By LAWRENCE MESSINA
CHARLESTON (AP) —
West Virginia Gov. Earl Ray Tomblin appears close to launching a plan that would cut a $10 billion funding shortfall in half and then gradually pay down what remains, those involved in the discussions told The Associated Press.
The shortfall mostly reflects health care benefits promised to public employees once they retire. These non-pension costs are known as other post-employment benefits, or OPEB. The Public Employees Insurance Agency provides the health coverage. The agency’s finance board expects to vote Tuesday on a plan that will cap the subsidies it pays toward retiree premiums, which is now $343 per retiree. It will increase that subsidy by 3 percent annually to adjust for medical inflation.
That would erase $5 billion from the unfunded liability, agency Executive Director Ted Cheatham said. Cheatham said the proposal recognizes the waves of approaching retirements. The agency now covers around 57,500 retirees and their dependents, he said. Their ranks are projected to peak at 66,000 by around 2020. The agency will meanwhile be covering around 76,000 active employees who help fund the subsidies through their premiums, Cheatham said.
“Unless our pool grows, they’re going to be easily 40 percent of our population,” Cheatham said of retirees.
Accounting for the bulk of the OPEB shortfall, the subsidies total nearly $150 million this budget year. President Judy Hale of the American Federation of Teachers-West Virginia has been part of the talks to address the OPEB liability. She said the 3 percent increases won’t likely keep pace with rising health care costs.
“We don’t think that will be enough money. However, that is a huge concession, we feel, on the part of public employees,” Hale said of the proposal. “It’s now time for the governor and the Legislature to do their part, and that is to find a funding stream.”
Earlier this year, lawmakers weighed dedicating a portion of personal income tax revenues toward the OPEB shortfall. That portion is now gradually closing a gap in a fund left over from when the state ran a workers’ compensation program. Tomblin Chief of Staff Rob Alsop said the administration is weighing whether to re-route some of those annual revenues toward OPEB once this other liability is erased in 2016.
Severance taxes on extracted natural resources are also closing the workers’ compensation fund shortfall, and would expire once that happens.
“There’s a real desire to put this thing to bed this time,” Hale said. “We very much want to get this issue settled. County boards of education are putting aside money for this liability, as opposed to using the money for students. ... It really does hurt kids, the way the situation is right now.”
Once the state settles on a revenue source, that funding would gradually close the shortfall over the next two or three decades. A similar approach is curbing a massive liability — last estimated at $4.7 billion in July 2010 — in West Virginia’s main pension fund for teachers. Wall Street bond rating agencies have credited the state for its Teachers Retirement System plan, as that pension program was once the worst-funded of its kind in the country.
The Public Employees Insurance Agency has already taken a major step toward curbing longer-term OPEB costs. It will stop subsidizing retiree premiums starting with all employees hired after June 2010. Hale said her group and others representing public workers continue to oppose the future end to subsidies. Both AFT-WV and the West Virginia Education Association sued over the subsidy halt, and their since-consolidated lawsuit is pending.
Hale said that while those future retirees could still obtain coverage by paying the full premium, they may not be able to afford that.
“They simply won’t have any health care until they reach Medicare eligibility at age 65. That’s just what that means,” Hale said. She added, “It negates our efforts to hire qualified teachers in the classroom. That was one of the things that was attractive about coming to West Virginia or staying in West Virginia, was this prospect of retiree health care.”
But Cheatham said ending future subsidies and Tuesday’s proposed subsidy freeze, if approved, together will ensure there’s no unfunded OPEB liability by 2040.
A national accounting standard requires state and local governments to calculate the gaps between on-hand assets and promised OPEB benefits, which can also reflect life insurance and unused sick leave. West Virginia has taken that standard one step further, by requiring government entities to pay annual amounts toward this unfunded liability or else list them as debts. Other states are continuing with the pay-as-you-go approach that preceded the accounting standard.
Most of the state’s 55 county school boards recently sued over the state’s OPEB policy, without success. Among their objections, the boards cite how the state requires counties to offer their teachers health benefits through Cheatham’s agency, and how most of their salaries are funded through the state’s formula for school aid.
Already planning to appeal to lawmakers during the 2012 regular session, which starts next month, the boards want the state to take over the liability of these formula-covered employees. Alsop said Tomblin is looking at the way the OPEB liability is accounted for under the school funding formula, though no decisions have been made.
“It would be tremendous,” Raleigh County school board President Richard Snuffer said of the potential liability shift. “I’m glad they’re looking at that. It would give us more dollars to put toward the education of children.”
Officials consider the OPEB liability the last major hurdle for putting West Virginia government finances on a new path. The state has long ranked poorly in such areas as income and educational attainment, but has also made modest gains over the last several decades. Its jobless rate remains lower than the U.S. rate, it reaped recent general revenue surpluses while other states struggled to balance their budgets, and it has one of the nation’s healthiest emergency reserves.
“It will be a great thing,” Alsop said of an OPEB plan. “This is, we think, the last big liability.”
Lawrence Messina covers the statehouse for The Associated Press. Follow him at http://twitter.com/lmessina