
What is this all about?
AS EXPLAINED IN WESTON...AND IN WESTPORT,
LESS OPEN DISCUSSION?
At the Board of Finance
the evening of April 12, 2007 (one half hour earlier than usual, at
7:30pm),
after the Fiscal Year '08 mill rate
was set, after the auditor's report was presented, there was a
discussion among three members of the Board of Education, its Finance
Director, the Board of Finance, Town Administrator, Town Finance
Director, Selectman Richard Miller and initially, First Selectman Woody
Bliss (on speaker phone, but the connection was terminated).
Highlights (highlights to those of us who are not Board of Finance
types) of the GASB report can be found here;
The powerpoint slides were printed out and
not shown, but rather in a low-tech way, the message got across to all
present!
The Town Administrator explained that the Board
of Finance would be
expected to begin application of the GASB requirements in the Fiscal
2009 budget - beginning work on it in December of 2007...
Special Town Meeting June 11, 2008 - approval for Auditorium and
O.P.E.B. in one vote "yes"
There were two (2) items on this "call" and the lesser
known one was approve the use of $1.1 million of the General Fund
surplus to go into the special fund for G.A.S.B. - the first step in
accumulating the post-employment benefits $$ to cover what the town
owes for "other [post employment benefits" of its employees not yet
retired. Studies show that Weston has approximately $12 million
plus that it has already due - and a plan to fund this over ten years
with a large first deposit into a special account administered by the
Board of Finance is now OK'd! Interest accrued, we presume, will
go to pay down any of the remaining O.P.E.B. liabilities.
Towns
forced to face huge retirement price tags
By:Kimberly Phillips, Manchester Journal Inquirer
01/10/2008
Manchester officials are facing an estimated $145.56 million liability
in retiree health care and life insurance benefits over the next
roughly 50 years - or $12.9 million a year to pay down the debt before
workers hit retirement age.
Yet the town, like most, doesn't pre-fund retirement benefits before
employees leave, instead choosing a "pay-as-you-go" system. In other
words, it sets aside money each year based on how much actually is
needed to cover retiree benefits.
But a recent change in accounting rules soon will bring every municipal
leader face to face with the kind of numbers Manchester is looking at:
The long-term, complete price of maintaining a workforce.
And in some cases, that's a figure area officials will be seeing for
the first time.
It's not that town officials don't know roughly how much they'll shell
out in retiree pensions. For years they've had to account for that
amount under rules set by the Government Accounting Standards Board, a
Norwalk-based nonprofit that sets accounting standards for states and
municipalities.
But the board didn't immediately enact rules pertaining to how towns
should account for so-called "other post-employment benefits" - namely,
health care and life insurance.
Now, the standards board has set timelines for towns and cities to
begin accounting for these other retirement benefit costs.
The board broke municipalities into tiers based on the size of their
budgets. The first deadline was Dec. 31, 2007, for towns with annual
budgets of more than $100 million that use trust funds to pay retiree
obligations.
Those municipalities that spend more than $100 million a year and pay
for the obligation in other ways - such as their annual budgets - have
until June 30 to report.
In north-central Connecticut, three towns spend more than $100 million
a year: Manchester, East Hartford, and Enfield.
Manchester Finance Director Alan J. Desmarais said that while the
town's reporting deadline is six months away, it asked its actuarial
firm for the $145.56 million estimate to begin the process of complying
with the accounting board's mandate.
"Obviously, we want to address this somehow," Desmarais said of funding
the obligation.
He explained that during the last several years officials have
negotiated into union contracts certain retiree requirements, including
years of town service, to hold down spending.
The days of offering full health insurance coverage for a retiree and
his or her spouse are gone, he added.
According to Manchester's Comprehensive Annual Finance Report, filed
recently in Town Hall, officials face an actuarial accrued liability of
$145.56 million. This is the projected cost of retiree health care and
life insurance over 40 or 50 years, Desmarais explained.
Keeping up with that obligation would run the town $12.9 million a
year, he noted.
But again, most towns pay as they go, funding the price of the
obligation based on the cost per fiscal year. In Manchester during
2006-07, about $2.8 million was budgeted for post-employment benefits.
No surprise for EHartford
"East Hartford's number is going to be tens of millions of dollars,
probably approaching $100 million," Finance Director Michael P. Walsh
said, cautioning, "It's not a liability that's new to the town, it just
has not been reported."
That town's Comprehensive Annual Finance Report warns of the reporting
deadline, but, like Manchester, East Hartford isn't required to report
its obligation until June 30.
