Denied relief by lawmakers, W.Va. schools ready to sue over retiree health cost burden

By Lawrence Messina, AP
Monday, November 23, 2009

Denied relief, W.Va. schools ready to sue

CHARLESTON, W.Va. — West Virginia will likely be sued by most — if not all — of its 55 county school boards, after the Legislature shot down Gov. Joe Manchin’s offer of short-term relief from retiree health costs.

At least 49 of the boards had earlier voted in favor of a lawsuit, in their ongoing dispute with state accounting rules for “other post-employment benefits,” said Richard Olcutt, president of their association.

In the wake of Manchin’s failed special session proposal, they will meet at the end of the month, he said.

“I think you can assume where the mind set and the recommendation is at this point,” said Olcutt, who is also president of Wood County’s education board. “We have no other recourse, because we’re being thrust into a bankruptcy situation.”

Olcutt said he and other county school officials are furious after the Senate Finance Committee rejected the legislation — and after a handful of lawmakers from both chamber suggested it was illegal and unethical.

“For them to be hurling insults at board of education members and the intent of the task force, the words that they chose were totally inappropriate,” Olcutt said. “This was a good, good-faith move.”

Olcutt was part of the task force that helped the governor craft the measure, meant to give the school boards some breathing room this budget year and possibly avoid the threatened lawsuit.

National accounting standards issued in 2004 called on public employers to calculate what they’ve promised workers in non-pension retirement benefits — chiefly health coverage, and life insurance. West Virginia estimates a $7.8 billion gap between on-hand assets and the cost of these benefits.

The Legislature responded in 2006 with a Manchin-proposed measure that bills state, county and local governments enrolled in the Public Employees Insurance Agency yearly. Those that don’t pay this annual required contribution — amounts meant to close the unfunded liability — must count it as current debt.

The failed proposal would have billed those government employers just for what they owe to cover current retirees, and just for this fiscal year.

That would have meant an invoice of between $200,000 and $300,000 for Olcutt’s board, which runs the state’s third-largest school district. Instead, it must now either pay an $8 million bill or list it as a debt that could hurt the board’s ability to issue low-interest financing bonds, he said.

“We’re now cutting back on programs and services to our kids,” Olcutt said. “We can’t repair a roof. We can’t provide needed software to a middle school. We can’t allow school children to go on trips.”

Before Senate Finance killed that chamber’s version of the bill, Sen. John Unger, D-Berkeley, compared its provisions to the financial deception behind the Enron scandal. And while House passed its version of the bill, the 82-14 vote came after Delegate Daryl Cowles questioned the ethics behind it.

“This is a one-year moratorium for us to hide debt, and cook our financial reports,” said Cowles, R-Morgan. “The regulators I don’t think will be happy with this proposal.”

Manchin spokesman Matt Turner said that the proposal’s provisions were run by the state auditor. That office then checked with the Governmental Accounting Standards Board, which issued the 2004 rule. A board spokesman did not immediately respond to a request for comment last week, but earlier told The Associated Press that the board cannot require government employers to set aside resources for these obligations, leaving it to them whether to fund them.

“There was no intent here to deceive,” Olcutt said. “It was intended to be a good faith move.”

Delegate Jonathan Miller called the governor’s proposal “passing the buck.” The Berkeley County Republican also alleged it was very similar to measures enacted in Texas and passed but later vetoed in Connecticut, saying both incurred the wrath of the standards board.

Not so, according to Manchin administration officials and the legislation from those states. The 2007 Texas measure allows government employers there to ignore the accounting rule entirely. Officials in that state have concluded that nothing requires them to cover such benefits since they aren’t guaranteed under any contract.

The Connecticut measure would have had that state’s comptroller set financial standards, instead of following generally accepted accounting principles known as GAAP. Also, the 2004 rule says nothing about having to set aside actual money to fund the benefits.

“What it looks to me like is ignorant arrogance at the highest level,” Olcutt said of the bill’s foes. “They should be looking at themselves in the mirror and asking themselves, ‘Why have we begun hurting children.’”

But even the bill’s critics also said that lawmakers should tackle the issue during the regular, 60-day session that begins in January. Until then, Manchin will continue with the task force and seek a long-term solution, Turner said.

After his Finance Committee defeated the bill, Senate President Earl Ray Tomblin, D-Logan, appointed a seven-member panel to study the topic as well.

“The consensus among Senators was that not enough time was available during this special session to address the issue adequately, because of its complexity and potential financial impact on the state and its subdivisions,” Tomblin said in a statement.

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