Could Retiree Benefits Bankrupt Worcester?
Tuesday, November 05, 2013
Shrewsbury Town Manager, Daniel Morgado, who has been working to address the inflation of retiree benefit costs at the municipal level, said “These pension and benefit shortfalls are, more often than not, due to an unwillingness to address the problem on the part of many elected and appointed officials,” he says, “You’ve heard of NIMBY. Not-in-my-backyard, right? NIMTOO is Not-in-my-term-of-office.”
The Research Bureau will be offering a seminar on Wednesday for elected officials, community leaders, and the general public to highlight the ways that Massachusetts municipalities can keep their commitments to current and former employees – specifically non-pension post-employment benefits — without careening toward fiscal receivership or municipal bankruptcy.
The panel discussion will feature Morgado, Henry Dormitzer, Chairman of the Massachusetts Commission to Study OPEB, Stephen D. Eide, Ph.D., a Senior Fellow at the Manhattan Institute, Dean Mead, Research Manager for the Government Accounting Standards Board (GASB).
Worcester City Manager Michael O’Brien will moderate the event, which will take place from 7:45 AM to 9:15 AM in the Levi Lincoln Room at Worcester City Hall on Wednesday.
Research Bureau Leading Charge on Retiree Benefits
The Research Bureau, which has been researching, critiquing, and reporting on public policy and legislation affecting Worcester County since the early 1980’s, and has in recent months taken on the task of examining the ballooning cost of non-pension post-employment benefits for public sector workers
In March of this year, GoLocal reported that Worcester’s estimated budget gap for fiscal 2014 stood at $5.8 million including an 8 to 10 percent increase in employee and retiree healthcare costs and a $2 million increase in the City's pension assessment. At the time these numbers were not certain, due to the state budget not being finalized, leaving the city wondering what the state aid picture would look like, and how that would affect the FY 14 budget.
Since then, City Manager Michael O’Brien has closed the budget gap through a combination of cuts, deferments, and modest increases in state aid and growth in local tax revenue. Unfortunately, one of those measures was the deferment of the first $1.8 million payment to the city’s newly formed OPEB Trust Fund.
Roberta Schaefer, the Research Bureau’s outgoing Executive Director, told GoLocal that until 2007, neither municipalities in Massachusetts nor the state itself, were required to show any accounting on pension or retiree benefit liabilities in their budgets.
“It was a pay-as-you-go system,” said Schaefer. “The statewide report on unfunded liabilities showed that, given the growth in numbers of retirees, the fact that people are living longer, and the extremely short (10 years) length of employment provisions in Massachusetts, made the pay-as-you-go model outmoded and unsustainable on the state level. Our report for the city of Worcester showed pretty much the same.”
The Massachusetts state legislature is currently hearing House Bill 59. The bill would enact many of the recommendations put forth by the Massachusetts Commission to Study OPEB. The bill serves to address many of the future structural funding issues regarding public employee pensions and benefits including lengthening that 10 year provision to 20 years and upping the retirement age from 55 to 65, among other things, but Schaefer worries that one issue, in particular, is not addressed by the bill.
Looking Forward on Retiree Benefits
“The legislation still does not address the difference between the state or municipality continuing to define long term employee benefits, and moving to more of a 401(k) style retirement and healthcare savings plan,” said Schaefer. Proponents of moving public employee benefits to these types of accounts tout the flexibility of the savings plans, and the added bonus of removing these costs either partially or completely from the state and local budgets.
Schaefer continued, “In Worcester, OPEB obligations are actually greater than pension obligations.” If these obligations continue to balloon, cuts to public staff and services are all but inevitable, which would reinforce the cycle of declining property values, rising tax rates, and diminished revenue for individual municipalities, all of which contribute to a decrease in quality of life for Massachusetts residents.
Shrewsbury Town Manager Morgado chalks much of the now current urgency for pension and retiree benefit reform up to a lack of urgency regarding the issues from past administrations throughout the state.
Morgado said that the situation in Shrewsbury is a bit more tenable, largely due the fact that the town has a relatively young workforce, has already created a retiree benefit trust fund, and has always had a benefit structure that he says, “is not outlandish.” Town retiree benefits are subject to a sliding scale from a 50-to 75 percent individual contribution. Morgado also credits the foresight of his predecessor, Richard Carney, but admits that Carney was the exception, not the rule.
Morgado indicated that the biggest chunk of retiree benefit payouts lie in the years between retirement and Medicare eligibility which, given Massachusetts’ current 10-year work requirement, can be two or three decades, sometimes more.
Related Slideshow: The Worcester Research Bureau To Host Seminar With Retiree Benefit Experts
Related Articles
- How Affordable Is Worcester Housing: New Research Bureau Report
- NEW: Research Bureau Accepting Nominations for Public Service Awards
- NEW: Research Bureau Announces 2013 Public Service Awards
- NEW: Research Bureau Hosting Event on Worcester Competitiveness
- Research Bureau Says Worcester Slot Parlor Would Do More Harm Than Good
- Research Bureau: Why Worcester Needs a Selective Public School
- Worcester Research Bureau fights ‘attack’ from city, unions
Follow us on Pinterest Google + Facebook Twitter See It Read It