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W.Va. sets trend with OPEB bill

February 17, 2012
John Doyle , Shepherdstown Chronicle

The Legislature passed a little over a week ago a bill that puts the state on track to eliminate the unfunded liability for other post employment benefits (OPEB).

OPEB refers to obligations other than pensions that the state has to its retirees. They are primarily health care benefits. Until a few years ago no state was required to account for such expenses.

That changed about ten years ago when the Government Accounting Standards Board (GSAB, pronounced "Gazbee") ruled that states must account for these expenditures as unfunded liabilities. This immediately added billions of new financial obligations to every state.

With the passage of Senate Bill 469 West Virginia has become the first state to actually put in place a payment plan for OPEB liabilities.

When I came to the Legislature in 1993 West Virginia had billions of unfunded liabilities in our workers' compensation fund, our public employee health care plan and our public employee retirement funds. We also had no "rainy day" fund. As a result of this our state had one of the worst bond ratings of the 50 states. Many medical providers would not honor members of our public workers health insurance plan.

This was the result of years of profligacy. In lieu of raises for state workers and public school employees (because there was no money) the Legislature greatly increased health care and retirement benefits. In the words of Scarlett O'Hara in "Gone With the Wind" the legislators' attitudes were that they would "think about it tomorrow."

By 1993, tomorrow had come and we needed to fix the problem. First we created the rainy day fund with about $30 million. Now that fund has about $600 million in it, making it one of the four or five healthiest rainy day funds of the 50 states. Next we privatized workers' compensation and dedicated a revenue source to pay off that unfunded liability. Then we dedicated sources to pay off the unfunded liabilities of the pension funds.

All this took about 15 years and has resulted in three upgrades of our state's bond rating. West Virginia is now considered one of the dozen most fiscally sound states of the 50.

The bill we passed dedicates $30 million each year from personal income tax revenue to the West Virginia Retiree Health Benefit Trust Fund from now until 2037, or longer if any unfunded liability remains. It also limits the authority of the Finance Board of the Public Employees Insurance Agency (PEIA) to include in its financial plans a subsidy for retired employees who were hired after July 1, 2010. PEIA is the health plan for state workers, public school employees and many county and municipal workers. A new trust is created for these workers by dedicating another $5 million of personal income tax revenue. Obviously it will be many years before large numbers of these workers retire.

The bill also authorizes the appointment of a Select Committee on OPEB. This will be a joint committee of the Legislature appointed by the Speaker of the House and the President of the Senate. It will be authorized to study incentives for the second group of retirees (the ones hired after July 1, 2010). This way we hope to avoid getting future legislature into a similar bind as the one faced by ours when I got to Charleston in 1993.

In addition SB 469 provides that any amount of OPEB obligation allocated to local school districts is to be charged to the state. Finally it encourages the director of PEIA to institute programs to improve the health of workers and retirees, develop innovative payment methods, manage delivery costs, evaluate cost sharing and benefit programs and adopt effective industry programs to manage long-term costs.

OPEB was the last big fiscal nut we needed to crack. Now that we've cracked it, our state will move up even higher in the fiscal rankings of the states. Soon we'll be in single digits.



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