WOBURN - In a financial move that should pay huge dividends for the city in the years to come, Mayor Scott Galvin in recent days again called for a $750,000 deposit into a special trust fund established to cover the community's massive other-post employment benefits (OPEB) liabilities.

In a request to be first considered by the City Council during a regularly scheduled gathering on Tuesday night, Galvin recently submitted an order seeking to transfer $750,000 in surplus overlay reserve funding into the OPEB account.

Woburn is one of only a few communities across the state that is making regular contributions towards outstanding OPEB obligations, which according to the most recently available estimates, stand at approximately $235 million.

The size of the city's unfunded OPEB bill is anything but unique. Presently, cities and towns are only required to estimate the size of their financial liabilities and track those debts moving forward. State officials have also ordered communities to establish special trust funds that will be used to fund OPEB commitments, but there is not yet any obligation to deposit money into those accounts.

Galvin has now for five consecutive years insisted that at least $750,000 a year be set aside to address the massive liability. In 2018, the mayor also tried to curb the size of the debt by restructuring future retiree' health care benefits and increasing their share of health plan premiums from 10 to 25 percent.

Not to be confused with the community's unfunded pension obligations, OPEB deals strictly with state and local retirement systems' inability to cover financial commitments for retiree benefits like medical, dental, disability, and life insurance plans.

Woburn's annual budget this year is expected to include an annual $11.05 million contribution towards outstanding pension system obligations, which involve the community's promises in regards to pensioners' day-to-day living allowances.

Last year, Woburn's taxpayers made an $8.8 million payment towards the unfunded pension system liability.

Unlike OPEB debts, communities are required to fully fund their pension liabilities by 2040. Woburn is on track to fully fund its outstanding pension system liabilities by 2032.

Technically, city workers today cover the bulk of their retirement packages by having a portion of their salary docked. The municipality is also responsible for its own contribution, which is equivalent to about 5 percent of the community's total annual payroll.

That money is then steered towards the local Retirement Board, which pools and invests those employee/employer contributions together in order to obtain the returns needed to cover the expense of each retiree's pension down the road.

Based upon PERAC records, the City of Woburn estimates that it makes an approximate 7.5 percent annual return on its investments each year.

However, for decades after public employees were first offered pension benefits, the Commonwealth and most if not all cities and towns not only failed to set aside their portion of promised pension system obligations, they also redirected workers’ retirement contributions towards other expenditures and budgetary needs.

As a result, when a great number of those employees eventually retired, virtually every local and state pension system found itself lacking the needed funding to cover all of its obligations — termed the “unfunded liability”.

Eventually, the state passed legislation requiring cities and towns to make up that gap by making an annual contribution towards their unfunded pension system liability.

Back in 2001, officials from the federal Government Accounting Standards Board (GASB), realizing local and state officials had no idea about the size of their OPEB exposures, directed all retirement systems to begin calculating that debt. Initial financial statements were first released in 2014.

In a subsequent 2016 report prepared by the Mass. Public Employee Retirement Administration Commission (PERAC), the state retirement system's OPEB liability was pegged at $16.7 billion, while local retirement systems like Woburn's reported a combined $30 billion in outstanding obligations.

Many municipal officials say they don't expect a funding mandate to come down until the state's unfunded pension system liabilities are addressed. At that point, proponents of waiting argue, the annual budget contributions that were made towards those obligations can then be re-allocated towards OPEB debts without putting a great strain on local finances.

Galvin has scoffed at that type strategy, labeling it as financially irresponsible and likely to backfire.

"Kicking the can down the road is not an option...OPEB is the 800 pound gorilla in the room. We don't want to end up like Detroit or some other city like that," the mayor wrote in a summer of 2019 letter to the council.

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