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Last week, Wellesley Town Meeting took action to
address the town's growing OPEB liability
by agreeing to ask the voters for a funding exclusion to
Proposition 2½ in the amount of $1.8 million per year
for 10 years for a total of $18 million.
There are significant tax implications and it is
critical that residents understand the importance and
impact of this issue on Wellesley Public Schools and
all town services, today and in the future.
Please read below for a summary of key
issues.
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| What is OPEB? |
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OPEB stands for Other Post Employment
Benefits, the benefits that the Town owes its
retired employees (teachers, firefighters, police
officers, etc.) beyond their pensions, primarily
healthcare insurance.
Until last year, the Town had funded OPEB
solely on a "pay-as-you-go" basis, paying the benefits
due to retirees in each year, but not setting aside
funds to pay the healthcare benefits that will be owed
for current employees when they retire. The town had
been incurring the obligation to pay these benefits in
the future, but had not begun to fund that
obligation. An unfunded liability is one that is
owed for services already performed, even if the town
were to cease operation today.
On a current basis, the cost of retiree
healthcare benefits has commanded an ever
increasing portion of the Town's operating budget and
our incurred OPEB liability continues to grow.
Wellesley's OPEB liability for
benefits already earned by town
employees is currently $93 million.
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| Approved Initiatives |
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Town Meeting and Town Officials, with the unanimous
support of the Advisory Committee (Wellesley's
equivalent to a Finance Committee), have
decided that we must take steps now to
adequately fund
the OPEB liability. Town actuaries have advised that
an annual investment of $3 million is needed to retire
the liability within 30 years.
To reach the goal of $3 million annually,
Town Meeting approved two initiatives:
- $1.2 million was appropriated to the OPEB Trust
Fund in the annual FY08 Operating Budget, funded
within the levy limit (requiring no tax increase). A
similar appropriation to the OPEB
Trust Fund is expected in operating budgets in
subsequent years.
- An additional $1.8 million was approved for
appropriation to the OPEB Trust Fund in each of the
next ten years, for a total of $18 million, contingent
upon voter approval of a "funding exclusion." A
funding
exclusion allows an appropriation in excess of the
limits
of Proposition 2½, but expires after a set time. Town
voters will be asked to approve this appropriation in a
ballot question this May. If approved, it will result in a
temporary tax increase for Wellesley residents for the
next ten years.
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| ACT NOW to FUND OPEB |
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Funding our OPEB liability now at a rate of $3 million
annually, utilizing the funding exclusion will:
- Cost less overall. The sooner we fund our
liability, the less it will cost in total. A delay in funding
OPEB will result in increases in the liability over the
next 30 years.
- Help retain our AAA Bond Rating as the High
School project nears. Our bond rating will impact
the cost of borrowing for the High School renovation
and other capital projects. New government
accounting regulations require municipalities to
disclose OPEB liabilities on annual financial
statements. If we begin to responsibly fund our
OPEB liability, our statements will be more favorably
received by the rating agencies.
- Lessen pressure on operating budgets for
schools and other town services. The Town can
annually fund a portion ($1.2 million) of its
OPEB liability under the levy limit, resulting in no
increased taxes. The Town cannot, however, fund the
additional
$1.8 million under the levy without profound impacts
on funding for schools and other municipal services
or large annual operating overrides.
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| Next Step: Voter Approval |
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Voters must approve the funding exclusion to
allow the
Town to appropriate $1.8 million to the OPEB Trust
Fund in each of the next ten years, over the limit
imposed by Proposition 2½.
In ten years the liability will not be fully funded.
Actuaries estimate it will take 30 years to retire our
OPEB liability. Town officials have chosen a ten year
term to allow the Town to assess the funding plan in
light of trends in healthcare costs and a decade of
investment returns. At that point, Town officials will
return to Town Meeting and the voters with an ongoing
plan.
The tax impact of the funding exclusion for
OPEB will
be $165 annually for ten years for the median
($824,000) assessed home in Wellesley.
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| The Last Word |
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While the tax impact of $165 per year for the median
assessed home seems high, it must be viewed in the
context of future tax implications. Economists have
called OPEB "the 800
pound gorilla in the room" and for good reason:
Failure to fully fund OPEB will squeeze operating
budgets in the future, affecting funding for Wellesley
Public Schools and other town services. With budgets
already stretched tight, this increasing burden will
force difficult decisions and increasing overrides.
Funding the OPEB liability as approved by
Town Meeting is the most fiscally responsible
approach.
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Committee for Education in the 21st
Century
