Through the efforts of Selectman Williams, the town is moving forward with a study of recommendations towards addressing the town’s long-term OPEB (Other post-employment benefits) but many – town officials and the majority of the Board – are reluctant to follow Williams’ call for the issuance of up to $60 million in Pension Obligation Bonds (POBs). Question: Where do you stand on the town’s OPEB policy and would you currently consider the town issuing POBs?
Pensions and Other Post-Employment Benefits (OPEB) are two different issues and must be viewed separately.
State law establishes Belmont’s retiree pension obligations. Belmont’s Retirement Board is authorized to determine how to fund our retirement obligations and to manage investments designed to fund them. In 2015, the Warrant Committee issued a Pension report analyzing different options for funding our pension liability; the Selectmen have and should continue to discuss this with the Retirement Board.
- Extending the amortization period from 2027 to some later date could reduce the contribution pension impact on annual budgets.
- Pension Obligation Bonds (POBs) are a bet that pension investments will exceed the cost of borrowing. Moody’s has indicated that POBs typically create additional risks, including budgetary and default risk. GFOA recommends that local governments not issue POBs. I would not subject taxpayers’ money to risks of this type.
OPEB consists primarily of retiree health care, a benefit provided to Belmont’s retirees. To date, payments for retiree health care have been manageable because we adopted healthcare reforms allowing us to effectively control health insurance costs — under one percent growth annually for the last three years.
Working with the Treasurer, the Selectmen adopted an OPEB Funding policy that Moody’s reviewed favorably. It created an OPEB Irrevocable Trust Fund and ensured that a fixed percentage of free cash is deposited in that Fund every year.
In 2015, the Selectmen established the OPEB Funding Advisory Group. On Feb. 7, it reported that the actuarial estimate of Belmont’s unfunded liability is likely overstated. The group was asked to: (1) continue its work and provide us with a more accurate estimate of our unfunded liability based on key cost data; and (2) analyze options to control this liability. This additional information will help the Selectmen to determine the most prudent course of action.
Selectman Williams deserves credit for encouraging the town’s government to take a hard look at our unfunded pension obligations. These issues, if left unaddressed, will only get worse. I commend him for insisting that Belmont’s leadership investigate creative solutions for addressing our pension and other postemployment benefits (OPEB) obligations.
However, Belmont is hardly alone; 254 of the 351 municipalities in Massachusetts have more than $26 billion in unfunded health care liabilities for public retirees and billions more in unfunded pension liabilities. Nineteen cities and towns have unfunded pension liabilities that top $300 million. Belmont’s roughly $59 million in unfunded pensions and $60 million in OPEB liabilities ($4,825 per capita) is in the middle of the pack.
Mr. Williams’s support for a bond is one solution, but there are other options that would not require a substantial increase in property taxes.
A decade ago Belmont’s Board of Selectmen adopted an accelerated schedule for meeting the town’s unpaid pension liabilities. We will be paid up ten years earlier than the state requires – with no clear benefit. These payments have been growing slowly but are now set to balloon, rising at a compounded rate of 7 percent annually until 2027. By simply amortizing our payments over the full period permitted by the state and paying off our pension obligations before 2040, the town would substantially decrease the strain on its budget at no cost to taxpayers or risk to its AAA credit rating.
The town has started examining alternative options to preserve promised benefits while reducing the cost to taxpayers – one example, by working with its employee unions. Should bonding emerge as the most prudent course forward, I’m confident that the Board and the voters will pursue that course, but we should look at all available options before committing ourselves to any course of action.