'06 law at core of tumult over W.Va. retiree costs

AP News
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Posted: Dec 14, 2009 10:41 AM

Much of the uproar over West Virginia's handling of public retiree benefit costs can be traced to a Manchin administration decision to go above and beyond national accounting standards. But a recent study holds up the approach as one example of a state taking those liabilities seriously.

The Governmental Accounting Standards Board called on public employers in 2004 to calculate and disclose gaps between on-hand assets and non-pension retirement benefits like health coverage that they've promised to workers.

This bid at increased transparency caused major ripples among state, county and local government employers. Federal officials estimated last year that the unfunded liabilities of these "other post-employment benefits," or OPEB, totaled between $600 billion and $1.6 trillion.

But the new standards stopped short of requiring public employers to set aside funds or otherwise attack those liabilities. Governments, including West Virginia, had typically funded the benefits as workers retired. Many continue to follow this pay-as-you-go route.

Gov. Joe Manchin responded with a 2006 measure creating a trust fund to tackle the liability. Passed unanimously by both the House and Senate, it also has the Public Employees Insurance Agency send yearly bills to all government employers with enrolled workers. Any of these annual required contributions left unpaid get counted as current debt.

It is those provisions, and the debate over whether the state alone should shoulder these costs, that has spurred at least 49 of West Virginia's 55 county school boards to vow to sue state officials.

Richard Olcott, president of the Wood County school board, said its lawyer will send Manchin the required 30-day advance notice of a lawsuit this week. Some of the remaining school boards may join in the meantime, he added.

This threatened action follows the pair of lawsuits filed earlier by each of the state's teachers' unions. Those groups oppose the insurance agency's decision to stop subsidizing retiree health premiums. Agency officials plan to start with July 2010 hires. They defend the move as one way to attack the state's liability, recently estimated at $7.8 billion.

The American Federation of Teachers-West Virginia will release its own liability estimate Monday, at a state Capitol meeting of Manchin's unofficial OPEB workgroup, President Judy Hale said. Hale said analysts hired by her union may also offer alternatives to the annual billing process adopted in 2006.

"No other state is treating this as West Virginia is, in terms of the county boards putting aside these amounts of money," Hale said. "The bonding companies are not looking for states to have all this money readily available. What they're looking for is a plan to address these unfunded liabilities."

Olcott and officials from other boards fear what mounting current debts could do to the school building and repair bonds their counties issue. Olcott said Wood County's figure will top $18 million by the June 30 end of the budget year. He estimated that the debt figure for Kanawha County, with the state's largest school system, could be three times that.

But the U.S Government Accountability Office has questioned whether public employers can persist with pay-as-you-go. Its report on the topic last year said that such payments equaled 2 percent of salaries in 2006, but will "more than double to 5 percent of salaries by 2050 to keep up with the growth in health costs, adding to budgetary stress."

Citing that dour projection, the nonpartisan Center for State and Local Government Excellence offered West Virginia's approach in a September study of efforts to tackle these liabilities head-on.

The Washington, D.C.-based center has tracked public retiree health costs and reactions to the 2004 accounting standards. While it's a "myth" that the standards require trust funds or employer payments, its report concludes that they "may have the effect of rendering the 'do nothing' strategy infeasible."

"Prefunding can substantially reduce the long-term costs," the report said. "Also, many credit rating agencies have reported that they will begin taking into account OPEB liabilities, something that could have a negative impact on a government's credit ratings and increase its borrowing costs."

The report notes the pending legal challenges as well as talk of raiding the trust fund, with an estimated balance of $330 million, instead of hiking premiums and copays. It also cites Manchin's efforts to resolve the various disputes through the informal workgroup.

"Successful or not, West Virginia will no doubt be one of the most watched states in the coming months as governments across the country look for ways to address their own OPEB challenges," the report said.