ADVISORIES: Other Postemployment Benefits (OPEB) Bonds Flashcards
State and local governments should not issue OPEB bonds for a variety of reasons.
What does GASB Statement No. 75 require of public-sector employers regarding OPEB?
To display the full amount of their net OPEB liability (NOL) on the government-wide statement of net assets for benefits earned by employees for services rendered to date.
Why does GFOA recommend against issuing OPEB bonds?
Due to the inherent volatility of OPEB liabilities, the complexity and risks associated with OPEB bonds, the increase in jurisdiction’s bonded debt burden, the lack of guidance on safe funded ratios for OPEB, and potential volatility in actuarial estimates leading to over-funding or increased liabilities.
How are health-care costs and utilization compared to life expectancy in terms of predictability for OPEB liabilities?
Health-care costs and utilization are less predictable than life expectancy.
What risks may OPEB bond structures carry?
OPEB bond structures may incorporate the use of guaranteed investment contracts, swaps, or derivatives, introducing counterparty risk, credit risk, and interest rate risk.
What effect might issuing taxable debt to fund OPEB liability have on a jurisdiction?
It increases the bonded debt burden, potentially uses up debt capacity meant for other purposes, and may be difficult and costly to refund or restructure due to the lack of call options or ‘make-whole’ calls.
What has been the stance of rating agencies towards the issuance of OPEB bonds?
Rating agencies have not provided definitive guidance on what constitutes a safe and reasonable funded ratio for OPEB and may not view the issuance of OPEB bonds as credit positive.
What could be the consequence of potentially over-funding the NOL through OPEB bonds?
It could raise budgetary or policy issues, as the government may end up with increased overall liabilities if the invested proceeds fail to earn more than the bond’s interest rate.
