WESTFIELD – The City Council sent an appropriation request, for the city’s contribution into the public works retirement account, to the Finance Committee last week.
The council received a report from the Public Employee Retirement Administration Commission that the city’s contribution to current and future retirees will in increase by more than a half a million dollars in the 2015 fiscal year which begins July 1, 2014.
The state agency submits the retirement funding to allow city officials to build it into the new municipal budget. Ward 5 Councilor Robert Paul Sr., questioned the justification for an increase from $7.98 million in the current budget to the $8,538,431 million submitted Thursday, Feb. 20, to the council.
Finance Committee Chairman Christopher Keefe said the increase of more than six percent was surprising because of the investment gains again this year in the financial markets.
“They had a pretty good year,” Keefe said. “So you’d think that they wouldn’t need a half million increase” to pay for current and future retirement obligations.
The process involves actuarial projections of future revenue and obligations, data that it then put into a formula to ensure sufficient funding is on hand when needed.
“The actuaries come up with a schedule based upon those projects of (investment income and contributions from both the employees and city) to get revenue to a certain funding level needed for future benefits,” Keefe said. “Employees contribute to the fund, so we’re a pass-through agency, socking money away for current and future obligations.”
The issue will be discussed in the Finance Committee. Retirement funding and Other Post Employment Benefits (OPEB) have been a major concern of At-large Council David A. Flaherty who was absent Thursday and who has urged the city to adopt a more aggressive funding schedule to ensure the retirement reserves are sufficient to meet obligations without a “balloon payment” being imposed on future city taxpayers.
“I’ve been trying to get the city and the employee unions to address this OPEB issue for years,” Flaherty said in an article published in January in the Westfield News. “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?”
Flaherty’s voice may be joined by other new City Council members.
“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.”
“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.”
Municipalities face a total of nearly $45 billion in unfunded retirement and OPEB 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.
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.
