City of Pawtucket Pensions and OPEB Obligations Ad Hoc Committee

 

Minutes

Meeting 03/22/12

 

NEXT MEETING:  THURSDAY, MARCH 29, 2012, 10:00 AM

 

 

·         The meeting began at 10:13 AM.

 

·         Members in Attendance:  Ernest Almonte, Ronald Wunschel, David Moran, Mark Boisclair, Robert Neill Jr., Peder Schaefer, Susanne Greschner, Gary Sasse, John Galvin, Ronald Wunschel and Rosalie DaRosa

 

·         Advising Members in Attendance:  Frank J. Milos, Jr., City Solicitor, Joanna L’Heureux, Finance Director, and Melissa Malone representing the General Treasurer’s office.

 

·         Mr. Almonte asked for approval of the previous minutes.  Mr. Neill made a motion to approve and Mr. Boisclair seconded the motion.  All were in approval.

 

·         Mr. Almonte asked Mr. Wunschel to review and explain the tax effect scenario which he prepared.  Mr. Wunschel noted that he used the current residential tax rate of 17.78 and increased the levy by the 4% maximum through FY17 which reflected an average household tax today of $2,667.00 to $3,380.50 in FY17.  He provided a similar schedule for examples of Commercial Real Estate noting that as a City with tax classifications, the Commercial rate is spun off the Residential rate utilizing a factor of 1.38 times. He also noted that the City has legislation that allows the factor to go as high as 1.50 times.

 

·         Mr. Almonte asked Peder Schaefer to explain how the tax cap works.  Mr. Schaefer began to first explain tax classifications which only some cities and towns have legislation to utilize.  Tax Classification allows for a different rate between Commercial and Real Estate Property and some Tangible Property as well.  Auto taxes have been frozen for many years.  Mr. Schaefer further explained that the tax cap of the past was a limit on the rate increase, however the new tax cap that was phased in from 5.50% to 4.00% (this being the final 4%year) only allows the increase on the tax levy, not the rate.  Mr. Almonte asked Mr. Schaefer how that affects the levy.  Mr. Schafer noted the rate increase was a limit on the rates of each category while a levy cap is the total taxes levied, for example taxes billed, therefore one could go up on one rate and down on another, however it must equal a 4% increase on the levy.  He further explained that a new tax payer would not benefit the City with increase in levy because the base would be the prior year levy times 4%.  This means the new taxes provided by a new taxpayer would in effect help reduce taxpayer increases.  Mr. Schaefer further explained that you could go over the cap if you lost non-taxable revenue, and specific expense type increases or asked general assembly approval for an emergency waiver.

 

·         Mr. Almonte introduced Susanne Greschner, Chief of Municipal Revenue to explain the requesting procedure to go over the cap.  Ms. Greschner reiterated Mr. Schaefer’s reasons for going over the cap and noted how revaluations must take into account equalizing the prior rate to new values to come up with a base tax rate for advertisement purposes as well as computing a tax levy increase.  She also noted that the City Council of City’s must approve the over cap increase at a 4/5’s vote.  Mr. Wunschel noted that in Pawtucket’s case a 4/5’s vote meant 8 (7.2 rounded up) members out of 9 must vote in favor, however Mr. Almonte while in his position of Auditor General advised that you must round up versus down, therefore 8 out of 9 members needed to vote in favor.  Mr. Almonte drew a parallel to being a few yards from finishing a race.  Mr. Wunschel noted that this fraction determination did not allow the City to go to a $500 State Auto Exemption but instead $3,400 or a loss of revenue of $6 million.

 

·         Mr. Boisclair asked if exceeding the tax cap was voted down by the Council.  Mr. Wunschel replied that twice it was not accepted, one other than auto tax exemption.  He noted again that it was not a full Council vote to deny as 4/5”s once again negated the vote to approve by only two votes negative out of 9..

