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May 8, 2008


DiNapoli Urges State and Local Governments
To Begin Managing Escalating Health Care Costs

State Comptroller Thomas P. DiNapoli today proposed the creation of an investment pool to help the State and local governments manage and fund Other Post Employment Benefits (OPEB). Under new accounting standards issued by the Government Accounting Standards Board (GASB) that call for the disclosure of escalating future costs of retiree health care benefits, State and local governments must now begin to report those liabilities. DiNapoli issued a report on OPEB liabilities urging the State and local governments to develop plans to quantify, manage and fund these costs.

“The state and local governments have to start preparing for these costs,” DiNapoli said. “These are difficult fiscal times, and the impulse may be to push this issue aside. But more than one million New Yorkers are counting on these health benefits. The responsible, good government thing to do is to start preparing for the future in order to protect health care benefits.

“The investment pool is an important tool for governments to provide that protection, help manage costs, and save taxpayer dollars over the long term. Other states are already working to address OPEB; New York needs to get started.”

DiNapoli said he would advance legislation this session to authorize the creation of OPEB trusts for New York State and its local governments. His proposal will establish the legal structure for creating trusts that the State and local governments can, at their option, use to help fund their OPEB liabilities.

DiNapoli’s report specifically focuses on non-pension costs known as “other post employment benefits” (OPEB) - mostly health care for retirees - whose accounting disclosure requirements are governed by the national Government Accounting Standards Board (GASB). These requirements, known as GASB 45, focus on disclosure. Previously, there was no requirement for the state and local governments to report or fund these liabilities. GASB 45 does not require funding of OPEB, but DiNapoli said his proposal for an OPEB investment fund is an essential part of managing these long-term costs.

Highlights of DiNapoli’s report include:
New York State reports the largest state OPEB liability ($50 billion), followed by California ($48 billion). In addition to the State’s $50 billion liability, New York City’s is estimated to be another $58 billion. For other local governments in New York, these liabilities will total billions more once they are quantified.
Costs for retiree health care benefits will continue to grow for state and local governments as the workforce ages and health care costs continue to outpace inflation.
GASB 45 requires governments to report the cost of these benefits in their financial Statements. These standards increase transparency and reveal the true long-term cost of providing these benefits. This is not a new liability, but it does require that governments accurately and fully disclose those commitments.
Most states have completed their initial calculations of the long-term cost of OPEB. However, states have only set aside about three percent of the funds needed for promised retiree health care and other non-pension benefits. By comparison, the New York State and Local Retirement System, which fund pensions for state and local government retirees, is funded at 104 percent of its long-term pension liabilities.

Click here for a copy of the report.

For additional information concerning GASB 45 and OPEB:

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