The Boston Globe
Thursday, December 11, 2008
Pensions to strain city, town finances
New infusions needed as funds lose value
By Todd Wallack
Massachusetts cities and
towns will probably face bigger payments into pension plans that cover
their workers and retirees because of this year's stock market plunge,
potentially forcing communities to cut spending on police, schools, and
other services.
Local pension funds, which
are heavily invested in financial markets, lost about 29 percent of
their value through the end of November, mirroring declines in other
public pension funds nationwide, according to an estimate by Robert
Dennis of the Public Employee Retirement Administration Commission. The
organization oversees the state's 106 public pension funds, which cover
hundreds of thousands of people.
Barring a market recovery
or increased aid from the state, officials warn, cities and towns will
almost certainly have to make larger payments in the next few years to
compensate for the decline in pension assets, using money earmarked for
other spending.
"It's very serious, not
just for pension funds, but for everyone," said Geoff Beckwith, director
of the Massachusetts Municipal Association, which represents local
towns. "It will force a cash crunch on cities and towns and create real
havoc."
Unlike state and federal
governments, the local communities have few ways to raise additional
money without voter approval, partially because of Proposition 2˝, the
state law limiting property tax increases. In addition, state lawmakers
have already suggested they might reduce local aid to balance the
budget.
Even before the market
crashed, most communities didn't have enough money set aside for
pensions. Of 106 public pension funds, only three were fully funded by
Jan. 1 - meaning they had sufficient assets to meet obligations to
current and future retirees - according to the latest figures available.
Eighty-two systems were funded below 80 percent, the level pension
specialists generally consider acceptable, and seven had less than 50
percent of the money needed.
While there is no
indication that government pensions are in jeopardy, growing deficits
mean municipalities will gradually have to shovel more money into their
plans. Under state law, communities are required to make regular
payments to fully fund pension plans by 2028.
"I don't know a retirement
system in the Commonwealth that hasn't expressed concern," said Joseph
Connarton, executive director of the state public retirement commission.
Indeed, some cities and
towns were already attempting to cope with deficits nearly the size of
their entire annual budgets.
For instance, the City of
Everett, with a $125 million budget, reported a pension deficit of more
than $100 million. As of Jan. 1, its pension plan was only 37 percent
funded. Springfield's pension shortfall is $403 million, three-quarters
of its annual budget, and the plan was less than 43 percent funded as of
the beginning of the year.
Other systems with less
than half the assets needed in their pension systems include Lynn,
Chelsea, Lawrence, Webster, and New Bedford. Boston's pension fund was
64 percent funded as of January 2006.
"Looking forward to 2009,
cities and towns should try to rein in spending and be prepared for
another tough year," said state Treasurer Tim Cahill.
But communities won't
immediately have to make higher pension payments. Typically, they
recalibrate pension contributions every three years, using complex
actuarial assumptions to figure out how much they will owe to current
and future retirees. While some are scheduled to update figures next
year, others won't run new calculations until 2011. And even communities
that adjust their figures next year won't start making revised payments
until 2010. In addition, pension systems commonly use accounting
techniques to spread out losses and gains on their investments over
several years, reducing the impact from one aberrant year.
"Public pension funds take
a long-term view," said Keith Brainard, research director for the
National Association of State Retirement Administrators. "They tend to
measure investment returns over decades, not quarters or years."
To allow cities and towns
more breathing room, the Massachusetts Municipal Association plans to
push for legislation to extend by several years the 2028 funding
deadline.
"It would give pension
funds more time to have the assets recover some of their lost value due
to the wild swings on Wall Street," said Beckwith, the municipal group's
director. "Holding fast to the 2028 date could cause massive cash flow
problems for cities and towns and cause unacceptable cuts in essential
services."
The Legislature set the
deadline in 1987, when many Massachusetts pension funds were underfunded.
Under the law, local pension systems are required to periodically
measure how well they are funded and devise a schedule of regular
payments to close any deficits.
