Wednesday, February 9, 2011

Live reporting - Long Range Financial Planning Committee

Present: Doug Hardesty, Deb Bartlett, Orrin Bean, John Hogan, Ken Harvey, Craig DiMarzio, Graydon Smith, Tina Powderly (Town Council), Jeff Nutting (ex officio) Scott Mason (ex officio) , Sue Rohrbach (School Committee)
Absent:  none

Welcome to Sue Rohrbach, representing the School Committee.

Motion to approve minutes of Jan 5th meeting, passed unanimously

Discussion on committee assignments
Individuals will take the lead on a number of categories (to be added later)

1 - Capital expenditures and debt service - John Hogan
2 - Benchmarking and pensions - Graydon Smith
3 - Salary and benefits (excluding pensions) - Orrin Bean
4 - National trends in municipal finance (includes regionalization) - Craig DiMarzio
5 - Schools - Deb Bartlett
6 - Town revenue, public safety, and other - Ken Harvey
7 - Committee communications and deliverables - Doug Hardesty
(updated 2/13/11)

These individuals would also have the lead for those specific pages in the reports and other deliverables produced by the committee

Obligation to pay retired employee pensions, according to the actuarial analysis the fund is not fully covered. It needs to be fully funded by 2030. There is an annual assessment provided by Norfolk County every year. The fallacy of the pension in MA as elsewhere is they are usually based upon an average annual return of about 8%. This return was not achieved recently nor is likely to be anytime soon, hence the under-funding problem is getting worse. The Town has little say in the matter, it is set in State law dating back to 1937.

Discussions around the Capitol are addressing abuses and will get to the funding issue. The funding issue was created by not funding the pension from 1937 to 1989 during which the pension was "pay as you go". The defined benefit plan is controlled at the State level.

Work ten years to get vested and entitled to a pension. Also get access to full benefits for health insurance. Franklin took on the responsibility for paying for the retiree health benefits about 40-50 years ago. Everybody (retiree) is all in, everybody has to be treated the same. Once the retiree get to 65, they pay and get Medicare, hence come off the Franklin plan (we pay a supplemental benefit). Some employees can hit the rule of 90, that is a combination of age and years of service if equal to 90 maxes their benefits. So if they max and retire in their 50's, they could be collecting from the Town for several years before they reach 65 (when they switch to Medicare). It is a long and complicated issue here in MA. The ability of cities and towns to control the plan design has been a top priority for MA civic leaders for years.

Nutting: You can't balance the problems of the entire health system upon a few employees.

Powderly: The Budget Subcommittee of the Town Council would like this group to look into:

  1. What can we do to manage the growth of the liability for retiree health benefits going forward?
  2. How do we start funding the liability that we have?

The current liability is about $40M. It would take about $2M per year to sufficiently fund it with a trust fund. If we did put the $2M there, that happens to be the amount of free cash which would mean we wouldn't have a capital budget (as it is currently funded from 'free cash').

The average statewide pension is $27,000. We are about that. Not everyone stays for 30 years.

We are spending about 3-4M for the pension funding until about 2030 and then that number would start declining.

For the non-union environment, a management decision is always is the position is full time or part time. If we can get part time, i.e. less than 20 hours, they get salary and no benefits (paid holidays, health care, etc.)

Franklin did move the retired teachers from the State plan to a Franklin-managed plan and saved about $400,000 per year to do so.

Hat's off to all the Franklin employees for being as cooperative as they have been on the health plan design the last several years. They have increased co-pays and helped to save the town big time. Franklin pays 68% and the employees pay 32%, this is already below the State average. Most are still around 80, some are still at 90.

Picking up to review the   report of the prior committee from last year (PDF)

Discussion diverges when we reach page 15. The State averages aren't an appropriate comparison and probably should be re-looked at when this slide is revised.

Discussion on the use of the 3.5% debt service within the operational budget. 

Request for a discussion on how to bring some of these state level systemic issues to the table, who do we talk to, how do we get the state level changes started?

Franklin, MA

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