An Overview of the State and Local Government Pension/OPEB Landscape

Abstract

It is impossible to discuss municipal finance without considering the cost of pensions and other post-retirement employee benefits (OPEB), the largest of which is retiree health insurance. These costs have received enormous press coverage, usually incorporating sweeping generalities about the burden of employee post-retirement benefits for the nation as a whole. Much is made of the bankruptcies in specific jurisdictions. At the state level, the most poorly funded pension plans are often described as typical, while the states that provide reasonable benefits, pay their required contributions, and accumulate assets are overlooked. The picture at the state and local levels is extremely heterogeneous, so it is crucial to look at the numbers state by state and locality by locality.

This article provides a comprehensive accounting of pension and OPEB liabilities for state and local governments and the fiscal burden that they pose. The analysis covers the plans of 50 states, 178 counties, 173 major cities, and 415 school districts related to the sample of cities and counties. The analysis apportions the liabilities of state-administered cost-sharing plans to participating local governments for a more accurate picture of which governmental entity is actually responsible for funding pension and OPEB liabilities. The cost analysis calculates, separately, pension and OPEB costs as a percentage of own-source revenue for states, cities, and counties and then determines the overall burden of these programs. Finally, it adds debt service costs to provide a comprehensive picture of government revenue commitments to long-term liabilities.