When considering the long-term liabilities of state and local governments, debt and pensions receive most of the attention. But unfunded Other Post Employment Benefit (OPEB) obligations (also known as retiree healthcare obligations) can similarly weigh on a government's resources. OPEB obligations are typically considered "softer" liabilities compared with pensions and debt and less protected by state laws. In the Detroit and Stockton bankruptcy cases, OPEB obligations were haircut dramatically. But for typical local governments, existing OPEB obligations mean real outgoing cash flow. The larger a government's unfunded liability, the larger the annual payment.
OPEB UAAL over Revenues
One way to measure the size of an OPEB obligation is to compare the unfunded liability with annual revenues. Because OPEB data is provided at the primary government level, it is appropriate to divide the unfunded liability by total primary government revenues (governmental and business activities). Read more about OPEB UAAL over revenues here.
For cities with populations over 200,000 in the Munitrend database, the median OPEB liability over revenues is 15.7%. The range of values is wide, from -1.6% (overfunded) to 246%. A larger ratio likely means increasing ongoing OPEB funding over time. And most plans currently have no assets set aside (or in other words, have funded ratios of 0%).
Cities with the largest obligations
Of U.S. cities with over 200,000 people, here are the five with the largest OPEB obligations relative to revenues:
|City||OPEB UAAL over revenues|
|Baton Rouge, LA||125.8%|
Buffalo, NY has an OPEB UAAL over revenues of 246% as of fiscal year 2016 -- the highest of any city with a population of over 200,000. The city's primary government contributes to two plans. For its largest, the UAAL was 751% of covered payroll.
Yonkers, NY has an OPEB UAAL over revenues of 182%. The city of 201,000 contributes to one OPEB plan. Its UAAL represents 431% of covered payroll.
Aurora, IL has an OPEB UAAL over revenues of 141%. Aurora's ratio is partly impacted by accounting treatment. It is the only city of the five to adopt the latest OPEB accounting standards in 2016. Changes to assumptions led to a large increase in the city's OPEB liability in 2016. The obligation represents 446% of covered payroll.
Montgomery, AL has an OPEB UAAL over revenues of 129%. The city's obligation represents 283% of covered payroll.
Baton Rouge, LA has a UAAL of $988 million, totaling 126% of total primary government revenues. The obligation represents 579% of covered payroll.