Loading...
HomeMy WebLinkAbout2012-09-20-AC-minSeptember 20, 2012 Minutes Town of Lexington Appropriation Committee September 20, 2012 Place and time: Town Office Building, 7:30 p.m. Members present. Glenn Parker, Chair; Joe Pato, Vice Chair; John Bartenstein, Vice Chair and Secretary; Alan Levine; Richard Neumeier; Jonina Schonfeld; Robert Cohen; Mollie Garberg; Rob Addelson (non- voting, ex officio) Members Absent: Eric Michelson Also present: David Kanter, Capital Expenditures Committee member The meeting was called to order at 7:35 p.m. 1. Announcements Cost of Legal Counsel: Richard Neumeier reported that a position for Assistant City Solicitor in the City of Waltham was advertised in a recent Lawyers' Weekly publication. The compensation includes salary listed at $82,336 plus benefits. It was noted that Waltham's legal needs may vary significantly from Lexington's. Lexington is currently spending $800,000 - $900,000 annually on out - sourced legal services. There was Committee consensus around exploring the issue further, to assess needs and develop a fair cost for service comparison to other communities. ACTION ITEM: This will be discussed with the Town Manager and School Department staff. Water and Sewer Rate - Setting: John Bartenstein reported on a presentation made by Rob Addelson to the Board of Selectmen on September 10 as the first step in this fall's FY2013 water and sewer rate - setting process. FY2012 results were on target. Net profits were a little less than $1 million ($550,000 for water and $300,000 for sewer). Water and sewer costs for FY2013 are up 1.9 percent on a combined basis, but as a result of the vote at the 2012 Annual Town Meeting to reduce the retained earnings subsidy by $250,000 (lowered from $450,000 to $350,000 in the water fund and from $300,000 to $150,000 in the sewer fund), the required rate increase will be a couple of percentage points higher. Retained earnings as of the end of FY2012 were approximately $1.9 million in the water enterprise fund and $1.3 million in the sewer enterprise fund — after deduction of the $350,000 (water) and $150,000 (sewer) FY2013 rate subsidies voted at the Annual Town Meeting — compared with the Town Manager's suggested target of $1 million in each fund. • Capital Expenditures Committee: It was noted that there have been some membership changes on the CEC. September 20, 2012 • Annual Town Report: ACTION ITEM: Glenn Parker will prepare Committee material for the Town Report. 2. Election of Officers: Robert Cohen nominated and Richard Neumeier seconded reelection of the current roster of officers: Glenn Parker, Chair; Joe Pato, Vice Chair; John Bartenstein, Vice Chair and Secretary. It was noted that there are no term limits, and members serve on the committee at the pleasure of the Town Moderator. It was suggested that the chairmanship could be rotated, perhaps on a five year basis. Glenn Parker noted that this is his third year as Chair. VOTE: The extension of the terms of the current roster of officers was approved, 8 -0. 3. Minutes: Minutes of the meetings held on 2/29/12 minutes and 4/23/12 were reviewed and approved. 4. Liaison and Other Committee Reports: Board of Selectmen: Joe Pato reported that health care costs were discussed at a recent Selectmen's meeting. $600,000 in savings is anticipated when comparing the most recent projection to the $21+ million originally budgeted for FY13. The savings result from employees selecting less expensive health care plans than had been anticipated. The current projection for FY13 health care costs totals $20.34 million, compared with the $20.32 million actually spent in FYI 0. The overall savings attributable to joining the state's GIC program, as opposed to continuing with the health care programs offered in the past, is now calculated to be $4.4 million minus the costs of migrating employees to the new program. The Selectmen also discussed the pros and cons of a fall special town meeting. The Selectmen must set the tax rate and residential /commercial split by some time in December. Based on current budget projections, they could: (1) choose to not tax to the full amount of the Proposition 2'/2 limits; (2) allow surplus funds to flow to free cash at the close of FY13; or (3) hold a special town meeting and recommend appropriation of the surplus funds for additional projects. Agenda items at such a special town meeting might include budget adjustments, funding road improvements around Estabrook School, and a TMMA- sponsored by -law amendment to allow electronic voting at Town Meeting. Finally, the Selectmen discussed the potential need to hold a special town meeting in early 2013 to address the possible purchase of the National Heritage Museum land on Marrett Road. However, they prefer to avoid two special town meetings before next spring. If they have a fall special town meeting, they are looking at November 19, which means the warrant would have to be ready by November 5. Appropriation Committee members identified possible uses for excess funds, 2 September 20, 2012 including the funding of future health insurance liabilities for retirees, increases in cash capital, road repair and resurfacing, facilities maintenance, and additions to the debt service stabilization fund. The consensus was to suggest that the Board of Selectmen consider the importance of designating uses for presently unallocated FY 2013 funds before the tax rate is set, and, if they concur that it is worthwhile to designate uses, then plan to convene a fall special town meeting. Mollie Garberg suggested that the Selectmen could discuss the advisability of a special town meeting at the October 3 summit. ACTION ITEM: Joe Pato will attend the Selectmen's meeting on September 24. • Solar Task Force: This committee is exploring ways to install photovoltaic panels on town buildings to save electricity costs. School Department: Preliminary counts of school bus riders have increased when compared to the prior year's ridership; however, the increase isn't as much as was anticipated. It was noted that there are 500 more residents in town and 107 more students than projected. 