Other Post Employment Benefits
The Governor's Budget includes $1.4 billion ($834 million net General Fund) for health and dental benefits for retirees on a pay-as-you-go basis. If the state continues with the current pay-as-you-go method and does not pay the unfunded liability, the difference between the pay-as-you-go amount and the ARC would accrue as an increasing liability on the annual accounting statements issued by the State Controller.
The Administration is considering a number of possible approaches to budgeting for future OPEB costs. In selecting an appropriate strategy for funding future costs, the Administration must balance two competing and potentially conflicting criteria. First, the funding strategy must minimize the disruption of existing critical state programs when the state begins to budget for the future costs of OPEB. Second, the funding strategy must assure bond rating agencies and future investors that the state will fund all future retirement costs.
While the Commission considered the issue from a "best practices" viewpoint, funding the cost of OPEB must also be considered from a budgetary perspective as well. There are three funding options displayed in Figure SWI-01: (1) continue to budget for the costs annually on a pay-as-you-go basis, at a cost of $1.6 billion ($935 million GF) in 2009-10; (2) fully fund the ARC, at a cost of $1 billion ($600 million GF) more than the projected pay-as-you-go cost beginning in 2009-10; or, (3) fund the pay-as-you-go costs plus an amount that would eliminate any new liability from being accrued, at a cost of $650 million ($375 million GF) more than the projected pay-as-you-go costs beginning in 2009-10. All three options would result in the state paying approximately the same amount by 2022-23.
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