OPEB

It stands for “Other Post-Employment Benefits,” and it means retiree healthcare for life. The Government Accounting Standards Board now requires public agencies to account for the cost of these benefits when they are earned, rather than when they are used. I blogged about this last month, but yesterday I was forcibly struck with how little thought must have gone into the granting of these benefits at the time. Now that public agencies must spell out their true cost, suddenly, everyone wants to reduce it.

At yesterday’s Board meeting, Peter Ng presented data showing that, while the pay-as-you-go cost of these benefits for current retirees is about $4 million this year (up from $1 million just a few years ago) the total cost for fully funding future benefits would be just above $14 million this year and almost $15 million next year. And this is assuming the difference between this $14 million and the current costs is invested in a trust find that earns returns of 7.75% a year, and that increasing amounts are similarly invested for the next 30 years (and beyond, one assumes, but a 30-year amortization is the maximum allowed by the GASB rules.) And assuming that healthcare cost increases will somehow be controlled by reform in the next six years. Small changes in the assumptions produce quite large changes in the results over the 30 years.

These costs are factored into the groundwater production charges paid by the District’s customers. The graph above shows the trend of these charges. The top line is for North County (basically everything north of Metcalf Road in San José) and the lower line for South County. The shaded areas above each line represent the charges that would be necessary to support other capital projects that have been identified as important, but with no money yet budgeted for them. The public hearings for this year’s charges opened at the meeting yesterday, and will continue tomorrow evening in Gilroy.

No one from the public got up to comment about the charges (which, if approved, would increase by 9.5% for North County “municipal and industrial” (M&I) users in the next fiscal year.) But there was much discussion on the Board, mainly focusing on the costs that the District pays for its Central Valley Project and State Water Project water, and how these costs were often set in a manner not transparent to the public. Director Estremera stated that the SCVWD was only really responsible for about 20% of the groundwater charges it levies. He also talked about the real possibility that the State would again take money from special districts to balance its own books, with the explicit understanding that the districts would pass these costs on to customers in the form of higher rates.

The District would certainly do well to break out the costs not under its control (like the stickers on the gas pump that point out how many cents per gallon go to various taxes.) But the public also needs to know what else is behind an increase greater than the rate of inflation, which is projected to stay that way for years to come. The District is embarking on advanced water treatment methods, has environmental commitments that are not yet paid for, and substantial infrastructure maintenance needs. But if voters and ratepayers aren’t sold on these, all they’ll see are water bills that go up, up, up.