OPEB - Archive

Earlier this week a reporter asked me to comment about a bond under discussion in the Legislature. I responded that the costs of past obligations already crowd out spending on current programs…

In 2015 the City of Glendale took advantage of Obamacare to dramatically reduce its spending on health insurance for retired employees and free up funds for spending on active employees and public services.

Dear Legislators,

This week the Biden Administration announced that personal income rose 0.4% in April, consumers increased spending sharply, U.S. economic activity is at its highest pace in more than a year, and the unemployment rate is at an envious 3.4 percent.

Yesterday the Legislative Analyst’s Office (LAO) released its Multiyear Budget Outlook through fiscal year 2026-27, forecasting $52 billion of deficits over that period.

We couldn’t agree more with Legislative Analyst Gabe Petek that it’s best to solve the deficit without using reserves, which are already woefully short of the amounts needed to protect essential services in the event of a recession.

West Contra Costa County Unified School District has received a “lack of going concern” determination from its county board of education. That means the district is unable to meet its financial obligations. But 60 percent of its deficit is accounted for by spending on an unnecessary insurance subsidy for retired employees known as “OPEB” (Other Post-Employment Benefits) that drains classrooms of resources while federal subsidies go unused.

San Francisco Unified School District spends up to 250% more than the average CA school district on OPEB, which are insurance subsidies for retired employees.

Dear Legislators,

92 percent of Californians have insurance coverage. The eight percent who don’t are primarily undocumented residents. CA has sufficient ongoing resources to cover them.

Dear Legislators,

Eight percent of California residents don’t have health insurance yet an elite population of less than one percent not only have access to Medicare, Affordable Care Act and employer coverage but also a special insurance system just for them that costs the state $5 billion per year.

Conventionally, Ronald Reagan is characterized as conservative. But as a first-term governor of California in 1968 (Reagan earned the job in 1966, denying Pat Brown a third gubernatorial term), he signed the Meyers-Milias-Brown Act, which endowed police and other local personnel with the power to bargain collectively with the governments that employed them, handing political power over local budgets to government employees who were the principal beneficiaries of those budgets.

At a cost of $4.9 billion per year, California provides more than Medicare to retired state employees and under terms far more generous than other states:

The Governor’s Budget projects deficits down the road but that’s no reason not to enact worthy programs with savings from eliminating unworthy programs, and especially those contributing to the structural deficit to which Governor Newsom refers in his budget message.

As Congress debates the next Covid-19 relief package for state and local governments and schools, it should note that the Golden State is currently leaving billions of already-approved federal dollars on the table.

Last year we spent as much time blocking tax increase proposals as liberating nurse practitioners. This year will be the same. Reform efforts will focus on OPEB and tenure but at least as much time will be devoted to blocking tax increases, bills to extend collective bargaining rights to legislative staff, and more.

Dear Legislators,

Nearly half of San Diego’s $86 million budget deficit appears to be attributable to a failure to access federal and state dollars.

Dear Legislators,

Re yesterday’s post, some readers asked what Oakland should do. Maybe an analogy would help.

Dear Legislators,

Today′s SF Chronicle includes this frightening headline:

Dear Legislators,

We find ourselves amazed that few state legislators and their staffs know about CoveredCA. They should take a test spin, which takes less than a minute. Eg, say you are a 53 year old retired prison guard with a $90,000 annual pension who lives in Sacramento with a spouse age 53 and two kids ages 15 and 13. Input that info at the Shop and Compare page and after a few click you’ll be presented with 24 plans and estimated savings of $1,461.15 per month.

Dear Legislators,

Like most employers, the State provides health insurance to active employees. But unlike most employers, the State also provides health insurance to retired employees and their dependents. Believe it or not:

Earlier today, US Congressman Ro Khanna gave us an opportunity to point out something we’ve been waiting for some CA state legislators to discover:

Dear Legislators,

We are pleased that more and more of you are eager to address the billions you unnecessarily divert every year from services to extravagant insurance subsidies for retired state employees (“Retiree Health Subsidies,” or “RHS”). Following are some basic facts followed by a list of reform opportunities.

Here’s something Assembly Members Luz Rivas, David Chiu, Richard Bloom and Buffy Wicks don’t want their constituents to know:

At a time when criticism is leveled at CA’s government for poorly performing agencies such as the Employment Development Department, it’s important to point out excellently performing agencies such as Covered California. Now that I’m on Medicare I no longer need CC but my wife and daughter do and it is a marvel. Application and renewal are simple and this morning (just seven days into the new year) 1095-A forms have already been sent. In contrast, our son who lives in New York has to deal with New York State of Health, which turns every task into a heavy effort.