 

·         Mr. Neill asked if the City Council did approve exceeding the tax cap would that have solved the City’s deficits.  Mr. Wunschel noted it would have helped by approximately $6 million plus, however the structural deficit is $12 million so we would not have been completely solving the financial problems in full as he noted over $20 million in State Aid was taken back.

 

·         Mr. Almonte expressed concern over a new report which he had asked Mr. Wunschel to prepare before the meeting.  This report shows that a maximum tax increase within the tax cap measured against the ARC for both Pension and OPEB averages 38% of the levy through FY17.  So the City increases its levy $21 million over 5 years and the percent of ARC’s against the levy remains at 38%.  This in itself should tell us that more has to be done with pensions and OPEB as even the required ARC does not solve the problems going forward.

 

·         Mr. Almonte asked if we do a cash flow for five years.  Mr. Wunschel responded that we do a two year cash flow to understand our TAN notes anticipated needs.  He said we needed a $5.5 million note in FY10, $11.6 million in FY11 and $12.6 in FY12.  He noted the Tans are paid off with new taxes in the first quarter of the following year.  This in itself shows we are running out of cash.  The goal is to reduce the TAN need by $4 million a year and get back to paying off the note in the fiscal year it is borrowed.  Also, eventually being self sustainable with no need for a TAN note as a result of built up reserves.

 

·         Mr. Galvin noted that the cash flow should encompass new retirees pay’s and the inflationary factor.  Mr. Wunschel noted that the cash flow tries to predict all of his concerns.

 

·         Mr. Boisclair noted that if Cola’s were suspended and saved approximately $2.5 million, would the City put it towards the Pension and OPEB ARC.  Mr. Wunschel asked if he were proposing a concession.  Mr. Almonte said this was not the time for that discussion.

 

·         Mr. Sasse brought up Medicare since 1986 and how the City was applying possible savings to those eligible.  Mr. Wunschel noted that both the Police and Fire have agreed to be made whole with their insurance benefit by accepting Medicare with the City paying the cost as well as paying for Plan 65 and any prescription costs not covered by Plan 65.

 

·         Mr. Schaefer noted that there is a plan being developed or utilized by Providence whereby an eligible spouse may take Medicare or a member’s new job after retirement may help them qualify for Medicare Benefits.  Mr. Wunschel noted that the Mayor was just briefed on this plan and it will be researched.  Mr. Almonte noted that even if the City were to pay the Plan D penalty that it would still be more beneficial than the current plan.

 

·         Mr. Schaefer asked if we always had TANS.  Mr. Wunschel noted that before tax synchronization the City always had TANS, however not in the past 20 years.  Except for the last 3 years which is a direct correlation to the decreased State Aid.

 

·         Mr. Wunschel asked if we were reimbursed by Blue Cross when medicare is utilized by a retiree.  Mr. Wunschel responded that Blue Cross credits the City with these types of cross charges as they watch payments with Medicare.  The credits are credited to the Medical Fund Reserve.

 

·         Ms. Malone noted that GASB is a result of the Cities and Towns having to recognize the OPEB Liability.  Mr. Almonte noted that the liability always existed and GASB merely made Cities and Towns report the liability.  Mr. Wunschel noted that GASB seems far behind FASB as he had to recognize those liabilities thirty years ago in the private sector. Mr. Schaefer noted that GASB request disclosure of OPEB was not mandatory funding.  Ms. Greschner noted GASB is forcing recognition of the problem of over $3 billion state wide.  Mr. Almonte asked that we not focus on whether the law requires recognition of funding.  It has to be done!  Sooner or later it will catch up to cities and towns and cash flows will suffer.  We need to start funding our liabilities.

 

·         Considerable discussion began among the attendees on why the City did not fund the contribution before 1998 and questions were rose on where we would be if the City made the contribution.  Mr. Almonte asked that although those are pertinent questions they do not solve the problem before us today and focus should be on the problem at hand.

