Budget Could Take Backseat to Funding Gap When Town Meeting Resumes

Photo: Jim Williams.

The fiscal 2016 budget was suppose to be in the spotlight at the Belmont League of Women Voters’ Warrant Briefing at the Beech Street Center on Monday, May 18.

While the night’s agenda was an opportunity to ask questions aout financial and budget articles facing Town Meeting members when the annual Town Meeting reconvenes on June 1, the most interest and talk Monday revolved around four citizen petitions submitted when the majority of this winter’s record snowfall was being shoveled from driveways and sidewalks. 

With each petition related to the unfunded pension and retiree benefits on the town’s ledger was submitted by then Town Meeting member Jim Williams, it appears the now-Selectman is ready to push what he believes is an unsustainable financial future for the town’s taxpayers to the forefront of Town Meeting debate which will occur in less than a fortnight.

“We would be nuts not to start discussing this … when the budget is being discussed,” said Williams after the meeting.

It was Williams’ laser-like focus on more than 70 years of the town’s failure to fund its petitions and the effect it will have on town finances (in addition to groups as diverse as solar power supporters and liberal-leaning individuals) which propelled him onto the Board of Selectmen with a surprising 500-vote victory over incumbent Andy Rojas in April’s Town Meeting. 

The four petitions – read them here – is an attempt, Williams told the Belmontonian, “to increase transparency for Town Meeting [members]” as he and his supporters ramp up their effort to discuss the “growing” impact of unfunded pension obligations – including Other Postemployment Benefits (or OPEB) liabilities. 

The most significant of the petitions, if successfully adopted by Town Meeting, would require the town to produce a 20-year budget projection model with specific line items that would show the funding gap when calculating the standard difference of revenue and expenses.

But the petition would go further, identifying the gap between the revenue/expenses and the amortized unfunded petition and also the gap if the petition was kept at a fixed rate. And that’s just half of the calculations and analysis the petition calls for. 

In addition to the projection model, a second petition would require the town to establish a risk management function, which the town would evaluate “risk” it faces including “financial, operational, reporting, compliance, governance, strategic, reputational, etc.” 

The other two – a quarterly report on the town’s free cash account and requiring the Board of Selectmen, the Capital Budget and Warrant committees to provide Town Meeting 48-hour notice to explain why it takes a certain position on articles – rounds out Williams’ quest for clarity to the Town Meeting process. 

(The first petition article, on giving 48-hour notice, came under criticism by the Warrant Committee’s Bob McLaughlin, who said he would wait for Wednesday’s Warrant Committee meeting to battle Williams on what McLaughlin calls “busy work.”)

While Williams has supporters for his effort, he will in all likelihood be facing a formidable opposing viewpoint in the form of “Your Town Treasurer,” Floyd Carman. 

While the few times Williams and Carman – both men come into the debate after working decades in corporate finance – exchanged views Monday were always cordial (it appeared neither wished to show their hands to the other pre-Town Meeting), there was ample evidence how both will defend their positions.

When Williams noted that as of June 30, the town will owe $100 million to the OPEB account, he asked why the town was setting aside “arguably a token” amount of $366,000 into the account.

“Why not put $5 million” against the liability? queried Williams.

Carman responded that “our approach” has been to follow the Governmental Accounting Standards Board’s method of paying pension in a “pay as you go” basis which the bond-rating agencies, such as Moody’s, has enthusiastically backed.

“And it’s why we have kept our Triple A rating,” said Carman.

Carman noted that 351 other towns in Massachusetts are using the same modus operandi of paying down the remaining town pensions in 2028 before funding the OPEB debt. 

Yet by 2028, the town’s unfunded liability will reach $300 million, said Williams. “I consider this the major risk we face in the future.” 

Carman responded that the town can only move forward on tackling the unfunded pensions and post employment benefits by consulting the town’s 8,253 taxpayers, “our customers.” 

Carman has said in the past that paying off the OPEB debt early via a large debt exclusion would make it impossible for Belmont to finance the big-ticket items before the town – a new High School, a Police station, a Department of Public Works building – as the new debt would take the town’s bonding capacity to near zero for more than a decade. 

And it’s uncertain exactly what the OPEB amount will be by mid-2020. Michael Libenson, chair of the Warrant Committee (which co-hosted the night’s event) said just days ago, the actuary estimate of the town’s OPEB liability for this year fell from $195 million to $171 million, a $24 million reduction due to no growth in health care costs this past year.

Libenson said OPEB costs have been pegged by actuaries with health care costs increasing at 8 percent annually. While no one is predicting zero percent growth over the next few years, if expenses are cut by 3 percent over the next five years, the liability will be reduced from $195 million to $90 million. 

“That’s the trick, what is the growth of health care,” he said.

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