Dear Legislators,

In a world in which The Intercept is criticizing biotech firm Moderna for potentially collecting $10 billion for creating a life-saving COVID vaccine, how do you think you should be viewed for the $10 billion you shower on CA state prison employees every single year?

As 2020 comes to a close, we are pleased to report that GFC raised $7,152,548 during the 2019-20 legislative session. Launched in 2011 with seed funding from three donors (Ron Conway, Greg Penner and me), today GFC has nearly 900 donors plus 16 chapters that together are among the most powerful forces in Sacramento. Special interests have been there longer, but we are bigger and growing faster.

Dear Legislators,

We know how much you fear public employee unions but in 2021 you must finally address an expense in their favor — let’s call it “The Giveaway” — needlessly costing the state, local governments, transit agencies and schools more than $10 billion per year.

Dear Journalists,

We have a challenge for you: Try to find a single state or city that provides richer post-employment insurance to retired prison guards and police than CA, LA or SF, which supply unlimited health insurance to retired employees and their spouses even when they are on Medicare or entitled to Covered California.* Let us know if you do.

Dear Legislators,

As you prepare for the release in early January of Governor Newsom’s proposed 2021-22 budget, consider this: The University of California is incurring $1.7 billion of unnecessary expense each year. That’s about half of the amount you allocated to UC from the state’s General Fund in 2020-21. To understand how that’s happening and how UC can stop it, see here.

Dear CA State Legislators,

You lead the country in spending on prison employees. After granting them six salary increases since 2010, you are spending >$5 billion/yr on salaries for 57,000 state prison employees attending to ~115,000 inmates. But that’s not all. You also spend >$4 billion/yr on insurance subsidies for retired employees, the most expensive of whom are prison guards and CHP. These subsidies, known as “Other Post Employment Benefits” (“OPEB”), are in addition to pensions, which you allow prison guards and CHP to start collecting in their 50’s.

Dear Legislators,

Last night I posted a thread on Twitter explaining how CA unnecessarily spends a fortune on health subsidies for retired police, prison guards and other employees and the two steps required to fix that.

LA and SF face large budget deficits because their mayors won’t face up to police unions. The consequences for residents are terrible and there’s an easy solution. LA and SF spend hundreds of millions of dollars per year on extravagant subsidies for retired employees, the most expensive of which are retired police who can retire early. But those subsidies aren’t necessary. That’s because of Covered California, where even retired police with large pensions can get federal and state subsidies:

No sooner had the California Legislature convened yesterday than a bill was introduced to increase taxes again to raise $2.4 billion per year. But there’s already an extra $2.4 billion in the state budget.

Today’s LA Times reports the city is looking at layoffs of police officers because of a budget shortfall. But as we explain here, LA could save nearly $400 million per year by eliminating a rich subsidy for retired city employees that was rendered redundant by subsidies provided by the federally-funded Affordable Care Act in 2010 and state-funded Middle Class Subsidies in 2019. Active LA employees and public safety should not be sacrificed to unnecessarily subsidize retired LA employees.

COVID has hit the transportation sector hard. Recently, Delta and its unions agreed to temporarily reduce pay. But last week BART agreed to increase pay. Such profligacy isn’t rare. Eg, BART also provides a redundant benefit known as “Retiree Medical Benefits” that annually costs $39 million, an amount equal to 21 percent of BART’s expected operating revenue this year.

Yesterday a GFCer wrote me to encourage immediate action on pension reform. In response I wrote,

We are starting to wonder if some journalists are viewing different state and local records than we are. Last week it was an article in the New York Times containing an unsupported assertion reported as fact, then the Los Angeles Times didn’t question an assertion by a LA Councilman about that city’s budget, then CALMatters omitted reference to state revenues running well above budgeted revenues in an article about school funding.

The internet has made it easier than ever to get to primary sources such as government budgets. That’s one reason we encourage members of the GFC Network to skip intermediaries and just go direct.

A recent article in the New York Times about election results in California included the following sentence (italics added by me): “A measure that would have raised taxes on commercial landlords to raise billions for a state that sorely needs revenue also seemed on track for defeat.” The reporters did not provide support for their assertion — which they expressed as a fact — that California “sorely needs revenue.” They should do so. Meanwhile, here are six potentially relevant facts (sources in parentheses).

