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City post employment benefits facing $13 million shortfall

By Staff | Apr 28, 2010

The city’s “other post employment benefits” (OPEB) is facing a $13 million shortfall, according to an outside auditor.
OPEB benefits are generally healthcare related, and city staff has indicated that pensions are not in danger.
The Cape Coral City Council is expected to address the matter at its May 3 workshop.
According to presentation materials, the city has four options to fund that deficit.
The city can continue a “pay as you go” method, which would lead to larger unfunded liability; start a fund with annual contributions to defray the cost; slow the growth of the liability by reducing benefits for new employees or for employees who have not retired; or reduce the benefit for all current and future retirees.
Councilmember Bill Deile, who wrote an April 23 memo stating the need to address the issue, said he doesn’t think the shortfall will lead the city to bankruptcy.
Deile said in a phone interview that the deficit does need to be dealt with, because the obligation is only going to grow with each passing year.
“I’m proposing that council instruct staff to start funding that, and set up some kind of account we pay into each year,” Deile said.
He also suggested in his memo that the city could reform union contracts to shift more of the burden from the taxpayer to the employee, or update the actuarial assumptions, as a way of dealing with the deficit.
Councilmember Marty McClain said, like Deile, that he’s not under the impression the city is headed for certain doom, but does wonder how the issue could have gone unnoticed.
He added that the deficit could result in some minor bonding issues for the city.
“I don’t know why this wasn’t red flagged a year or two ago,” McClain said. “How did it get this far without being caught?”
City spokeswoman Connie Barron said the Governmental Accounting Standards Board changed their methods, making municipalities start accounting for retiree insurance amounts.
She said the round of buy outs — 200 employees — greatly effected that OPEB fund.
She also said that city staff advised a former council on the situation, but was still trying to determine the exact date.
“We briefed prior city councils on at least one occasion on this particular issue,” she said. “The council opted not to set up a fund and start putting money into it.”
The original findings of Purvis & Gray Company, the city’s outside auditor, indicated that the city’s inability to fund the OPEB would trigger a statute that would allow the governor to appoint a commission to investigate the city finances.
Purvis & Gray have since changed its mind on that position, and is in the process of redrafting the letter for City Council. It should be ready by Monday’s workshop, according to Barron.