ISSUES

PeterVickery_2 sitting

For my position on some of the more controversial items on the Spring 2018 warrant (e.g. nuclear freeze) click here.

For my position on some of the more controversial articles on the Spring 2017 warrant (the “sanctuary community” proposal, a carbon fee, background checks, and the impeachment of the President of the United States) click here. For my position on an important issue that I believe we need to grapple with more effectively, read on.

Introduction

The Town budget for FY19 is about $89 million, and most of the money ($53 million) comes from the property tax. There are about 6,700 properties on the Assessor’s rolls, and the tax rate is approximately $21 per $1,000 in assessed value. So if a home’s assessed value is $350,000, the homeowner will pay $7,350 in property tax.

What do we spend that $89 million on? About 55% goes toward employee salaries and benefits. If we think in terms of the average homeowner’s property tax bill of $7,350, approximately $4,000 helps pay for our municipal employees.

Amherst has approximately 275 benefited full-time equivalent (FTE) municipal employees and 190 part-time/seasonal employees, plus 318 FTE elementary-school employees. But salaries and benefits for current employees are just one part of the story.

Retiree Benefits

In addition to paying for employees’ benefits while they work for the Town, we also provide health insurance for them after they retire.

This is the exception in the private sector, where only about 16% of retirees get post-employment benefits. But in state and local government it has become the norm. As a result, retirees’ health benefits (together with pensions) are consuming a growing share of the budget in many communities. Amherst is one such community.

Our recent bond rating from Standard & Poor’s Financial Services, LLC, states:

“A long-term credit consideration is the town’s pension and other post-employment benefit (OPEB) obligation liabilities… The combined pension and pay-as-you-go costs are about 9% of total governmental funds expenditure. We consider the liability large and will rise over time.”

So we spend about 9% of our budget on pensions and other post-employment benefits (OPEB). As a share of the average property-tax bill of $7,350, that’s approximately $1,100. If the actuaries are correct, that figure is likely to go up.

Other Post Employment Benefits (OPEB) Trust Fund

In addition to what we spend on OPEB today, every year we set aside a steadily increasing amount of money to pay for retirees’ health insurance over the longer term. The money we set aside is called the OPEB Trust Fund, and its purpose is to pay for the Town’s unfunded accrued actuarial OPEB liability, which is currently around $100.5 million. The amount we paid into the trust fund in FY18 was $400,00, and the amount we need to pay next year will be $500,000.

These retirees’ health-insurance costs are in addition to pensions. Next year our town’s share of the Hampshire County Retirement System will be approximately $5 million, an increase of 9.3% from the previous year.

Conclusion

According to our actuaries, approximately 9% of our town spending goes toward retirees’ health-insurance and pensions. In some parts of town government the percentage is even greater. For example, in 2015 public-school expenditures on insurance and retirement programs came to about 19% of total expenditure.

Although this situation is no sense catastrophic, it has the potential to become a problem that could affect our bond rating. So we need to address it, and we need to do so in a way that is equitable and just for employees, retirees, and taxpayers alike. If the cost of health insurance continues to increase, we should examine a range of options, including changes to retirement ages and eligibility requirements for future employees, and employee contribution rates.

As a Town Councilor, I would review the budget with an eye to meeting the retiree-benefit challenge.

What do you think?