Yesterday, LA’s City Administrative Officer announced the city’s budget deficit could reach $400 million to $600 million by the end of the current fiscal year.

Annual cash spending by the City and County of San Francisco on pensions and other post-employment benefits increased 146 percent from 2010 to 2019, to $864 million per year.

This is the most recent demographic breakdown of pupils attending the Sacramento City Unified School District:

After our email last week encouraging US Senator Kamala Harris to help eliminate California’s extraordinary spending on unnecessary insurance subsidies for retired public employees (OPEB), some of you asked why we thought someone like Senator Harris with such a long history of support from public employee unions would be willing to help on that issue. We have several reasons:

Before running for office, US Senator Kamala Harris was employed for 13 years as an attorney by the counties of Alameda and San Francisco, which provide expensive insurance subsidies to retired employees such as herself. In the case of San Francisco during the years Ms. Harris worked there, those lifetime benefits extend to employees who worked only five years. Known as OPEB (Other Post Employment Benefits), the subsidies were rendered largely redundant after enactment of the Affordable Care Act and middle class subsidies by the State of California yet San Francisco continues to run an OPEB program that costs a fortune — SF spent $180 million last year — and the most expensive beneficiaries of which are public safety employees who can retire at age 50 with pensions equal to 90 percent of their final compensation.

To assist deficit-reduction deliberations, Govern For California commissioned an actuarial analysis of an alternative plan design for the City and County of San Francisco Postretirement Health Plan, which is an other postemployment benefit (“OPEB”) for retired city employees.

Some of you have asked for an estimate of the savings California could realize from reforming OPEB (Other Post-Employment Benefits) subsidies of retired employee health insurance.

1. You have the power to change OPEB. See page 136 of the state’s Comprehensive Annual Financial Report:

The City of San Francisco spends more than $400 million per year — 14x the city’s spending on Children, Youth and Their Families, 4x Recreation and Parks, and 2x Homelessness and Supportive Housing — to unnecessarily subsidize health insurance for retired city employees. Referred to as “OPEB” (“Other Post Employment Benefits”), SF’s OPEB subsidies are multiples of those provided by cities in adjoining states:

Governor Newsom’s Revised Budget proposes cuts to programs in the event more federal COVID funds are not provided. We propose a solution that would free the 10 programs below and improve the state’s structural deficit without jeopardizing the financial security of retired state employees.

Many of you have asked for our view of Governor Newsom’s request for $14 billion of additional federal support.

Recently California joined with Colorado in asking the federal government for more COVID-related financial support for states but the two states have very different needs for the money.

Some legislators inquired about the legal and moral grounds for making the changes to pension and OPEB obligations I set out here.

Last year the University of California spent $1.3 billion unnecessarily to subsidize health insurance for retired employees (dollars in millions)…

School budgets will be a big issue facing legislators upon their return to Sacramento.

Yesterday, Los Angeles Mayor Eric Garcetti warned of employee furloughs to help meet an anticipated $600 million revenue shortfall. Before LA furloughs workers providing important services, the city should save up to $300 million per year by emulating the City of Glendale in reforming and means-testing a subsidy currently provided to retired employees.

San Francisco Unified School District’s revenues are 40 percent higher than five years ago yet the district just announced a $32 million deficit. That’s because spending on retirement costs went up more than 100 percent.

Further to our recent opinion piece about state and local government accounting, a reader asked for an illustration of a state budget ignoring costs. California’s treatment of insurance subsidies provided to retired state employees (known as “Other Post-Employment Benefits,” or “OPEB”) provides one such illustration.

Today the legislature passed AB 74, the state budget for the 2019–20 fiscal year, which starts July 1. Governor Newsom is expected to sign it. Here’s our summary view.

Opinion  // Open Forum

Last month I turned 65 and became eligible for Medicare, the national health insurance program for people my age and older. Medicare is fantastic — and fantastically cheap — health insurance. But, believe it or not, if I were a retired California state employee, both I and my dependents would be entitled to health insurance subsidies.

In December I turned 65 and became eligible for Medicare, the national health insurance program for people my age and older. Medicare is fantastic — and fantastically cheap — insurance. But, believe it or not, if I was a retired California state employee, I would also be entitled to a state-provided health insurance subsidy that this fiscal year will cost taxpayers $2.6 billion — more than double the cost ten years ago.

