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Two Large 'Elephants in the Room' Weigh Heavily on Town Budget

Huge unfunded pension liabilities and a shortfall in the Board of Education allocation from mayor for next school year loom large on the budget horizon.

There’s a giant elephant hiding in a back room somewhere at Stratford Town Hall, and another one lurking over at 1000 Broadway. 

In the wake of Mayor’ John Harkins’ proposed $189 million town budget released Monday, there remains a larger-than-life unfunded pension liability that remains to be addressed and continues to pose a huge challenge to budget planners in Stratford.

Estimated at nearly $110 million and growing – that number represents the gap between what the town pension plan holds in existing assets and what it will owe to future town retirees. 

And according to one estimate prepared for the town, that gap is likely to grow wider in the coming years even as taxpayers continue to contribute more and more into the pension plan in the form of increased municipal property taxes. 

In fact, in the current fiscal year 2010-11, town officials said that taxpayers have forked over more than $8 million into the town pension plan, compared to nearly $7 million in 2009-10, which came on top of nearly $5.5 million in 2008-09. 

While Mayor Harkins’ proposed 2011-2012 budget summary released Monday did not break down what his proposed pension contribution would be during the upcoming new fiscal year, he alluded to the problem in his budget message. 

“Employee benefits represent a significant increase in this proposed budget,” Harkins wrote. “This is a fixed cost that must be controlled moving forward. 

“I remain committed to working with our municipal labor unions to reach mutually beneficial solutions for the betterment of all town residents. 

“I would like to extend my gratitude to the Stratford firefighters union, which came forward with more than $124,000 in one-time givebacks, which are included in this proposed budget.” 

However, the mayor more than hinted that additional steps need to be taken in order to bring this situation under control, even during the current budget deliberations that are just beginning with the release of the mayor’s proposal. 

“Successfully coping with a difficult economic environment will require sacrifice from all quarters,” the mayor wrote. “It is my hope that more bargaining units will come forward with concessions as the budget process evolves.” 

There was no mention by the mayor in his budget message of the new police union contract approved recently by the Town Council due to the fact that any savings would not be realized well down the road. In that new contact, the town and the police union agreed that all new police department hires would receive 401 (k) retirement plans and not the formal pension plans that existing union members retain. 

A significant number of current police and fire department retirees will continue to be entitled to receive pensions based on a calculation that also takes into account each retiree's earned overtime, sick and vacation time, a situation that can result in retirees actually collecting greater pay in retirement than their highest base pay.

It is that fact that actuarial experts say will continue to push Stratford’s unfunded pension liabilities ever higher, even as overall contributions from taxpayers increase. 

Another Situation Entirely at Board of Ed

Meanwhile, over at Board of Education headquarters, there is a budget elephant of a different sort looming in the form of a $631,291 shortfall in what educators have said they need for the 2011-2012 school versus what Mayor Harkins proposed for education in his budget released on Monday. 

The mayor noted in his message, “The Board of Education approved an appropriations increase of $1.63 million, or a 1.77% increase over [the current] FY 2011. My proposed operating budget for the Board of Education contains an increase of $1 million, or 1.08%, which is $631,291 below the board’s request. 

“This represents .26 mills in a proposed 1.64 mill increase,” the mayor continued. “This level of funding will not require the closing of any schools, although moving forward in tough economic times, it should be noted that the Board may have to address the question of long-range facilities planning once again in the future.”

And that, taxpayers of Stratford, represents a lot of peanuts.

