Asheville – On July 18, 2013, the City of Detroit filed for bankruptcy. The idea that infinite growth, sufficient to cover any carefree spending, exploded after the auto industry offshored and the population followed the jobs. Suddenly, leaders found themselves painted into a corner by years of racked-up debt and disregard for supply-side economics. Among top reasons for the bankruptcy was failure to fund the city’s generous pension plan. Detroit was not unique; picturesque San Bernardino and Harrisburg were among others to notably do the same.
It wasn’t like they hadn’t been warned. An actuary by the name of John Boyle (not Asheville’s own) spoke at a Detroit City Council meeting to warn them about the unsustainability of their unfunded liabilities before it all came crashing down. As he recalled, they were more interested in talking about whether or not the mayor’s wife should drive an Escalade that night. Around the same time, conservative think tanks were piling on the federal government for not carrying enough in Medicare and Social Security funds to support the baby boomer population that was accessing an explosion of costly medical advances and expected to live longer than previous generations.
So, it was not without alarm to hear that Asheville was going to suspend its OPEB (other postemployment benefits, like healthcare and life insurance) contributions. During the budget presentation when this was announced, no timeframe was given for the suspension, so there was no clarity about whether the city had over-padded its fund; pensioners were going to have to do without; or the city was just going to raise taxes, cut services, invite the Local Government Commission to restructure its finances, and let the state revoke its charter.
Asheville’s Finance Director Tony McDowell explained that way back in 2004, the Government Accounting Standards Board, the organization that establishes Generally Accepted Accounting Principles (GAAP), began requiring local governments to project how much they were going to pay in retirement benefits through the remainder of the lives of past and current employees. This helped municipalities like Asheville identify unfunded liabilities before it was too late and better plan for the future. The state set up the OPEB Trust Fund to help.
McDowell said the city was going to suspend OPEB contributions this year and next. He said the city has typically paid $1.6 million into the account each year, but the proposed FY25-26 budget lists the savings realized from the suspension as $1.3 million. Skimming through recent CAFRs, it appears that $1.6 million represents about 5-10 percent of Asheville’s OPEB liabilities. AI searches could not find how many pensioners the city had, but it can’t be as bad as New York City, where taxpayers support 1.2 pensioners for every active employee.
“The pausing of this contribution will not impact employee or retiree benefits in any way. After many years of setting aside these funds, the city is in a place where our actuaries assure us that we can pause our contribution for a couple of years while still maintaining a healthy balance in the program,” McDowell said.
While people like to accuse Asheville of fiscal irresponsibility, this is one area where the city is better than most. Two years ago, the North Carolina Department of State Treasurer reported that local governments in North Carolina were, collectively, falling $7.6 billion short on funding OPEBs. Worse, funding for OPEBs for state employees was $25 billion short. Charlotte had the highest unfunded OPEB liability, $531,962,000. At the other end of the spectrum was Winston-Salem. “At 89%, Winston-Salem is the only city among the state’s top 10 population centers whose OPEB liability is more than 25% funded,” the report said.
North Carolina has over 1,100 local government units. Of these, 287 were offering OPEB programs, but only 23, including Asheville, were making contributions to trusts. Municipalities setting aside funds in other instruments were, for all practical purposes, contributing to slush funds.