5. Other Post - Employment Benefits (OPEB): Alan Levine reported that Deb Mauger, Rob Addelson, Carl Valente, Glenn Parker and he had met several times to discuss OPEB issues. Towns throughout the country have an obligation to provide health insurance benefits to their retirees. Rob Addelson explained that the Government Accounting Standards Board (GASB) recently mandated that the OPEB liability be included in the calculations of financial condition presented in the financial statements of the Town starting a year or two from now; at present the liability only needs to be stated in a note on the statements but does not need to be taken into account in the balance calculations. Rob reminded the Committee that funding of the obligation is not yet required. The Committee was also reminded that Dan Sherman, an actuary who attended a meeting of the OPEB working group, suggested that the actuarial evaluations of the Town's OPEB liabilities that have been prepared for the Town may be overly conservative. He believes that the stock market will do better and the growth of health care costs will not be as steep as the estimates for these factors that were used in the latest reports. He confirmed that funding the liability according to a flat funding profile (schedule) may not be the most desirable option. The potential impact of the GASB action was briefly discussed. The inclusion of a large liability on the balance sheet suggests that the Town's bond rating could be affected. On the other hand, this accounting change will affect towns nationwide and bond rating agencies including Moody's will need to make allowances. Rob Addelson expressed his concern that the liability affects the town's ability to fund services without overrides. The actuarial exercise of determining the amount of the liability is a challenge because it is subject to large uncertainties through factors that are difficult to forecast accurately such as growth in the stock market and increases in health care costs. Additionally, a number of policy options must be chosen in constructing a plan to fund the liabilities. The Town must determine, September 20, 2012 e.g., over what time period the liability should be fully funded and the time profile of payments into the trust fund. It was noted that Deb Mauger, among others, would like to see the obligation funded over 30 years. Alan Levine is not sure about this time frame based on calculations and projections he has compiled; he suggested that health care costs are very unlikely to increase by factors similar to those seen over the past 10 to 15 years because health care costs are such a large fraction of the economy now (18% of GDP). He does not see compelling reasons to fund the liability over any particular time interval and, furthermore, is concerned that, in future fiscal years, efforts to fund the liability could result in difficulties in funding more important needs. Alan noted that he presented numbers to the OPEB working group that sketch possible funding plans based on rough assumptions. The sketches illustrate the magnitudes of annual trust fund payments that would fund the liability over various time intervals. He tends to prefer plans that have baseline payments that achieve full funding over intervals longer than 30 years. Alan will share his computations with the Committee. It was noted that OPEB trust funds can be invested in equities and, over intervals of a few or more years, are likely to yield a higher rate of return than from money market or CD investments. This differs from stabilization funds, which can only be invested in the latter categories. The pros for building the OPEB trust fund include the (average) annual investment yield that is expected to be equivalent to approximately 30% of the annual cost of retiree health benefits once full funding is achieved, and the eventual offsetting of the liabilities in the Town's financial statements. Cons include the need to devote 1 %, give or take a factor of two or so, of the overall revenues of the Town to building the trust fund. There is also the ethical question as to whether taxpayers should pay now for the services they are currently getting. There is currently $2.5 million in the Town's OPEB trust fund; the Town has been adding $500,000 annually. Options for increasing the $500,000 were discussed, including adding additional funds when available and adding an amount equal to the amount currently being allocated for pensions once pensions are fully funded. There were concerns about the uncertainty of the former. Regarding the latter, Rob Addelson noted that pensions may not be fully funded by 2020. John Bartenstein observed that there are logically three components to the OPEB liability: current expenses, i.e. the current year's liability based on past employee service; future liabilities for each year's service going forward ( "normal cost "); and future liabilities based on all the employee service in years prior to this year that were not pre- funded. He suggested that if the Town keeps up with the first two and stretches out the third, this might be an equitable basis for establishing how much to allocate annually to funding future liabilities. Alan Levine said that the first and last are essentially the same since current expenses cover liabilities for service in past years. M September 20, 2012 Glenn Parker has discussed the funding model with Dan Sherman that can be summarized as budgeting for pay -as- you -go plus the normal cost. Such a model eventually resolves the unfunded liability. Joe Pato and Mollie Garberg expressed a desire to see information fleshed out more with multiple scenarios. It was generally agreed that more analysis would be useful, although Alan Levine explained that no analysis will give in advance the numbers that are really needed, e.g., future rates of return on investments. Towns are currently using eight percent for the pension plans, but some believe the economy is in a new era, and this is too high. David Kanter of the Capital Expenditures Committee commented that if there ever are surplus funds, the CEC will have lots of uses for them. He suggested that until there is a mandate to fund the OPEB liability on the financial statements, Lexington should wait to do this and should not fund the liability ahead of other towns. Rob Addelson explained that towns are beginning to address this issue because it is getting a lot of attention from Moody's and GASB. He and Carl Valente are interested in having a plan for Lexington. ACTION ITEMS: Rob Addelson will reconvene the OPEB working group. The group will be asked to engage an actuary to help validate funding scenarios and to evaluate the sensitivity of the different approaches. The Committee will ask that this subject be included on the summit agenda. The meeting was adjourned at 9:10 p.m. Documents and other exhibits used at the meeting are listed below. Respectfully submitted, Sara Arnold Recording Secretary Approved. October 23, 2012 Exhibits 1. Meeting Agenda posted by Glenn Parker, Chair 2. Further Discussion of Policy Issues concerning the Funding of Future Liabilities for Health Insurance for Retired Employees (OPEB) of the Town of Lexington, prepared by Alan Levine