Governor Deval Patrick's
administration has not decided whether to extend the deadline for local
funds, though it already done so for the state employees and teachers
systems by two years, from 2023 to 2025.
Some local and state
officials say an extension could potentially increase the amount of
money municipalities will ultimately have to pay. Private companies are
dealing with similar pension funding problems. Some have reduced
benefits or dropped plans altogether.
"The longer we delay the
funding, the worse it becomes," said Springfield auditor Mark Ianello,
who chairs that city's retirement board. "You have to bite the bullet at
some point and stick to the funding schedule. Each day that we delay
funding, it costs more down the road."
Like many municipalities,
Springfield already is grappling with a huge bill to make up for past
underfunding of its pension plan. Next year, the city is supposed to
make a contribution of more than $34 million to its plan. If it had been
fully funding the plan all along, the city would owe only $3.9 million.
Everett has been forced to
make up for its pension plan deficit by using money that could have gone
toward a new fire station, sidewalks, or other services. It is scheduled
to make a $10.5 million payment into its plan in 2009.
"There are so many other
things I could do with" the money, said Everett Mayor Carlo DeMaria Jr.,
who took office this year. "Predecessors of mine just put in the minimum
amount, not realizing the impact" of a shortfall over the long term, he
said.
Now officials in
Springfield, Everett, and other communities worry that pension bills
could climb even higher after they close the books on 2008 in a few
weeks.
Connarton, who runs the
state's public retirement commission, said unless the markets turn
around, most communities will undoubtedly need to contribute more to
their pension plans in coming years. And it's one expense communities
can't skip.
"There's no way around it,"
Connarton said. "You have to pay pension costs."
The Salem News
Wednesday, December 3, 2008
Taxpayers give, unions take
By Robert Kelly
Peabody Mayor Mike Bonfanti
recently signed a new labor contract with the police union that included
a new paid holiday, Sept. 11, the day of infamy in 2001 when terrorists
ran amok with U.S. airliners and caused a ruckus from which the nation
has yet to fully recover.
What could cause a sensible
man like Bonfanti to add fringe benefits to any city contract with
taxpayer discontent at the point where an uprising was recently
organized for the purpose of depriving the state of its income-tax
revenue? Carla Howell's Question 1 failed, but the fact it got on the
ballot and received the support it did, is a measure of the disgust
people currently feel about anything that smells of more of the same.
So it must be said up front
that whatever the bargaining pressures and economic measurements, a new
holiday — especially 9/11 — was not a good chip to put on the bargaining
table. Which begs the question: What other chip could be offered? The
answer: Nothing!
The police union should
have moved to help the city with its enormous health-cost problem
without seeking a quid pro quo. It too has a civic duty, as do all other
unions. The city can only pay so much; taxpayers can only fund so much.
The basic problems in that
negotiation, and with many others, are twofold: 1.) Unions overreaching
and showing no respect for the problems of the other side; and 2.)
executives with no clear idea of capacity to pay, or who lack the
political courage to draw a line in the sand.
Some issues of common
interest to both sides in a union/management negotiation are not
bargaining items. They must be mutually faced by the parties in a
cooperative manner because failure to do so will harm the
town/city/society around them.
Health insurance is such an
issue in Peabody. The city's position is reasonable. The problem should
be how and when to realize it.
The union was wrong to ask
for compensation in return for cooperation. Also, the city was wrong for
giving in, and then compounded the problem by granting a dramatic
holiday that will reappear as an issue in other contracts, and could
itch surrounding communities for years to come.
There are other issues in
other places that have met the same kind of union resistance. Who, for
example, does not relate the disappearance of the textile industry in
Massachusetts with expensive labor contracts? What objective observer
does not regard teachers' unions as education's greatest enemy? Who does
not know that General Motors and Ford are on their industrial knees in
Washington pleading for handouts because they cannot get cost relief at
the bargaining table?
