WESTFIELD – The Municipal Light Board last week adopted recommendations of the municipal utility management team to address the liability of future department retirees called Other Post Employment Benefits (OPEB).
Chief Financial Officer Andrew Banas said Monday that the MLB “approved management’s recommendations to mitigate the long-term impacts to the (gas and electric) rates as a result of rising OPEB costs.”
Historically the city paid the OPEB for all municipal employees, funding that liability through the general fund.
Mayor Daniel M. Knapik, as part of the city’s 2014 fiscal budget, moved the responsibility for funding the OPEB liability directly to departments which have a revenue separate from the city’s general fund.
“As of this year we are responsible for our piece of OPEB,” Banas said. “It will show up on our balance sheet this year. Westfield is not the only community doing this. A number of communities with municipal utilities are passing on the OPEB contribution to those departments.”
The MLB voted Wednesday, Oct. 2 to approve a plan to establish a qualified OPEB trust; to fully fund the trust in accordance with the actuarially determined annual required contribution; and to perform an actuarial valuation of OPEB benefits on a biennial (two year) basis.
“At this time the annual contribution to the trust would be approximately $500,000,” Banas said. “But that will change over time. The two year (actuarial) study is to make sure that we are not over or under funding the trust.”
Banas said several factors influence the annual OPEB trust, including interest income, the cost of health care, the type of benefits offered to retired employees and the percentage split of the health insurance premium costs between the city and the retirees.
Members of the MLB raised the issue of absorbing the annual $500,000 OPEB expense during the board’s discussion of the department’s payment in lieu of taxes (PILOT) to the city.
Board members eventually voted to cap the PILOT gross payment at $500,000, which will result in a net payment of about $440,000 to the city.
The PILOT is calculated on a formula using 70 percent of the department’s physical plant value, as reported annually to the state Department of Public Utilities, which is then assessed at the city’s commercial tax rate, which this year is $31.09 per $1,000 of assessed value. The formula allows the municipal utility to deduct $60,000 for maintaining the city’s traffic lights. That formula results in a gross payment of $570,919 the current 2013 fiscal year.
Much of the OPEB liability discussion occurred in executive session conducted by the board’s Rates Subcommittee because of the potential to increase electric and gas rates as that OPEB cost is passed through to consumers.