Consultants are about a month away from determining an estimate, Walsh
said, after conducting a census of employees, including their ages and
retirement benefits.
In mid-November, Walsh recommended to Democratic Mayor Melody A. Currey
a four-pronged approach to managing the liability. This includes
establishing a trust to provide a place to "deposit, invest, pay, and
otherwise manage" retiree benefit funds. Currey forwarded the
suggestion to the Town Council.
He also has advised the town create an ordinance to formalize the
town's Retirement Board, which then would be responsible for managing
funds related to the obligation.
Those funds, in part, would come from leftover money at the end of each
fiscal year, which generally ranges between $150,000 and $750,000.
The council's ordinance committee is reviewing the suggestions.
Walsh noted the accounting board's requirement is only in reporting the
liability, not in actually doing anything about it or pre-funding it in
advance of retirements.
However, it's best that municipalities consider doing so,
he said.
When a town determines with Wall Street financial agencies its bond
rating prior to issuing bonds for public works or school projects -
ratings that influence the interest rate on the bonds - the unfunded
retiree obligation will be discussed, Walsh said.
And two to three years from now, the ratings agencies will do more than
simply acknowledge the liability, they'll start asking how the
municipality is addressing the it, he said.
"Eventually, the communities that distinguish themselves" with a plan
to deal with the obligation will maintain or increase their bond
ratings, while others could see a negative impact, Walsh said. "It's
better to put a few bucks aside now than nothing."
Health care costs on the rise
Enfield Town Manager Matthew W. Coppler said his town was required to
file the accounting board's report by Dec. 31, but sought an extension
because of difficulties in determining a figure. While he didn't have
an estimate on the total obligation, he said he expects it will cost
the town about $460,000 annually to whittle it down.
"We've been looking into this over the last couple of years," Coppler
said, explaining that union contracts have started to include increased
health care contributions for employees to keep costs under control in
years to come.
But nationwide the price of health care has risen, he said, and some
municipalities, such as Buffalo, N.Y., have seen the price of retiree
health care exceed the cost of current employee health care.
Consequently, towns have had to face a dilemma: Balancing caring for
longtime employees when they leave the workforce with taxpayers'
ability to pay for the benefit.
"The amount of money that we're talking about does limit our ability to
do what our citizens want," he said of balancing the costs of health
care and municipal services.
Changes in retiree benefits were quick to come in private industry,
such as the steel and automotive sectors, namely because of the
associated cost, Coppler said. But municipalities were slower to change.
"Now it's starting to, unfortunately, come home to roost," he said,
adding that municipalities would be smart to start pre-funding the
obligation. "At some point, pay-as-you-go is going to break the bank."
Finance Director A. Lynn Nenni, who recently took her job in Enfield,
didn't return calls seeking information about the town's estimated
obligation as well as whether the town's extension was granted, and for
how long.
Important to bottom line
Windsor Town Manager Peter P. Souza said that while his town doesn't
meet reporting criteria until 2009 - its annual budget is $90.25
million - he estimates the unfunded obligation at between $40 million
and $45 million, based on estimates from six months ago.
"We're doing some preliminary work on this with our actuarial folks,"
Souza said, explaining that he's spoken with Town Council members at
least once recently to begin policy discussions about funding the
benefits.
It's possible, he said, the council will decide to fund some of the
obligation while working with employees to inform them about the cost
associated with the benefit and ways to curb the price tag. That could
include a wellness campaign to work toward better health, coupled
with "balance" in union contracts that have higher health care
deductibles to offset long-term costs.
South Windsor Town Manager Matthew B. Galligan said municipal union
contracts have been negotiated in recent years to benefit the town,
namely by establishing health-savings accounts for current employees,
401k pension plans, and retirement health-savings accounts.
With the latter, he explained, town workers stash away funds from their
paychecks to cover health care costs when they're retired.
But it's difficult to estimate what the total unfunded retiree
obligation is, as consultants now are working with the Board of
Education to determine its retiree benefit practices and its unfunded
portion, Galligan said.
With an $88.7 million budget, South Windsor isn't mandated to file the
accounting board's report until 2009.
And predicting the number is further hampered because police officers,
for instance, only receive retiree health care coverage until they
reach 65 years old and Medicare takes over, he added.
"We should have it pretty soon," Galligan said of the estimate. "We're
waiting to see what the number is."
