First, Happy Valentine’s Day to my awesome wife Liz! This year we’ll be celebrating our 20th Anniversary.
I hope everyone is having a great start to the New Year, and I hope the kids, and their families are ready for a wonderful cold and snowy February vacation. I happen to like snow, and we’re skiers, so I’m having a great time. I do wish there would be less snow on my driveway and sidewalks. I hope everyone is managing well and staying safe. The kids are already starting baseball practices, so we know spring is coming. Opening day, for the future World Champion Boston Red Sox, is only a few weeks away – same goes for that other team.
The big news, since my last article, is that we’ll be having a new mayor one way or another sometime this year. Mayor Knapik has worked hard, has accomplished much of his agenda, and has done several things that will have some benefit for the city in the long-term. However, as you know, he and I disagree on many issues – particularly as it relates to: finances and the long-term debt burdens that the taxpayers are stuck with, open and fair government, and full-disclosure. He’s done some things that I feel will have long-term very negative consequences for the City and its residents. Regardless, I do wish him, and his family, well in their future endeavors. It’s not easy being Mayor.
Regarding the long-term budget, I still think the City is in a mathematically impossible situation, and that there is no way to pay off all the debts and obligations the city has given the constraints of Prop 2 ½ and the realistic expectations of state and federal aid. The only way out seems to be renegotiation of long-term benefits for employees. I’ve been trying to save the benefits somehow (I really think employees are due the benefits that were promised in their contracts), but I really don’t see a way that that is possible. You’ve seen other cities and state around the country battling the same issue. Based on a comments made by the mayor on a recent radio show, I think he’s finally seeing that as well. He’s also hearing from bonding companies that these unfunded employee benefits (of approximately $300 million) will be affecting future bond ratings and borrowing costs. He mentioned on-air that the next mayor and council would have to target one of the single biggest line-items in the budget – employee and retiree health care. He also said that he’s be preparing several options to address the OPEB issue (retiree health insurance). However, he delivered it in a nasty way by saying “they’ll have their plate full of OPEB heading into elections”. Hopefully, the voters and employees will get involved and help develop or support plans that ensure the employees the benefits they need, while not affecting other parts of the budget that are necessary for the benefit of everyone else who lives in the city. It won’t be easy.
Regarding the current year’s budget, I hope everyone appreciated the reduction in the property tax increase. It took a lot of work to make that happen. I would have liked to see a ZERO increase, but the votes were not there on the City Council. The motion to do that lost by ONE vote. As mentioned in my last article, the City had a one-time extraordinary revenue source of
about $3.8 million (a premium from refinancing about $50 million in debt). I wanted to use much of this to reduce the tax burden, since essentially taxpayers will be paying this back over the life of the bond. I certainly didn’t want to use this one-time extraordinary revenue to pay for recurring, and in many cases growing, operating expenses. However, that’s exactly what’s happening. When we got the mayor’s budget in June, it was in deficit by about $2.4 million. On top of that, the budget did not include dozens of regular operating expenses that we knew would have to be paid – things such as overtime, severances, police cars, adequate funding for maintenance, salaries, necessary school projects, etc… We’re now a bit more than half-way through the year, and the deficit has grown to over $3 million, and there’s about $2.75 million more expected in the coming months. The total deficit for the year will be in the $5.75 million range. About sixty percent of that is what I consider normal operating expenses. In order to pay the $5.75 million, we have to use up that $3.8 million one-time money, and take a bunch more money out of the stabilization and free cash accounts. By the end of the year, we’ll have about $7 million left in reserves. That’s a good number generally, but as mentioned above, roughly $3.5 million of that is recurring (sixty percent of $5.75). So, next year we’ll have to find a way to pay for that $3.5 million , plus another $2.5 million in labor cost increases (a guess because the exact numbers haven’t been provided yet), plus normal operating cost increases. We can only raise the property tax levy limit by 2.5% plus new growth (and many residents would prefer that we not raise them that much), therefore, unless there is a major increase in other local revenues or state aid, we’ll have to drain a good chunk of the remaining $7 million in our reserve accounts just to balance the budget. And, that still would be without addressing the long-term health care issue (OPEB). Early warning: next year, there’s likely to be a major property tax increase.
Regarding the budgeting process, one thing that I’ve been battling for is full disclosure of the cost of contracts before we vote on them. This just seems like common-sense to me. We should know the cost of something before we vote to accept it. However, the mayor and others disagree. Just last week, the City Council was asked to approve the funding for a labor contract. I asked “How much is it going to cost?” Logical question, right? The chairman of the Finance Committee answers “I have no idea”. Answers like that are part of the reason our annual budget has grown so much in the recent years. During discussions, several councilors made statements implying that the “first year” wouldn’t cost us anything, or that there was a “zero” increase. This just isn’t accurate, yet those statements were relied on by councilors casting votes to approve the funding. In the actual contract, it clearly states increases of: 1% retroactive to January 2014, 2% retroactive to July 2014, and 3% effective July 2015. NOTE: these are all sequential and compounded, so for July 1, 2015, the actual labor cost will be 6+% more than December 2013. Eighteen months, and over 6% increase in costs! Plus, 6% more in Medicare costs, and maybe 6% more in pension costs for life. That’s unconscionable given the financial state of the City. We can only raise property taxes 2.5% plus new growth. We can’t have expenses growing by 6% or more. The math just doesn’t work in the long-term.
I certainly believe employees have the right to negotiate compensation and benefits, but the contracts have to be sustainable and realistic given the financial realities of the City now and into the future. The taxpayers deserve to know the costs of these contracts, and they need to have a mayor and city councilors who will spend the time to protect their interests (in many ways, including: delivery of quality city services, balancing the labor costs and other necessary operating costs, short-term financial consequences, long-term debts, etc…).
Please stay informed and involved. Please watch or attend some of the City Council meetings. Feel free to contact me if you have any questions or concerns.
Happy Valentines Day to everyone. Stay safe next week.
Dave Flaherty
City Councilor
[email protected]
Disclaimer: The views expressed in this column are those of the author and not the staff, editor, or publisher of this publication.
