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Harford County leaders share concerns over more than $1 billion OPEB liability for public schools

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Harford County Public Schools has a liability of more than $1 billion toward its retirees’ health care costs, well above similar liabilities incurred by the county government and county public library system, officials reported to the County Council.

“[The] total liability is almost $1.5 billion — billion,” county Treasurer Robert Sandlass told council members Tuesday evening.

He and Billy Boniface, the director of administration for County Executive Barry Glassman, discussed the Other Post Employment Benefits, or OPEB, liabilities as part of a larger presentation on retiree health care costs. They made the presentation during a public hearing on Bill 19-001 Tuesday in the County Council chambers in Bel Air.

Boniface stressed that OPEB, which primarily covers health insurance for retirees, is separate from pensions.

“They are not the same thing,” he said.

The bill, if approved, authorizes the county government to make a supplemental appropriation of $5.4 million in the current budget to put aside for future retirees’ costs. The council did not vote on the bill during its legislative session, also held Tuesday after the public hearing.

The county’s fiscal 2019 budget already has $8.1 million allocated for current retirees, and the additional funds would be placed in a trust for future health care costs, according to Boniface.

The total amount of the Actuarial Determined Contribution for fiscal 2019 — more than $13 million — will cover health insurance for retirees from the county government and Harford County Sheriff’s Office.

The county, each year, puts money for current and future retirees in the trust that is managed by a board including the director of administration, the treasurer and human resources director, Boniface said.

The county government’s total, long-term OPEB liability stood at $248.7 million as of June 30, 2018, with 47.4 percent of that liability funded with assets already in trust.

The library system had funded 8.7 percent of its $35.5 million total liability. The school system had a total liability of $1.44 billion, with just 3.5 percent of that figure funded, according to the presentation.

Sandlass said HCPS is just deferring its costs by not putting money aside and not fully paying off its annual contribution — it stood at $76.3 million as of fiscal 2018 with $23.8 million budgeted for current retirees and $1.5 million set aside in trust, according to the presentation.

“The costs are going to come due eventually,” the treasurer said. “It’s just a question of, you can either pay them now and invest the money and in the long term have to pay less, or pay them in the future and not be able to take advantage of that and then have to pay more.”

Sandlass noted that, whether jurisdictions are paying for benefits and salaries now or future costs, those costs are still related to the current year’s budget.

“They are the obligation of, if you will, the current taxpayers,” he said.

The county government funds the largest share of the annual school system budget — the proposed $467.6 million fiscal 2020 operating budget, as prepared by Superintendent Sean Bulson, calls for $255.8 million from the county, a $10 million increase from the current year, according to the HCPS website.

Lowering future costs

Harford County took measures starting in 2010 to help defray future liabilities with the Post Employment Health Plan, or PHEP, which Boniface called a “401k for medical expenses.” The plan was developed in partnership with county employee unions, according to Boniface.

Eligible employees — excluding Sheriff’s Office personnel — include those hired on or after July 1, 2010, and those who were hired before that date but choose the PHEP over OPEB — Sheriff’s Office employees are still eligible for the traditional OPEB.

The county benefits by shedding some of its long-term liabilities, and employees benefit from PHEP because they can invest the funds in their accounts and keep the plan even when separated from county employment, regardless of their years of service, Boniface said.

Sandlass said county officials expect their retiree benefit costs will decrease in the coming decades, as fewer and fewer people are covered by OPEB.

The schools and library system do not have alternative plans such as PHEP, however, according to Boniface and Sandlass.

Boniface said a number of local jurisdictions around the country are spending more and more of their budgets on “legacy” costs for retiree benefits, meaning there is less for current expenditures.

He noted the Harford schools could “close up shop tomorrow,” but would still have to cover the more than $1 billion OPEB liability.

“This is a nationwide problem, and I hope more governments are looking at it,” he said.

Councilmen Curtis Beulah and Joe Woods expressed concern that the school system’s OPEB obligations could be shifted onto the state and county, or the county would have to take on the full burden.

Beulah asked if the schools should do what the county government has done with programs such as PHEP — Boniface said the question should be posed to the schools since “they manage themselves.”

“In my opinion, we should be doing something about it now, working with the Board of Education, the public schools,” Beulah said.

Principal’s response

Marc Hamilton, principal of Forest Hill Elementary School and president of the Harford County Elementary Supervisors and Administrators professional development organization, gave the only public comments during the public hearing.

Hamilton said school system officials have been focused in recent years on funding current operating expenses, keeping the schools running and serving students even as hundreds of jobs have been cut. Bulson has proposed cutting more than 100 classroom and administrative positions to help balance next year’s budget.

“We’re trying to find solutions that don’t require the closing of schools, the closing of your [community] schools,” Hamilton said.

He also countered notions that HCPS wastes money, stating that funds allocated to schools have “not been set afire and burned out in the woods — we’ve been using it and spending it on kids and doing the best job that we can.”

Hamilton also took “umbrage” at Boniface’s comment that the school system manages itself.

“We do manage our budget, but we don’t raise our budget,” he said. “We are given what you give us, and we’ve done our best to try to run the school system as best as we can.”

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