Leaders
offer an accounting of failed measure
Stamford ADVOCATE
By Brian Lockhart, Staff Writer
Published July 14 2007
Republican Gov. M. Jodi Rell and the General Assembly's Democratic
majority abandoned proposed income tax increases this legislative
session after learning the state's surplus had reached $1 billion.
But it turns out the state is simultaneously $1 billion in the red.
Connecticut keeps two sets of books - one for budgeting purposes and
the other for accounting purposes.
The former practice, called "modified cash budgeting" allows the state
to count revenues before they have been realized and delay expenses,
resulting in the $1 billion budget surplus touted by Rell and lawmakers
from both parties.
"It makes our books look like they're in better shape than they are,"
said state Comptroller Nancy Wyman, a Democrat. "(It's) a very liberal,
loosey-goosey kind of accounting."
But generally accepted accounting practices, known by numbers-crunchers
as GAAP, do not allow any gimmicks. Cash is recorded when it comes in
and when it is paid out.
The state has a GAAP-calculated, long-term deficit of $1 billion which
is reported to bond rating agencies, Wyman said. That deficit lowers
Connecticut's bond rating and results in the state paying higher
interest rates, which affects taxpayers.
"Quite frankly, if this were a corporation taking this kind of
latitude, they would put the management in jail," said state Rep. John
Stripp, R-Weston, a bank executive. "It's been going on for decades and
decades (under) Republican and Democratic administrations.
"Everybody thinks we should change it but they look at the pain
involved and everybody starts to shirk. . . . It creates a deficit you
have to make up either by collecting more taxes or significantly
cutting spending, both of which are painful to most people in the
legislature."
In the early 1990s, as a trade-off for instituting the state income
tax, lawmakers required the state to adopt the GAAP budgeting.
"From then on, the legislature and the governor delayed
implementation," Wyman said.
That tradition continued a week ago, when Rell vetoed a bill, touted by
Wyman and backed by the House of Representatives and Senate, that would
have the state phase in GAAP for budgeting purposes.
Under the legislation, Wyman also would have developed a plan for the
General Assembly to gradually pay down the $1 billion deficit rather
than swallow that bitter pill all at once.
"If they wanted to go into complete GAAP accounting immediately, they'd
have to be paying out $100 million every year for the next 10 years to
get rid of that deficit," Wyman said.
But with legislators wanting to instead deliver on promised investments
in health care and education, Wyman said she offered a system that
would have required smaller annual payments of about $50 million.
A key factor in Rell's veto appears to have been a June 15 letter from
Robert Desantis. Desantis is the president and chief operating officer
of the Financial Accounting Foundation, a Norwalk-based entity which
oversees the Governmental Accounting Standards Board, also in Norwalk.
The independent GASB is the group state and local governments
nationwide turn to for establishing their fiscal guidelines. It
supports GAAP budgeting.
But Desantis' letter states he fears the wording of Wyman's legislation
would give the state comptroller, not GASB, the ability to set his or
her own standards apart from GAAP.
"This portion (of Wyman's bill) threatens the integrity and objectivity
of the independent standard-setting process and is a step backward for
public trust, government accountability and financial transparency and
the state's investors," wrote Desantis, who could not be reached for
comment.
Rell, in a statement released about her veto, echoed Desantis' concerns.
Wyman accused Rell of being swayed by "misinformation, pressure and
confusion" but the governor was not the bill's only opponent.
Although the GAAP legislation was passed unanimously by the House of
Representatives, 14 senators opposed it, including Bob Duff, D-Norwalk;
Judith Freedman, R-Westport; Andrew McDonald, D-Stamford; Senate
Minority Leader John McKinney, R-Fairfield; and William Nickerson,
R-Greenwich.
"This bill said all the other states will publish reports written by
rules of the Financial Accounting Foundation located in Norwalk except
for Connecticut, which will publish its own rules as we go along," said
Nickerson, ranking Republican on the legislature's Finance Committee.
"It was a nutty idea."
Duff said Desantis' points "were well thought out." He said he was not
concerned about Wyman, but about how future comptrollers' might
interpret the legislation.
Stripp said he had similar concerns, but ultimately voted with his
House colleagues for the bill.
"Knowing Nancy for a long time, I was willing to take a chance because
it would start to move us in a direction I think we should have moved a
long time ago," Stripp said.
Robert Kurtter, managing director in public finance at New York
City-based Moody's, one of the state's bond rating agencies, said there
was a lot of concern within the industry about Wyman's proposal.
"As we read about it, it was just confusing to us," he said.
But ultimately, Kurtter said, after learning of Desantis' concerns and
speaking to Wyman, Moody's was comfortable with the bill.
Kurtter noted there is nothing requiring Connecticut to use GAAP
budgeting, and many governmental entities do not.
"The state has a fairly large, GAAP-reported deficit. And the state has
not made progress in paying that off," Kurtter said. "It is a factor in
the bond rating."
The legislature is in special session and has an opportunity to
override Rell's veto. It does not appear the GAAP bill is considered
important enough.
"I think it's important but not necessarily urgent," said Senate
Majority Leader Martin Looney, D-New Haven.
Wyman said as long as she remains comptroller she will continuing
pushing for GAAP budgeting.
"It's honest budgeting," she said. "This is the public's checkbooks.
And it should be used the say way we'd be doing with our own
checkbooks, with checks and balances. Why should the state be any
different than the average taxpayer?"
Round Two: Board of Finance Approves
4.98% Tax Increase
WestportNow.com
Posted 06/17 at 12:42 AM
Acting on a request by Westport First Selectman Gordon F.
Joseloff, the Board of Finance early today voted to rescind its earlier
7 percent tax increase for the next fiscal year and instead set a mill
rate that would raise taxes by 4.98 percent.
On a 4-3 vote, with the three Republican members opposed, the board set
a mill rate of 14.41 for the fiscal year beginning July 1, up from a
13.73 rate for the current year. The Republicans wanted a 4.72 percent
mill rate increase.
The board had voted for the 7 percent increase on May 21 with only two
days notice of an accounting standards change involving funding
escalating future costs of retiree health care benefits. (See
WestportNow May 21, 2008)
At the start of Monday night’s meeting, Joseloff proposed a 5.25
percent tax increase while devoting $2.4 million to fully fund for the
retiree account in the first year.
He listed a number of capital items that he said could be deferred and
said there was additional revenue from the conveyance tax which the
state legislature voted last week to extend for two more years.
He also suggested taking $2.5 million out of the town’s reserves, up
from his original proposal of $1.5 million.
Republican members said the town did not need to fully fund the retiree
obligation in the first year, as other towns had done, and said by
doing so, the town could hold down the mill rate increase.
Shortly before midnight, Joseloff suggested a compromise—that the board
approve a tax increase midway between his figure of 5.25 percent and
the Republican-backed 4.72 percent.
He said he still felt it important to fully fund the town’s retirement
obligations in the first year and as a result he recommended taking
$2.9 million out of the reserve fund instead of $2.5 million.
At the same time, Joseloff pledged to try to further reduce spending on
the already approved budget so the reserve level ultimately would be
impacted as little as possible.
During the board discussion, representatives of the town’s actuary firm
as well as a representative of its auditing firm answered questions
about the town’s retirement obligations under the accounting standards
rule change.
Westport
mill rate set at 14.41
By STEVE KOBAK, Hour Staff Writer
June 18, 2008
Westporters can breathe a sigh of relief now that the Board of Finance
voted to raise taxes by 4.98 percent at its Monday meeting, rescinding
the 7 percent tax increase it had previously decided upon during its
May 21 meeting.
The board also set a mill rate of 14.41, higher than the previous
year's rate of 13.73 but slightly lower than the 14.70 mill rate set at
the May 21 meeting.
A mill represents $1 for every $1,000 of assessed property. With the
new mill rates, a Westporter who owns a $500,000 home will pay $7,205
in taxes for the 2008-09 fiscal year. Last fiscal year, the same
Westporter would have paid $6,865.
The board was able to reconsider its previous tax increase because
First Selectman Gordon Joseloff held off on reporting the mill rate to
Hartford and printing the tax bill.
"That gave us the breathing room we needed to investigate further,"
said Finance Board Chairman Jeffrey Mayer.
To lower the 7 percent increase the board had decided upon at its May
21 meeting, Joseloff proposed a 5.25-percent increase, and said the
town would contribute $2.5 million from the general fund in order to
lower taxes.
Republicans suggested raising taxes by 4.72 percent, an increase that
is equal to the 2008-09 budget increase, according to Republican board
member Avi Kaner. The board eventually decided to split the difference
between Jose-loff's and the Republican's proposal and raise taxes by
4.98 percent, Mayer said.
The board took $2.9 million from the town's reserves to offset the tax
increase.
Kaner said the money taken from the reserve will not affect the town's
AAA bond rating.
"Our reserves have historically been at a level that's above what
rating agencies look for," Kaner said.
