Blog

Taxes & Government Spending

Governor’s Debt Report Misleads on Magnitude of OPEB Liability Reduction

  • Jan 14, 2014

Last week, Governor Malloy’s Office of Policy and Management (OPM) released a report claiming that the administration has reduced Connecticut’s long-term obligations by $11.6B.  Driving the administration’s figure was the claim that it had reduced Connecticut’s Other Post Employment Benefit (OPEB) liabilities by roughly $15 billion. 

However, the actual difference between Connecticut’s OPEB liability in 2008 (the most recent available data prior to Governor Malloy’s election) and 2011 (the most recently available data) is only about $2B.   This chart, whose numbers come directly from the most recent OPEB actuarial report and amendment, explains the discrepancy.

As the chart shows, the OPM report uses two slights of hand to make the reduction in OPEB liabilities seem as large as possible.

First, the report does not use the actual 2008 liability as its baseline.  Rather, it uses as its baseline a 2008 estimate of what the 2011 liability might look like.  This is inconsistent with the rest of the report, and is misrepresented in the report's summary graph. 

Second, the report glosses over the fact that the state used different accounting assumptions when calculating the 2008 and 2011 liabilities.  Most notably, in 2011 the state raised the interest rate used to discount future OPEB payments to retirees from 4% to 5.7%.  This makes the “present value” of those future payments – i.e., the state’s current liability – appear smaller on paper.  But it does nothing to change the state’s actual underlying financial stability.

Private corporations are required by law to use interest rates of roughly 4-4.5% when discounting future payments owed to retirees.  And economists generally recommend rates as low as 2-3%.  For more information on these interest rates, see the CPI paper, Connecticut's Public Pension Liabilities: How Big Are They And What Can Be Done About Them.

Read More Coverage: