By DAN VALENTI

PLANET VALENTI News and Commentary

First of a Two-Part Series

(FORTRESS OF SOLITUDE, MONDAY, DEC. 29, 2014) — Back in the 1980s, when the 21st century sounded more in the realm of George Jetson than Dan Bianchi, Pittsfield’s OPEB (Other Post-Employment Benefits) funding deadline was 2018. As a starting point, let’s define OPEB. It refers not to pension liabilities (sorry taxpayers, but those must be added to the OPEB totals) but to all other benefits a retired city employee receives, primarily health insurance, life insurance, and anything else overly-generous citizens have thrown in Santa’s bag.

OPEB amount to I.O.U.s by taxpayers of future payments to employees after they retire. Prior to 2004, you didn’t hear too much about these unfunded obligations. In June 2004, though, new governmental requirements went into effect requiring all governmental levels, including cities, to list these unfunded liabilities in annual financial statements. Rightly so, since they are every much part of the financial picture as income and expenses.

The Dreaded Private Sector has had to report these debts since the mid-1950s. Essentially, the rules establish the amount of money cities will need to save today in order to fund the obligations of tomorrow. Just one slight problem: Because OPEB has been such an obscure and little understood matter, cities such as Pittsfield have been doing next to nothing, taking advantage of the fact that the rules do not require pre-funding of liabilities.

A look at a home in Detroit before, during, and after bankruptcy. Is this Pittsfield’s fate? (Photo: AP).

Result: A giant fiscal mess that one day will fall on Pittsfield the way Little Boy and Fat Man fell on Hiroshima and Nagasaki in August 1945 … or the way these fiscal bombs rained on cities such as Detroit and Sacramento in the past couple years.

The Crisis Shows No Signs of Letting Up or Going Away

Once you understand that, you can begin to see why OPEB is such a looming, gigantic fiscal problem, for as we all know, health care costs have risen into the stratosphere with no sign of letting up. When these benefits were first negotiated, health care was at best a marginal cost. Pittsfield agreed, for example, to give both retirees and employees 90% of the cost at the expense of taxpayers.

However, the insane jump in the cost of health care added to excessively generous benefits packages handed to municipal unions have transformed OPEB into the fiscal equivalent of an atomic bomb. It has, can, and will devastate entire cities. Ninety percent is a killer. Frightened politicians have dare not adjusted this rate, even though the law requires a 50-50 split.

The unions will argue that the benefits were fairly won, negotiated at the bargaining table. Fair point. Nonetheless, THE PLANET must point out that taxpayers were “represented” by politicians in love with their next election. These spineless creatures wouldn’t dare say “no” to any demand. “Yes” said it all for them, and through each new cycle of negotiation-and-contract, the benefits grew and grew. These taxpayers funded perquisites have ballooned into monstrous proportions.

With each year of passing, that pesky funding deadline kept being pushed ahead, further in time. That was the city’s way of “facing” what the demographics, even back then, outlined with certainty — that the pyramid of benefits the city showered upon its workers and retirees in the form of unfunded obligations would eventually come due. Politics being strictly a short-term game, pushing the deadline forward, ever forward into the future, produced the convenient effect of making the OPEB problem “disappear.”

Today, the city’s OPEB funding deadline is 2040. It will be paid based on an overly optimistic assumed rate of return on investment of 7.75%. Pittsfield taxpayers’ debt obligation, which runs into the hundreds of millions of dollars, is only funded at a ratio of 41.9%. What does all this mean? It means that the city fathers have, in the name of taxpayers, committed their apathetic subjects to obligations they have little chance of meeting without drastic reform (adjustments in the health insurance split, layoffs, renegotiating pension caps, or getting home-rule to re-negotiate OPEB and other benefits). Indeed, the financial picture is so bleak that the best option at this point is bankruptcy, along the lines of Detroit and other cities that were crushed by the greed and avarice of The Special Interests and the enabling of cynical politicians. THE PLANET says this based on the pragmatic assumption that politicians will continue to run and hide from the problem.

OPEB + Pension Liabilities = $350 million Bill for Pittsfield Taxpayers

And remember, pension costs must be added to OPEB liabilities to get the full picture of a city’s indebtedness. In 2011, the last year for which figures are available, Pittsfield had an OPEB bill of $224,749,000 plus an unfunded pension liability of $105,976,000 (ED. NOTE: Pittsfield has funded only 42% of its pension obligations) for a total of $330,545,000. In three years, that total has risen. A rough guesstimate would put the bill north of $350 million — more than a third of a billion dollars.

QUESTION: And from where do you think the city will try to extract one-third of a billion dollars? ANSWER: Gotta mirror?

Yes, you care correct. At some point,  of course, the tax burden will be so great that homes will be lost, businesses will close, and a mass exodus will ensue. It’s already happening, a sad echo to the banner that The Suits hung downtown to broadcast the mirage of a renaissance (“It’s Happening”). The best solution at that point will be bankruptcy.

The most recent analysis of Pittsfield’s OPEB situation reveals the dire facts. Heading into 2015, the city has received a grade of F for transparency about OPEB. It ranks dead last among Massachusetts cities and towns examined.  The Pioneer Institute recently created a new app evaluating Massachusetts’ state and municipal pension plans, where this data originates. The tool is available at MassPensions.com  and includes most of the data provided in the annual reports of the Public Employee Retirement Administration Commission (PERAC) and its predecessor for the period 1985-2012.

Tomorrow, THE PLANET presents Part Two of this two-part series on the OPEB problem. We advise everyone to become familiar and conversant about OPEB, for, Pittsfield, it is your future.

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“He directs ‘Certificate X’ and people now are craning their necks to see her.” — Peter & Gordon, “Lady Godiva,” (1967).

“OPEN THE WINDOW, AUNT MILLIE.”

LOVE TO ALL.