OPEB Made Simple
Adapted from the June 19, 2013 “Short Summary of the OPEB-GASB 45 Section of the CFT-AFT 2121 Complaint” filed against the ACCJC April 2013Direct quotations from that summary are indicated.
What is OPEB?
OPEB stands for “other post-employment benefits,” such as retiree health benefits.
Why is OPEB so important to the accreditation of City College of San Francisco?
“During the last six years, the ACCJC has criticized and sanctioned colleges, including City College, because they did not sufficiently ‘prefund’ their estimated liabilities based on a projected 30-year cost of promised retiree health benefits.”
What is GASB 45?
GASB (Government Accounting Standards Board) is a private organization of accountants. In 2004, GASB adopted a standard known as GASB 45, which identifies, through a set formula, the amount that all government agencies should “prefund” in retiree benefits each year. “Over the next few years,” GASB 45 became “applicable to all governmental agencies.”
What is ARC?
ARC is the Annual Required Amount, or the estimate of these prefunded benefits. GASB 45 requires that each government agency record this amount on its balance sheets; however, GASB does not actually require the prefunding of these estimated costs. “GASB simply identifies the annual cost of prefunding were the liability to be amortized (principal and interest spread out over installment payments) over a period of 30 years.” The ACCJC has “misrepresented the purpose behind GASB 45,” claiming that it requires prefunding of these estimated benefits. In fact, “assessing prefunding of retiree health benefits is not done by any other accrediting body.”
What is “Pay as you go”?
Payment of the actual amount of retiree charges each year is referred to as the “pay as you go” practice, which City College and many other governmental agencies had been using until recently. As the baby boomers retire, “pay as you go” will no longer suffice. During a period of fiscal crisis, however, this method made sense at the college as a way to protect classes and students. In fact, the State Chancellor’s office validated “pay as you go” in a June 2010 advisory.
What does ACCJC demand that colleges do with OPEB?
ACCJC requires that colleges pre-fund retiree health benefits by contributing to an irrevocable trust designated for this purpose. ACCJC gave as one of the reasons that it had placed City College on show cause in July 2012 the fact that though the college had joined a trust fund to prepay the estimated costs, it had not yet contributed to that fund.
Why was this a questionable demand?
The Community College League of California (CCLC) developed a new Retiree Health Benefit JPA (Joint Powers Authority), a trust fund to which colleges were seriously encouraged to contribute. A number of evaluation team members and some ACCJC commissioners sit on the board of this trust fund, which represents a conflict of interest. “Steve Kinsella, the president of Gavilan Community College and a CPA [and an ACCJC commissioner since 2010] has been placed on at least nine [evaluation] teams, four times as chair. The teams he has chaired have come down hard on colleges for not ‘prefunding’ their ARC.” Kinsella not only helped to create the Retiree Health Benefits JPA, but he also sits on its board of trustees. “ACCJC has appointed about a dozen other JPA trustees to serve as evaluation team members, who have been involved in issuing about 25 evaluations that reviewed colleges’ OPEB funding.” Frank Gornick, another ACCJC commissioner also sits on the CCLC JPA trust board. This brings to mind a critical revision of the old entrepreneurial maxim “find a need and fill it” to “create a need and fill it.” Instead of spending restricted resources on classroom instruction, colleges are being required to “generate income for bond and stock traders who invest in these [trust] funds.”
Did City College have a reasonable approach to OPEB?
The college chose to continue “pay as you go” during a time of serious statewide fiscal crisis, thus preserving the quality of education at the college by using needed funds for classroom instruction. We are moving through that crisis, plus we have increased the revenue stream, so NOW, in fact, a reasonable approach would be to increase OPEB funding. Respected actuaries, however, disagree on what the rate of that increase should be. It’s hard enough to forecast fiscal stability for six years and impossible to assess it for 30 years. The GASB 45 standard is an estimate, not a predictor of the future. What if, for example, 20 years from now a single payer healthcare system swept the nation? Of course, we cannot base our funding on that kind of dream for some and nightmare for others, so City College’s recent budget passed by the Board of Trustees (now unseated through a questionable rule change by the Board of Governors) included adequate pre-funding for OPEB. In fact, AFT 2121’s alternate budget included a similar amount.
What does all of this have to do with negotiations?
Now that the economy is turning around and revenue streams have increased thanks to Propositions A and 30, we can move from a “pay as you go” policy regarding OPEB. Nonetheless, OPEB must not be used as a weapon to unnecessarily decrease funds available for classroom instruction and for fair salaries and benefits, including retiree health benefits, for faculty. Fair compensation is one of the main reasons our instruction remains so high. We can recruit and retain committed, engaged full-time and part-time instructors.*
What are some final words?
In summary, OPEB will require adjustments to our budget in the coming years. City College had taken a reasonable approach toward OPEB during the economic downturn. The college should not have been sanctioned for this reasonable approach, which preserved the high quality of classroom instruction despite dwindling resources.
Leslie Simon
September 2013
* Sadly, in recent years, faculty pay has plummeted, and if this condition continues, instruction will suffer because we will lose faculty to better paying districts. “On July 1, 2013, the District unilaterally imposed an ongoing 5% wage cut off the 2007-08 salary schedule (this was the last time faculty saw an increase). By the end of the most recent contract agreement (June 30, 2015), wages will be 3.5% lower than they were in 2007.” http://www.aft2121.org/2013/11/faq-of-tentative-agreement/ LS November 2014