Prevent a strike at LAUSD

On January 7, Gavin Newsom will be sworn in as governor of California. On January 10, a strike has been scheduled by the LA teachers’ union (UTLA) against LA’s school system (LAUSD). A strike will impact 600,000 students — including many who get health and nutrition services at school — and their families plus the members of other unions that, unlike UTLA, have reached agreement with LAUSD.

If ever you wanted a sense of the Kafkaesque world that often characterizes California politics, imagine yourself in the shoes of Austin Beutner, Superintendent of the Los Angeles Unified School District (LAUSD).

Los Angeles Unified School District collected $7.2 billion in revenues in its 2017–18 fiscal year. That translates into $298,000 per teacher, 42 percent more than four years earlier…

OPEB (“Other Post Employment Benefits”) debt largely consists of subsidies to retired employees for medical insurance premiums. OPEB debt owed by the state doubled in the last decade to more than $90 billion and state spending in the 2018–19 California state budget on OPEB will be >80 percent higher than a decade ago. The burden of that spending disproportionately falls on discretionary General Fund programs, as explained here.

Yesterday my political party (Democratic) incorrectly tweeted that California was “paying down debt.” Nothing could be further from the truth.

Governor Jerry Brown is negotiating yet another salary increase for state prison employees, the fourth in seven years.

Classrooms should be fully staffed with adequately compensated teachers. But that is not the case in California despite a >50 percent increase in spending since 2010. The principal reason is the diversion of school dollars to pensions and other retirement costs. Governor Brown reports annual spending of $16,000 per student but only about half reaches students.

Gov. Jerry Brown’s revised budget for 2018-19 predicts general fund revenues will be 30 percent greater than 10 years ago yet key services will receive less money than they did back then.

San Francisco Unified School District recently published its 2017 Financial Report and Second Interim Reports for 2017–18 here and here. The results are startling…

California school boards are prevented by the state legislature and governor from offering disproportionate pay to employees willing to work in high-poverty zones, cutting pension spending, altering permanent employment (tenure) rules or granting principals the power to fire poorly performing employees. The outcome: poor student performance, inadequate teacher salaries, and shaky finances despite a huge increase in spending.

Everyone must chip in to solve pension and OPEB crises.

It’s not news that exploding spending on pensions and retiree health care is crushing public services in California. It’s a problem that didn’t have to happen, as explained here. But it did — and the result is $1 trillion being diverted from schools and other public services in CA.

Retirees subsidized at expense of active teachers.

School funding in California is at record levels…

General Fund tax revenues in Governor Jerry Brown’s proposed budget for 2018–19 are expected to be 32 percent higher than ten years ago yet the same budget proposes only 9 percent more spending for California State University than ten years ago.

Inevitable unless the Big Diversion is ended.

Jerry Brown’s budget for 2018–19 predicts revenues will be 32 percent greater than ten years ago yet that same budget proposes 14 percent less for the Judicial Branch and only 8 percent more for the University of California.

Agonizingly slow progress in fast changing times.

In 1968 Latino students walked out of public high schools in East Los Angeles in protest of unequal educational conditions. 50 years later what has changed? CA’s Latino graduation rate has improved but unequal conditions and poor educational outcomes persist and graduating students are often unprepared for college. That’s in significant part because billions of dollars are being diverted from classrooms, too many under-performing teachers are spared from dismissal, and pay and support isn’t differentiated for teachers in high poverty schools.

In June San Francisco’s school board wants voters to approve a new “parcel tax” of $298 per parcel of real property. They claim the money — $50 million per year — is needed to provide teachers with living wages. That’s a worthy objective but it’s not the real reason behind the proposed tax. The real reason is buried deep in SFUSD financial reports from 2012 and 2017:

Jerry Brown and Betty Yee aren’t telling you the whole story.

Everyone has heard about pension costs but few have heard about the other retirement cost that’s burdening California governments and schools. “OPEB” — “Other Post-Employment Benefits” — are a form of deferred compensation, just like pensions. The principal OPEB benefit is a promise to cover post-retirement health costs. Because government employees in California may retire before they are covered by Medicare and often receive benefits on top of Medicare, OPEB promises in California add up to hundreds of billions of dollars.

Five pro-citizen issues should be on the agenda when the California Legislature reconvenes tomorrow…