The lesson, not a new one,
is that power corrupts. Union bosses have abused power as much as the
business/civic leaders of the past did. They threaten whole towns or
cities with disruption if their target does not yield to them employee
wages and benefits (costs) that are destined to destroy the hand that
pays them.
What to do? In case you
haven't noticed, the institutions that took so long to build, and that
made America the envy of the world, have been tumbling down for a
half-century. Collective bargaining is yet another one that needs
rethinking and rebuilding.
But beyond everything else,
America must once again unearth the civic/public leaders with the
courage to do what is right, because it is right. Example: President
Reagan in 1981 was confronted with an illegal strike by [air] traffic
controllers. He gave them time to rethink their position. They didn't.
He replaced them.
Robert Kelly of Peabody
writes a weekly column for the Opinion page.
The Boston Globe
Sunday, December 7, 2008
Taxes rise, spirits fall as state OKs local rates
Some bills higher despite real estate market slump
By Eric Moskowitz
To the rash of bad news
about the state and national economy, add this dispiriting blow:
Homeowners across Massachusetts are about to receive higher property tax
bills, even as the real estate market sags.
This is tax-rate-setting
season, and each day, the Department of Revenue's Division of Local
Services approves a flurry of new rates set by cities and towns after
reviewing their assessments, budgets, and revenue projections. With few
exceptions, the numbers tell the same story in community after
community: Home values went down, but taxes, and tax rates, on the new
bills are going up.
In Stoughton, for example,
the average single-family home assessment fell 8.6 percent, but the
average single-family tax bill is rising $100. In Reading, the average
house shed almost 2 percent of its assessed value, but the average tax
bill is up $162. And in Natick, where an override passed in the spring,
the average single-family assessment dropped 2.4 percent, but average
tax bill is rising $394.
"Money, money, money,
money," Natick taxpayer Michael Hurwitz said, voicing his frustration in
an exasperated singsong. Hurwitz, at 70, has a heart condition but
continues to work as an automotive accountant to keep up with his
expenses, including the taxes on the three-bedroom ranch he bought in
1974. "It's either that or sell the house, and if I sell the house, I'll
get half of what it's worth, so what good would it do?"
The average single-family
property tax bill in the state rose between 3.7 percent and 6.7 percent
in each of the past 10 years, leading to an average bill of $4,110 for
fiscal 2008, which ended June 30. Taxes rose last year despite a nearly
1 percent drop in the average assessed single-family home, to $403,687,
the first decline since the early 1990s, according to state statistics.
Assessments, calculated
largely off the previous calendar year's sales, lag the market. As a
result, the average assessed value for homes is likely to dip again this
year - as it has for many of the communities whose figures have recently
been certified - and could do so next year as well.
Through Friday, the new
assessments, spending figures, and tax rates for fiscal year 2009 had
been submitted and approved for 172 cities and towns, or nearly half of
the municipalities in the state, said Robert Bliss, a Department of
Revenue spokesman. "It will be the rare community where values go up,"
he said, even as taxes rise.
The new bills will not be
mailed in most communities until the end of the month, but many
taxpayers are already feeling beleaguered. Voters rejected overrides in
five out of six communities on Election Day last month, and property tax
concerns figured heavily in a successful $7 million campaign to fight
anti-income tax Question 1. Opponents of the question warned that
eliminating the income tax would trigger property tax increases.
Meanwhile, strained
Massachusetts cities and towns - which are more reliant on property
taxes to balance their budgets than communities in most states - are
hoping for continued levels of state aid and are looking for new ways to
raise taxes. Communities have not fully recovered from slashes to local
aid made in the last recession; this year they will receive $566 million
less, adjusted for inflation, from the state than they got seven years
ago, according to the Massachusetts Municipal Association.
When home values were
soaring, many homeowners accepted upward pressure on property taxes as a
fact of life. But now, with assessment reductions coming at the same
time that the stock market tanks and unemployment ranks swell, taxpayers
are confronting stark reminders about municipal finance: Namely, that
decreased assessments and a struggling economy do not mean decreased
taxes and that Proposition 2˝ does not mean individual taxes cannot rise
more than 2˝ percent a year. The 2˝ percent refers to the overall tax
collections, not individual tax bills.
