WESTFIELD — The state’s cities and towns have shed more than 15,000 jobs in the past six years, and pension obligations, health care and borrowing costs will continue to squeeze budgets for the foreseeable future, according to a report issued on Tuesday.
Municipalities face a total of nearly $45 billion in unfunded liabilities, according to The Massachusetts Taxpayers Foundation, an independent, business-backed organization. Meeting those responsibilities could divert resources from schools, public safety and other services, the group warned.
In its annual report on municipal finances, the foundation also noted what appeared to be a declining appetite among voters for property tax overrides. Cities and towns raised $11 million from overrides in the 2013 fiscal year, down from $15 million the previous year and the lowest total since 2000. By contrast, voters approved a total of $49 million in overrides in 2006.
The state law known as Proposition 2 1/2 limits municipalities from raising the annual property tax levy more than 2.5 percent without approval from voters.
The $13.4 billion raised in property taxes in the last fiscal year, up from $13 billion the previous year, marked the slowest rate of property tax growth since 1985, the report said. But cities and towns did benefit from a 3 percent increase in direct aid from state government — following three years of declines — and modest gains in other local receipts such as those from building permits and motor vehicle excise taxes.
In all, the foundation said municipal revenues rose 3.7 percent in fiscal 2013, an improvement over levels seen during and immediately after the Great Recession, yet below the average 5.2 percent growth level between 1982 and 2009.
Despite the recovering economy, the report warned that costs associated with pensions, health care for current and retired municipal employees, and debt service would continue to eat away at local budgets in years to come. Financial pressures associated with those costs had already contributed to the elimination of about 15,500 jobs since 2007.
“Spending on employee and retiree benefits will consume an ever larger share of municipal budgets for the foreseeable future as municipalities face nearly $45 billion in unfunded liabilities,” said Michael Widmer, president of the foundation, in a statement accompanying the report.
Borrowing costs rose 23 percent and pension obligations 30 percent between 2007 and 2012 while total municipal spending grew 13 percent over that same period, the report said.
A state law offering cities and towns more flexibility in the design of health care plans for employees led to a one-year decline of $30 million in those costs, but the foundation noted that health care expenses account for nearly 10 percent of all municipal budgets and that spending on health care for retired workers was expected to nearly double in the next decade.
“It has been big for years,” said State Senator Don Humason, Jr. (R-2nd Hampden and Hampshire). “Most recently, the Attorney General ruled that special elections amounted to unfunded mandates.”
Humason, fresh off a special election victory for the 2nd Hampden and Hampshire district senate seat, knows a thing or two about their cost.
“The Legislature has always been great about passing these costs onto the municipalities,” he added. “They take money and staff away from what they should be doing.”
“It’s hard for municipalities, because most don’t have big, fat rainy day funds,” he said. “I’m not surprised that the issue is being raised, and I’m glad light is being shined.”
“We need a team fighting to restore local aid and working together to submit a budget that includes foreseeable costs,” said newly-elected At-large City Councilor Dan Allie. “Cuts to local aid from the state have cost Westfield over $4 million dollars in the last five years. This is unsustainable, as are unfunded costs.”
“The same thing is happening with our state government, just on a larger scale, but it effects every city and town, individual and business owner,” Allie said. “Our legislators in Boston need to restore our local aid to cities and towns. The state raised taxes by $500 million last year, and took in over $900 million dollars in ‘unanticipated revenues’ That is our money. Now would be a good time to give taxpayers a break.”
“I’ve been trying to get the city and the employee unions to address this OPEB issue for years,” said At-large Westfield City Councilor David Flaherty. “Taxpayers are livid that their taxes keep going up, yet what’s even worse for them is the behind the scenes snowballing of these unfunded obligations that are going to place even bigger burdens on future generations of taxpayers to pay for benefits earned by past and current employees.”
“Right now, Westfield is deferring close to $20 million per year,” said Flaherty. “and, the total estimated cost of benefits owed to employees is about $300 million net present value (what we’d have to have in investments today to pay what we already owe). If the city pays over time, this obligation will cost us closer to $1 billion.”
“In my opinion, we have to either find room in the budget to save and invest at least the ‘annual actuarial normal cost’ (about $13 million), or we have to stop promising employees that these generous benefits will be available in the future,” he said. “The current plan is mathematically impossible, and we’re doing a disservice to employees by allowing them to count on something that is unrealistic. If we attempt to find room in the budget, it’s going to be very painful. When the council tried to reduce last year’s budget by a modest $1.2 million, we were met with great resistance.”
“How can we possibly think we can find $13-$20 million per year to pay for these obligations?” he asked.
“That is why the mayor submits a budget, and the city council is expected to give their input, and send it back to the mayor if necessary,” said Allie. “I don’t know anyone who wants to repeat 2013.”
“Long story short, the krux is correct,” Mayor Daniel M. Knapik said of the report. “Cities and towns are being squeezed by the benefits issued by the state.”
Knapik also added that, while the amount of local aid being issued to municipalities has been increased statewide, those communities simply cannot change what is already set in stone.
“You can’t change the schedule for health benefits,” he said. “You can, however, address the percentage you pay.”
Knapik added that, because most of the city’s workforce is unionized, getting city workers to agree to form an Other Post-Employment Benefits (OPEB) committee is key.
Knapik, who began his third term on Monday, also mentioned making changes to clauses regarding severance payouts in city contracts as a major step forward.