 

·         Former Chief George Kelley made a few points, why weren’t MERS contribution cut verses police and fires contributions?   Were Police and Fire contributions from their pays actually put into the fund? If Cola’s are frozen the proceeds should he flagged for the Police and Fire Pension.  What is held back if MERS is not funded the ARC 100%?  Mr. Almonte noted that State law does not allow education funds to be held in lieu of making MERS payments.  Mr. Wunschel noted that other aid although smaller amounts such as distressed city aid of $1 million would be very harmful to the operations of the City.  Mr. Wunschel also noted that all payments were made of all withheld funds of members through salary reductions and are credited to the Pension Fund held by the Trustee, State Street Bank.  The questions on flagging the Cola suspension funds is a bargaining discussion which is not currently appropriate to discuss at this Ad Hoc Committee.

 

·         Mr. Almonte then asked Mr. Wunschel to explain the schedule he prepared of the last five years medical reserve.  Mr. Wunschel explained that the budgeted funds and actual claims are put in a medical fund.  The goal under self insurance is to have less claims that budgeted claims.  Over the years we have been close to even but in the last few years we have had a surplus on both the City and School side of the fund.  Both the City and School has utilized this surplus to close deficits in the last three years due to the structural deficit that was created the stoppage of State Aid.  Mr. Neill asked if consideration was made with the surplus to fund the pension.  Mr. Wunschel noted deficits needed to be satisfied first while at the same time the City was contributing 100% of the ARC.

 

·         Mr. Galvin noted that the last year medical balance after usage for general funds deficits dipped to $300 thousand while Mr. Wunschel noted at least $1.5 million was needed for claims paid in the next year that belonged in the previous year; therefore we are not recognizing the liability.  Mr. Wunschel noted that Mr. Galvin was correct however there was no alternative as the City was already holding vendor payments, cutting expenses, and reducing staff to a point where services could be affected.  Mr. Wunschel hopes that the reserve will be rebuilt to $1.5 million to recognize the liability.

 

·         Mr. Almonte asked Mr. Wunschel to explain and review the Cola Chart he prepared for the meeting.  Mr. Wunschel reviewed the chart noting that one could see different Cola’s by numbers of personnel for both Police and Fire but he keyed onto the lower section which combines Police and Fire number.  Out of 414 retirees, 116 do not receive a Cola.  There are 167 retirees receiving a 3% compounded Cola.  The remaining 136 receive a Cola anywhere from one half of one percent to two percent.

 

·         Mr. Schaefer asked about the direction taken on administration of the plan.  Mr. Wunschel noted that the Personnel Director, Finance Director and Mayor as well as Director of Administration run the Pension plan.  He noted that doctors are utilized, one one assigned by union and one by City and one agreed to by City and Union to determine approval of disability pensions.

 

·         Mr. Wunschel noted that his major concern has always been two areas that should be considered.

 

1.       The City should have one plan Document. Currently the Plan has different segments in the bargaining contracts and in the City Charter

2.       Also, the City should have an outside administrator verses the mayor and his directors.  Decisions should be black and white and not need legal advice every time a situation arises.  He noted this could also be serviced by a Retirement Board if developed.

 

·         Mr. Soares asked how the City assures that deceased member’s checks are stopped.  Mr. Wunschel stated that the City Personnel Department is well apprised of the deaths of the pension member and beneficiaries.  Also, QDRO’s and relatives contact the City immediately or beneficiaries etc.  Never the less, the City employs a company which has a data base all over the country that is utilized by different companies to support those institutions both public and private in determining proper payment to members and their beneficiaries.  Mr. Almonte noted that these companies provide a valuable tool in assuring proper payments.

 

·         Mr. Almonte asked the Committee to bring their ideas to the next meeting and if they can, to use their resources in developing ideas for discussion at the next meeting.

 

·         Mr. Almonte asked for a motion to adjourn. Mr. Boisclair made a motion to adjourn and Mr. Neill seconded the motion.   All were in favor and the meeting adjourned at 12:05 PM.

 

 

Respectfully submitted,

 

 

 

Ronald L. Wunschel                                             Debra McDole

Finance Department                                             Finance Secretary