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Report Shows Oregon Public Employment Contracts Are a Ticking Time Bomb

PORTLAND, Ore. – Cascade Policy Institute today announced the release of a new report showing that Oregon public employers have more than $2.6 billion in unfunded actuarially accrued liabilities associated with non-pension benefits promised to current and future retirees. These benefits, often referred to as “Other Post-Employment Benefits (OPEB),” typically include health care coverage for retirees, but may include other forms of deferred compensation such as life insurance.

A decade ago, the Governmental Accounting Standards Board (GASB) mandated that public employers begin clearly stating financial obligations for OPEB in their comprehensive annual financial reports. However, employers were not required to set up trust funds to pay for these promises. As a result, the Cascade review of 125 financial reports of state, regional, and local governments shows that most employers have no money set aside and are paying for OPEB obligations out of annual operating revenues. This cannibalizes funds needed for actual services.

The Portland transit agency TriMet has the biggest unfunded OPEB liability, estimated to be $950 million as of January 2014. Other employers with relatively large unfunded liabilities include Lebanon school district, Tillamook County, and the city of Corvallis.

Cascade President and CEO John A. Charles, Jr. said, “Over a period of decades, Oregon public employers have deliberately back-loaded employment contracts so that the cost of generous compensation packages would not become apparent until decades later, when the decision-makers themselves would be long gone. Those time bombs are now exploding, harming public school students, transit riders, and others who rely on public services.”

The Cascade paper is a call to action for the legislature to impose some form of fiscal discipline on public employers by requiring them to make annual contributions to OPEB trust funds. Legislation to accomplish this has been considered in past sessions but never approved.

In commenting on this failure, Charles noted, “Actuaries always state what it would take to amortize OPEB liabilities over a 25-year period; these are referred to as ‘annual required contributions (ARC).’ Unfortunately, most government managers treat the ARC as merely a suggestion. All the Oregon legislature has to do is pass a one-page bill reaffirming that ‘required’ means ‘required.’ How hard can that be?”

The Cascade report, Unfunded OPEB Liabilities for Oregon Public Employers: A $2.6 Billion Time Bomb, can be downloaded here.

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