Jim Miron April 07, 2011 at 04:36 PM
Kudos to the Police Union on their agreeing for new hires to go into a 401(k) defined contribution (non pension) plan. It will take a while - perhaps 20 or 30 years for the town to realize the full benefit of this action but eventually it will help. Of course, it is going to take that long to get out of the pension mess we are in PROVIDED elected officials in the next few DECADES stay disciplined and make the required contributions to the unfunded pension liability as my adminstration did from 2005 -2009. Another way out of the pension mess quicker is for the Fire Department to step up on this issue and follow the Police Union regarding new hires and 401(k) defined contribution plans. Another thing that can be done is for the town and the unions to look at putting police and fire into the state retirement system as an alternative. This option should be PUBLICALLY discussed. For sure there are pluses and minuses but the public deserves to know the options.
Fred Silvestro April 16, 2011 at 09:19 PM
. It's the towns fault that the pension isn't funded . For years they kept putting off fully funding the pension. It's not the workers fault the people who ran the town for years. Did not fund the pension that's why it's like that. When you don't do your job then try to blame on others. This is all the town councils fault and the mayors past and present.
Tom April 17, 2011 at 01:13 PM
There is no question had the town fathers funded the pension fund properly (actuarially speaking) that the fund would be 100% funded...probably well overfunded to be honest. Maybe even to the point that the town could choose not to put anything into the fund during "down years". But in true political form, the town fathers chose to use the pension fund as a piggy bank, to finance or hide true expenses by choosing not to fund it ..there-by raiding it effectively. What better way to look good to the electorate than by being able to exclaim "no tax incease!"...hooray! ...When in all reality you kicked the can down the road for the next administration to deal with. (dont fret, our politicians merely followed the model the federal and state goverment has used for years, hows that working out?) If you ran your personal finances like this, you'd be out on the street in short order. I'll leave the reader with this fact regarding municipal pensions....a well managed, properly funded pension fund ends up being a less expensive benefit than a 401K. Well managed means both on the pension board choice of investments, and also on how generous the payouts are calculated/ negotiated. Startford resident....not employee.
Jim Miron April 17, 2011 at 02:53 PM
Just to set the record straight - the actuarially recommended contribution (ARC), which is the annual amount recommended by investment professionals to properly fund the pension fund, was made each and every year I was Mayor and the ARC included an amount to catch the plan up over a period of years. My administration and the Town Council did the right thing from December 2005 to December 2009. Unfortunately, not every Town Council had that fiscal discipline and this is one of the big factors in setting the fund behind. However, the real issue is the whether the town can afford to continue with traditional pension plans, called defined benefit plans or whether it should join the private sector and go to a defined contribution plan where the town makes an annual matching contribution to an employee’s retirement but the employee chooses the investment vehicle. I have been a vocal proponent of this and the resistance of some unions to this plan, in my opinion, is going to continue to hamstring the town’s financial strength, and yes, taxes, for generations to come.
Tom April 17, 2011 at 04:20 PM
Jim, You may have done the right thing during your tenure, but the fact remains that was not always the case as you allude to. I will stand by my statements: 1) Had the fund been funded fully and properly since inception, it would be in terrific shape right now. 2) A well managed pension fund with reasonable payouts can actually be cheaper than a 401K. if you graph proper timely payments made to a defined pension benefit fund against a reasonable return rate of say 5% vs a matching 401K contribution (of which you will now be on the hook for SS and other tax payments) you can see that the pension payment works out to be less expensive than a 401K match. Now granted my theory includes a realistic defined payout for the pension and reasonable employee contribution. Do you disagree??? Granted now that the cow is out of the barn, playing catch-up with the pension is quite painful...when a pension starts to get underfunded down in the 70% range it will most likely sink. So what would you propose for a a city employee risking his life??/ Anything?? If you required new employees (cops/ firemen) to kick in 20 percent of their pay to a 401K (assumes about 45k salary) that gives a normal retirement after 32 years of service if a fella joined at 25 years of age average=a 57 year old exit age (firefighters average death age is 55) a total of 60K a year payout in todays money...at this rate the 401K would last 20years till age 75 and he'd be on state.
Tom April 17, 2011 at 04:27 PM
