Archive for January, 2017

The City of Memphis OPEB Solution?

Tuesday, January 3rd, 2017

 

January 3, 2017

 

OPEB is Other Post Employment Benefits. This means retiree medical expenses and life insurance.

Mayor Strickland has been wrestling with this problem for some time including his stint on the City Council before he became Mayor. He is trying to solve a tough unfunded liability problem that has been brought about by the City’s (and I mean past mayors and past city councils) refusal to face the problem since 2007. In 2007 the government accounting standards board warned the city and the county as follows.

“The Governmental Accounting Standards Board issued statement No. 45 (GASB 45) Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions; GASB 45 requires that other post employment benefits (OPEB) be accounted for similar to pensions in that the expense must be recognized as the benefits are earned rather than as they are paid.”

As of June 30, 2008 when Willie Herenton was Mayor and Jim Strickland was on the City Council, the unfunded OPEB liability was $857 million. The County OPEB unfunded liability as of June 30, 2007 when AC Wharton was county Mayor was $319 million.

Now fast forward to recent reports. The OPEB unfunded liability of the City of Memphis was $700 million as of June 30, 2016. The OPEB unfunded liability of Shelby County Government as of June 30, 2015 was $101 million.

WHAT IS THE CAUSE OF THE DIFFERENCE IN THE ABOVE NUMBERS?  The original cause of both the City and the County was that they allowed retirees under the age of 65 to stay on their subsidized health care plans of which the City and the County paid 70% of the premium. This was regardless of length of service or whether the retiree spouse had a private sector plan which could include the retiree or whether the spouse was on Medicare.

The county passed Item 32B on June 18, 2007 and was signed by Mayor Wharton which addressed and solved the problem. The City did nothing until the recent actions which has resulted in the reported conflict between the Mayor and retirees. Mayor Strickland has come up with his solution “Explaining the path to pre-65 health subsidies”.

The real blame for this huge problem of unfunded liability is the non-action of past City Councils and past City Mayors since the 2007 notice contrasted to the actions of past Shelby County governments. City Mayor Wharton should have known better and past City Councils should have had more courage and foresight.

In the future I will post City, County and MLGW health care costs and let you compare them to what you will be paying privately. I would appreciate your thoughts on these matters.