2 Government Accounting Standards Board (GASB) GASB accounting standards apply to financial statements of state and local governments. Statement No. 45 deals with medical insurance for retirees. The long term cost of employer subsidies for retirees must be reflected in the government-wide financial statements. BPS provides its employees with the minimum required subsidy under Ch , F.S. Guaranteed access to coverage with a cap on the price tag equal to the blended group rate This is the so-called “Implicit Rate Subsidy”. Currently, the Board is already subsidizing the retiree medical costs with approximately $ 4.2 million for the year (total current cost of $8.3 mill with retirees paying $4.1 mill) How that is expected to grow over time is presented on Page 7 of our Report
3 Government Accounting Standards Board (GASB) Record the actuarial values of the subsidies in the government-wide financials. No Pre-Funding (Pay as You Go) Pre-Funding (Trust Fund) Unfunded Actuarial Accrued Liability – Disclosed in the Notes to Financial Statement $ mill$ 76.3 mill Annual OPEB Cost – Expense charged to the books for the year$ 9.6 mill$ 7.5 mill Per Covered Active Employee$1,523$1,178 As % of Expected Payroll4.0%3.1% Estimated Employer Contribution Toward the OPEB Cost – Actual current year’s subsidy offsets the current year’s Expense $ 4.2 mill$ 7.5 mill Estimated Net OPEB Obligation – Actual difference appears as a long term liability in government-wide Statement of Net Assets (balance sheet liability) $ 5.4 millNone The “No Pre-Funding” column is applicable to 2008 fiscal year. The “Pre-Funding” column would have been applicable to 2008 fiscal year if a qualifying OPEB Trust had been established and $7.5 million had been contributed by the District.
4 How will this affect our budget situation? This new GASB accounting standard does not itself require any new costs. Just record the actuarial values of the subsidy in the financials. Liability will impact Net Assets on the Government-wide Statements, but will not affect the Fund Balance of any individual Fund.
5 What are other Florida Districts doing? Districts in Miami-Dade, Broward, Hillsborough, Orange and Indian River Counties also provide only the minimum required subsidy, like Brevard. Many other Districts do the same as well. But some other Districts provide direct subsidies, including St. Johns, Martin, and Hendry Counties. Few, if any, Florida School Districts are establishing and funding OPEB Trusts at this time.
6 How will this affect our credit rating? At this time there does not appear to be any significant effect. Credit agencies just want to be sure governments have a plan for measuring the liability and addressing it. If unaddressed for very many years, it could begin to have an effect on credit ratings. All government agencies are going through this. BPS is not overly generous, since you require retirees to pay the full blended group premium.
7 What are our options to reduce costs and liabilities? Continued attention to cost containment in general. Consider establishing an OPEB trust to pre-fund this long term obligation. Not necessarily recommended. Would lower the liabilities reported, and lower the actual long term costs. BUT would require annual cash payments into the trust. Approximately an extra $3 to $4 million at first, in addition to the $4 to $5 million BPS is currently paying.
8 Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this presentation concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related matter addressed within. Each taxpayer should seek advice based on the individual’s circumstances from an independent tax advisor. This presentation shall not be construed to provide tax advice, legal advice or investment advice. This presentation expresses the views of the author and does not necessarily express the views of the employer, Gabriel, Roeder, Smith & Company.