How FY 2026 Budget Priorities Could Shape Your OPEB Funding Strategy

BOTTOM LINE UP FRONT

• Start small with your OPEB funding to build momentum and create a foundation for future growth
• Use flexible strategies like earmarking free cash or dedicating specific revenue streams to support ongoing contributions
• Plan in 3-5 year increments to maintain long-term stability while allowing room for short-term budget adjustments

Budget season is here, and once again municipalities are navigating rising healthcare costs, inflation pressures, and shifting demographics. For many, OPEB Trust funding feels like one more item in an already crowded list of budgetary demands. Whether you’re just getting started or trying to sustain contributions amid tighter margins, here are four practical strategies to help prioritize OPEB without breaking the bank.

1. Just Getting Started? Think Small

If your municipality hasn’t contributed to an OPEB Trust yet, you’re not alone. Our advice for those in this group is to start somewhere. Even getting a small amount budgeted gets a ‘foot in the door,’ which makes it easier to increase that funding in the future. The first step is usually the hardest, and funding an OPEB Trust is no different. We’ve seen many Towns fund $5,000 in the first few years, but manage to increase that gradually over time.

2. Consider a Free Cash Policy

One effective strategy we’ve seen is earmarking a set percentage of certified free cash. We’ve seen several municipalities adopt a policy that allocates 10% of certified free cash to funding their OPEB Trust. This approach allows contributions to adjust naturally, shrinking in tight budget years and increasing when resources allow.

3. Look for Dedicated Revenue Streams

A dedicated source can be a great way to start funding your OPEB Trust or to increase the funding that’s already in place without squeezing other areas of your budget. For example, we’ve had some Towns start funding their OPEB with a settlement, which would make annual payments for 10-20 years.

We’ve also seen others dedicate a specified portion of the meals tax or a new revenue source to fund their OPEB. Combining one or more dedicated funding sources can help automate contributions and remove the need for yearly deliberation.

4. Think in 3-5 Year Windows

Don’t limit planning to one fiscal year at a time. A 3-5 year roadmap gives you a lot of flexibility. If you can plan to fund several years, you’ll have the breathing room to pause funding for a few years, if needed, while still reaping the benefits of the Trust. We have helped Towns plan to pause their funding for 3 years and seen almost no impact to their OPEB plan because they had spent the previous seven years with some level of funding. Thinking in 3-5 year windows has also enabled some Towns to anticipate future funding sources and earmark them for their OPEB Trust.

A Little Today, A Lot Tomorrow

We know municipal budgeting can feel like a tightrope act, but hopefully, these tips help you get started with an OPEB funding plan or improve the plan you already have. We believe that funding your OPEB Trust today creates flexibility for the future. As the old retirement saying goes, ‘the best time to start funding was five years ago, the second-best time is right now.’ Best of luck navigating this year’s budget. We’re always here to help shed some light on your complex needs.

Need help building your OPEB funding strategy? We offer free reviews of your most recent valuation and can help you craft a plan that works with your budget, not against it. Contact us here.