent as pensions, which would allow for city officials to examine the full scope of OPEB liabilities. GASB 74 replaced GASB 45, the old standard, in June 2016.
As of the last audit statement, the unfunded liabilities from OPEB are currently roughly $590 million, and unfunded liabilities for pensions in New Haven are $900 million. Agrawal noted that the city must become “more cognizant” of saving for OPEBs, as the liabilities for OPEBs nearly match those of pensions.
In August, New Haven remortgaged its debt, freeing up about $30 million in the process. Though the city has no lack of short-term funds, it is still running a $30 million deficit on an accrual basis. Programs that require mass saving like OPEBs therefore have very little long-term funding behind them, and according to Agrawal, the city “should have started saving years and years and years ago.”
“Fully funding OPEB is a difficult challenge,” Agrawal said. “But it’s a laudable one, and it is the right one, it is a challenge that the city should be taking on.”
According to New Haven Controller Daryl Jones, former Mayor John DeStefano Jr.’s administration only contributed about $15,000 per year to the OPEB fund, while the current administration funnels $405,000 per year into that same account. Jones added that the amount needed to fully fund OPEBs is upward of $500 million.
“When Mayor Harp took over, we recognized that this was an issue,” Jones said. “And under her leadership [we] decided to put forth a plan to start addressing the OPEB unfunded liability. Right now we’re just doing our due diligence, by talking to other cities to find out what they’re doing, how they got started, how they got to a point where they invested their money.”
The New Haven Independent reported in October that other Connecticut cities, such as Norwalk, have experienced similar issues — but have taken significant steps to rectify the problem. Norwalk’s employees began to pay a percentage of their income to an OPEB trust fund in 2008. The fund has grown to about $80.6 million, according to Norwalk’s Chief Financial Officer Robert Barron.
Today, New Haven’s OPEB fund holds about $3 million, consisting of both city contributions and percentages of employee paychecks from the police and other bargaining unions. New Haven manages OPEB through a pay-as-you-go system in which the city pays medical insurance benefits out of a medical fund. However, Jones added that in the long term he hopes to pursue investment opportunities that will help grow the OPEB trust fund to its desired size.
The revamping of OPEBs is just one item on the city’s agenda. According to Agrawal, New Haven faces a slew of other issues, including education needs and a drain of police officers to higher-paying police departments.
“The city has extraordinary needs in many ways,” Agrawal said. “And so [are OPEBs] the best way to spend 20 million dollars a year? Not really … . We are in a spot of trouble in our budget, is this the first priority? The answer’s no.”
By the end of 2018, New Haven will have spent $125 million on health care for city employees and retirees.
Valerie Pavilonis | firstname.lastname@example.org