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June 06, 2019 at 11:18 PM
Wall Street’s biggest worry about New Jersey is the government’s $100 billion debt to its workers’ pension funds. But because of a shift in accounting rules, its unfunded obligation for retirees’ health care benefits has tripled — and is now nearly as large.
(Related: We Can Still Save Postal Retiree Health Benefits: Union Leader)
The Garden State’s latest audited financial statements said that the new rules increased the estimate for what it owes for medical benefits, or “other post-employment benefits” (OPEB), to $97.1 billion in fiscal 2017, up from the $36.5 billion it previously reported. While it dropped to $90.5 billion in 2018, that’s still more than any other state, according to data compiled by Bloomberg, and amounts to about $10,000 for every New Jersey resident. Even California, with more than four times the population, doesn’t owe as much.
The surge illustrates how big a role accounting changes can have on estimating the cost of promised benefits that will be paid out over decades. The latest rules require governments to use a lower rate — akin to what they pay to borrow in the bond market — to calculate what those liabilities amount to in today’s dollars. And the lower that rate, the higher the estimate.
In New Jersey’s case, Fitch Ratings said in a report Wednesday that the bigger health care liability also reflects the state’s obligation to pay benefits for local police and firefighters, which wasn’t previously accounted for.
