The picture in numbers

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By Rebecca A. Sielman, Bill J. Thompson | 01 May 2007

What kinds of specific liabilities are municipalities facing? There is a large range among various municipalities, in terms of accrued liabilities and prefunding contribution amounts. The range flows both from the size of the municipalities’ workforces and from the richness of the OPEB benefits.

For small town A, with 400 employees (half of whom are teachers), and very modest OPEB benefits, the accrued liability for future retiree medical costs is $12.1 million and the town would need to budget an additional $650,000 per year to prefund these benefits in a trust. A’s finance director estimates that this represents a tax increase of 1.5%. In an era where tax increases of 4% or 5% are met with outrage from taxpayers, shoehorning an extra 1.5% into the budget is a daunting proposition.

For eastern seaboard city B, with 2,000 employees and more generous OPEB benefits, the numbers are correspondingly larger: an accrued liability of $150 million and an annual prefunding cost of $15 million. And for state C, with upwards of 50,000 employees and essentially full medical and dental benefits for all retirees, the accrued liability is measured in the tens of billions of dollars.