"People are frustrated.
We're just tired," said Ann Buxton, a Framingham resident whose taxes
have increased several hundred dollars in the five years since she
purchased her one-bedroom condo.
Framingham's new tax rate
has not yet been finalized, but Buxton is bracing for another increase.
She works 65 hours a week in two jobs, with a catering company and at a
supermarket, and may seek an additional part-time job to make ends meet.
With a raft of rising expenses and a commute of a few hundred miles a
week, Buxton, who is 53, said the reprieve of lower gas prices feels
only temporary. In addition to a tax increase, she is worried about toll
increases on the Massachusetts Turnpike. "People are struggling," she
said.
At the local level,
assessors try regularly to educate homeowners that municipal budgets,
not home values, determine the amount to be raised through taxes, with
property assessments the means to spread that tax levy throughout the
community. Nevertheless, the sting of an increased tax bill coupled with
a reduced assessment can produce frustration and confusion.
"We get both," said Cindy
Long, town assessor for Hanson, where the average single-family home
assessment dropped 3.8 percent for fiscal year 2009, but where the
average single-family property tax bill is rising $163. "It's not a bed
of roses, but we try and educate, and we certainly don't ever put
anybody down because they have a question."
On Beacon Hill, lawmakers
accustomed to hearing property tax concerns from constituents in good
years find that a strained economy has intensified calls for change,
which could produce legislation offering municipalities cost-saving
measures and alternative revenue sources. Proponents say that would
relieve pressure on property taxpayers.
"We're hoping for some
pretty aggressive action in the very early part of 2009," said state
Stanley C. Rosenberg, the Northampton Democrat who serves as Senate
chairman of the Legislature's Special Commission on Municipal Relief.
Governor Deval Patrick, who
campaigned in 2006 in part on property tax relief, previously filed many
of the ideas that the commission is reviewing, such as allowing
communities to institute their own meals tax or increase the hotel tax
and enabling them to collect property taxes from telecommunications
companies for poles and wires that run over public ways.
Although many of the
components in Patrick's Municipal Partnership Act met roadblocks in the
Legislature, lawmakers now appear more willing to consider those
proposals, a reflection of the economic downturn and pressures they are
feeling from constituents.
"The governor remains
committed to working with the Legislature and cities and towns to bring
relief to Massachusetts property owners," said Kyle Sullivan, a
spokesman for Patrick. "But it is important that homeowners themselves
let their legislators know that property tax relief from the state is a
top priority."
Massachusetts ranks eighth
in the country in average property tax bill per household, according to
fiscal 2006 statistics compiled by the Tax Foundation, an organization
based in Washington, D.C. And while cities and towns nationally generate
less than half of their local revenue from property taxes, Massachusetts
communities rely on property taxes for 73 percent, according to Geoffrey
Beckwith, executive director of the Massachusetts Municipal Association.
Without legislative relief,
"communities are faced with the choice of either increasing the property
tax or cutting services, and going in either direction is unpleasant,"
Beckwith said. "Many communities are doing both."
Meanwhile, the original
proponents of Proposition 2˝ are calling for legislation that would make
it more difficult for overrides of the tax cap to reach the ballot. The
law, which voters approved in 1980 and which took effect in fiscal 1982,
has two main features. It prevents municipalities from increasing the
total amount collected from all property taxpayers by more than 2˝
percent annually, not counting taxes on new development, without a
ballot override. It also prevents a city or town from collecting a total
tax levy that exceeds 2˝ percent of the community's collective property
value.
Barbara Anderson,
executive director of Citizens for Limited Taxation, said the
group wants to limit overrides to biennial state elections. Local
override proponents have timed their elections for unusual months or
days, leading to lower turnout and higher likelihood of support, she
said.