Continued>> This would cost the the town about 290K per employee total or 9K per year per employee in matching funds before tax obligations...add quite a bit more for that. So granted seeing as you are far more familiar with the towns finances then I am are you going to tell me that 9K per employee per year plus taxes is less than if you (collectively as a town father)) properly funded the pension fund to begin with?? I think NOT! Oh let me preface this discussion with the fact that the brand new 45K employee (before taxes) has to surrender 20% of his salary in order to receive this benefit? That would leave a new guy a net income of 27K after taxes or $519 dollars a week....wow!!! Geez you get to get exposed to AIDS, Hep-c, folks with guns and attitude, high pressure situations, heart disease, hearing loss, and carcinogens with a reduced life expectancy for $519 a week....sign me up! Anyway Jim, plenty of room for debate here... I respect your opinion as a former mayor, but I hope you can see may point of view. A well managed pension fund is nor more of a elephant in the room than any other town obligation...including a 401K.
Jim Miron May 05, 2011 at 09:56 PM
Tom, I appreciate your position and the analysis. Not sure I agree that a defined benefit (pension) plan is the best way to go versus a defined contribution (401) plan but you make some good points. I know the private sector long ago moved away from defined benefit plans into defined contribution plans. I enjoyed your posts. It is always good to see debate and discussion that is absent personal baloney too prevalent on these blogs. Nice job!
Tom May 08, 2011 at 11:17 AM
Same here Jim, it's a lot harder to defend a position based on factual information than to throw mud at one another. Always a pleasure.
George E. Mulligan May 08, 2011 at 03:35 PM
It is my political belief Dick Burturla, Dick Miron, and an assortment of vested interest Republicans choose to create the Defined BENEFIT Pension plan to bribe police and fire, among others, those back door pay increases to Teachers / Board of Ed, in order to have kick backs to the enablers. Tom wanted the Pension Fund to have been funded as it went along. I would agree that we need to know how much EVERY PENSION put NET into their PENSIONS, so they could get what they deserve, which includes matching Town money, and calculating what prevailing interest income would/could have been. I estimate there is NO ONE in Stratford Government who deserves a PENSION over $ 25,000,which is about what a 30 year sikorsky retiree gets, predicated on a formula of either $ 62 or $ 68 a month. It is NOT what I think, nor Jim Miron/nor Tom or anyone else believes they deserve or should get from negotiated contracts which is important! 1) The State legislature passed a law eliminating PENSIONS, if corruption is proven. I didn't pass the law. The Democratic controlled State Legislature passed that law years ago. NJ Christie & NY Cuomo, and across the U.S. are finding PENSIONS unsustainable and political quid pro quo. 2) If it is proveable that FRAUD or CONSPIRACY exist A N Y Contract is VOIDABLE! I am not the Lawyer. Jim is a Lawyer. I was a Union steward. I expect Tom is knowledgeable on grievance arbitration and labor law. Am I correct or wrong?
George E. Mulligan May 08, 2011 at 03:53 PM
My INTENT - try to help: > Public > People I believe were entrapped to act criminally. CLAW BACK Madoff Investors May Be on the Hook for 'Clawback' Suits Investors who cashed out of Bernard Madoff's alleged Ponzi scheme may be on the hook for so-called "clawback" lawsuits brought by a bankruptcy trustee looking to recover money for fraud victims. Maddoff (over compensated) clients are worried about the possibility of clawback cases, which are extremely common in bankruptcies following Ponzi schemes. Canada retirement clawback The Old Age Security pension (or OAS or OAS-GIS) is a taxable monthly social security payment available to most Canadians 65 years of age or older. As of January, 2008, the basic amount is C$502.31 per month. At tax time, recipients with incomes over C$64,718 (for 2008) must pay back a portion of their Old Age Security at a rate of 15% of net income. This is often referred to as a clawback. The OAS pension is fully clawed back for people with incomes over approx. C$104,902 (in 2008). LACHES: Laches is not to be confused with the "statute of limitations," which sets specific periods to file a lawsuit for types of claims (negligence, breach of contract, fraud, etc.). FRAUD: Intentional use of deceit: trick or some dishonest means to deprive another of his/her/its money, property or a legal right. >damages may include punitive damages >scheme to commit fraud: each/all may be liable total damages
George E. Mulligan May 08, 2011 at 04:09 PM
I partially agree with TOM: But in true political form, the town fathers chose to use the pension fund as a piggy bank, to finance or hide true expenses by choosing not to fund it ..there-by raiding it effectively. What better way to look good to the electorate than by being able to exclaim "no tax incease!"...hooray! ... When in all reality you kicked the can down the road for the next administration to deal with. (dont fret, our politicians merely followed the model the federal and state goverment has used for years, hows that working out?) If you ran your personal finances like this, you'd be out on the street in short order. I'll leave the reader with this fact regarding municipal pensions.... a well managed, properly funded pension fund ends up being a less expensive benefit than a 401K. I specifically agree with: Well managed means both on the pension board choice of investments, and also on how generous the payouts are calculated/ negotiated. -- Please see Town Council (FAC) Financial Advisory Commission 2008 report! I agreed with all but "NO DISCERNABLE WRONG DOING" I believe the SCOPE of inquiries were politically controlled. I suspect several hundred local political people belong in jail. Unfortunately, I have to protect them, believing them entrapped.
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