The mill rate was previously raised so that the town could conform to
Governmental Accounting Standards Board Statement 45 (GASB45), an
accounting principle that requires municipalities to financially plan
for post-employment benefits of its workers.
"We started this process getting a bombshell when we heard the magnitude
of the GASB liabilities," said Mayer. "We did the
conservative thing at the time and we fully funded them."
GASB is a nongovernmental organization that sets accounting standards.
Disobedience of GASB standards could negatively affect the town's bond
rating, according to board members.
Mayer said the town will still be able to fulfill its GASB45
requirements while keeping the tax raise at a reasonable amount. The
town will administer a phased-in approach to meet the GASB
requirements, Kaner said.
"We managed to simultaneously lower the tax raise and at the same time
fully fund our retiree health benefits," said Mayer.
"That's huge, and I think that's a testament to the hard work the board
has been doing with the first selectman over the past few weeks," he
said.
Westport's
tax rate going up 7 percent
By STEVE KOBAK, Hour Staff Writer
May 23, 2008
A new national accounting principle and the need to protect the town's
AAA bond rating forced the Board of Finance to increase the mill rate
at its meeting Wednesday.
The board raised taxes by 7 percent, increasing by 0.97 mills the
current rate of 13.73 mills to 14.70 for the 2008-09 tax season.
"I don't think any of us are happy with the fact that we have to
increase the mill rate as much as we did," said Democratic board member
Kenneth Wirfel.
A mill represents $1 for every $1,000 of assessed property. With the
new mill rates, a Westporter who owns a $500,000 home will pay $7,350
in taxes for the 2008-09 fiscal year. Last fiscal year, the same
Westporter would have paid $6,865.
"Let's not make any bones about it," said Board of Finance Chairman
Jeffrey Mayer, a Democrat. "It's a significant increase to the average
taxpayer."
The mill rate was raised so that the town could conform to Governmental
Accounting Standards Board Statement 45 (GASB45), an accounting
principle that requires municipalities to financially plan for
post-employment benefits of its workers.
GASB is a non-governmental organization that sets accounting standards.
Disobedience of GASB standards could negatively affect the town's bond
rating, according to board members.
"What we're doing here is safeguarding our AAA rating," said Mayer.
"I'm not about to jeopardize that rating on my watch."
Previously, Westport funded retirement benefits for municipal employees
on a pay-as-you-go basis, budgeting some money for imminent retirees.
Now, the Board of Finance must pre-figure retirement benefits for each
employee into its operating budget.
"This decision will now have a ripple effect on our budget for years to
come," said Republican board member Avi Kaner. "For every year now,
we'll have this additional amount that we have to fund out of the
budget."
The town must set aside $44 million over the next 30 years, or $4
million per year, to meet its GASB45 obligation.
"We were aware of the GASB issue but we did not expect the number that
we would be obliged to commit to would be as large as it was this
year," Wirfel said.
Board members said, only 48 hours prior to the meeting, actuary
advisors informed them about the amount they needed to set aside to
meet the town's GASB45 requirements.
"We were blindsided by it," Kaner said.
Had they received the quotes sooner, they could have slightly offset
the mill rate increase by modifying the budget, according to board
members.
On May 7, the board approved a $168.7-million budget for 2008-09, a
4.72- percent increase from the 2007-08 budget. Without the GASB45
funding, board members said the mill rate increase still would have
been 5 percent due to the budget increase.
"Gordon Joseloff had made significant efforts to restrain all but the
fixed increases," said Wirfel. "I know that the Board of Education had
made some very careful decisions to keep apace with other school
systems."
Before receiving the actuary quote, the town had already figured $1.7
million for retiree benefits in the 2008-09 budget. To fund the GASB45
obligation, the board had to take $1.5 from its reserve fund and add
$2.4 million to the mill rate.
Mayer and Republican board member Charles Haberstroh said the board did
not take more money out of the reserve because they felt it might hurt
the town's bond rating.
The mill rate passed 5-1, with the one dissenter being Haberstroh, who
wanted to increase the town's reserve fund by raising the mill rate.
"I was concerned that, given the disarray in the financial markets,
rating firms were going to be tougher on the AAA rating," he said.
First Selectman Gordon Joseloff said he was "disappointed" in the mill
rate increase. He had calculated a 3.93-percent tax increase prior to
the release of the actuary quotes but said the Board of Finance had to
raise the mill rate to protect the town's AAA bond rating.
"It's unfortunate," he said. "I'm not so concerned about whether I look
good, but the fact is that it could impact our residents."