Rare is the community in
which property taxes drop for homeowners, but that's the case in
Wilmington. Among other factors, significant new development in the
commercial and industrial categories lifted some of the burden off
residential taxpayers, who saw their single-family homes drop in value
from an average of $402,698 to $381,505. The average single-family tax
bill for the year is nearly $48 lower.
In 16 years as Wilmington's
principal assessor, Humphrey Moynihan had told homeowners that was
possible, but he'd never seen it happen before. Although the bills
reflecting the new values and rates will not be mailed until the end of
the month, Moynihan is already finding himself in an unusual position
among assessors: fielding feedback from thankful homeowners.
"The response," he said,
"has been very, very positive."
The Salem News
Wednesday, December 10, 2008
The enemy is us
By Robert Kelly
The Massachusetts political
world has been rife with scandals involving both legal and illegal
behavior.
The legal abuse of the
pension system, for example, was nowhere better exemplified than in the
Bill Bulger case. Bulger entered state politics in 1961 and when he left
the Legislature in 1996, a healthy, vigorous 62-year-old, he was
president of the Senate and perhaps the most powerful man in the state.
Why did he leave such a
powerful position? Because, after a nationwide search had examined all
possibilities, it was found that Bulger —despite his lack of educational
and managerial credentials —was the most qualified man to become the new
president of the University of Massachusetts.
Common sense says this
couldn't be true. Indeed, erudite and smart as he is, Bulger's
appointment was obviously an example of the political payback system
that exists in the state to a shameful degree.
What was the consequence of
that decision? Bulger's salary increased more than five times to almost
$300,000 per year, and his retirement in 2003 was sweetened by a pension
of some $200,000 a year.
The entire sequence that
brought this happy ending to Bulger was legal. But it also carries the
smell of cronyism, the deadly political disease that destroys initiative
and corrupts the moral environment. Who you know becomes more important
than what you can do. Massachusetts has had its illegal goodies too.
Dianne Wilkerson, James Marzilli and Chuck Turner, for example, have
been all over the news during the past few weeks. These names have
become associated with bribery (Wilkerson and Turner) and lewd behavior
(Marzilli).
Another recent and juicy
incident hammers the nail of Massachusetts corruption more firmly in
place.
Lorraine Henderson, port
director for the Department of Homeland Security in Boston, was recently
arrested by federal agents. The charge? It seems this person, who is
supposed to keep illegals out of the country, had been hiring them for
four years to clean her Salem condominium.
Maybe that's where Osama
bin Laden has been hiding.
There have been other
incidents. But you get the point.
Who are we electing? Why do
we elect them? Why elect those who in many cases have a resume that
would not qualify them for work at McDonald's?
Pension abuse,
double-dipping, gamesmanship with the pension system, ridiculous fringes
in union contracts and outright criminal behavior by civil servants,
have been tolerated by voters for too long. And an example of where we
are headed with our see-no-evil, hear-no-evil approach to government can
be found in Atlantic City, where gambling has ascended to God-like
stature. In that New Jersey community, four council members and the
mayor were indicted on bribery charges in 1989-90; and the former
president of the city council (previously arrested 25 times) was
recently sentenced to three years in prison because of methods he used
to destroy the reputation of a political opponent.
The mayor disappeared for
two weeks —he admitted to drug abuse and later revealed he had falsified
his background so as to increase his veteran's benefits —and later
resigned. Four of the city's previous eight mayors were also confronted
with corruption charges.
Massachusetts and its
cities are small-timers compared to Atlantic City. But we're getting
there.
The reason: We increasingly
accept the ethos that allows self-serving and evil behavior. We
knowingly arm men and women who do us harm. We are charmed by demeanor;
we ignore qualifications. We re-elect politicians who have been found
guilty of crimes. We shrug away immoral behavior and time-honored
customs as irrelevant.
We get what we vote for.
The enemy is us.
Robert Kelly of Peabody
writes a weekly column.
