Sunday, April 19, 2015

At finance workshop, LM board clashes over deferred compensation

One of the 14 options discussed for the use of Lower Merion's unanticipated $6.9 million led to a debate over deferred compensation.

At finance workshop, LM board clashes over deferred compensation

The final of two Lower Merion finance workshop meetings to address the township’s nearly $7 million business tax revenued ended last night, Wednesday, Feb. 22, but not before the board clashed over one of the discussed options – post-employment benefits and deferred compensation for township employees.

Township CFO Dean Dortone presented the option, which was also discussed at the first meeting, stating the township currently funds retirees on a “pay-as-you-go-basis, similar to other governmental and private sector entities.”

“Healthcare benefits, life insurance benefits, that’s it,” he added during the presentation.

Dortone said the township implemented Governmental Accounting Standards Board (GASB) 45, “Accounting and Reporting for ‘OPEB’,” during the 2008 fiscal year.

Dortone added GASB 45 requires financial recording and note disclosure of costs and liabilities relating to OPEB other than pension benefits.

According to recent findings presented at the meeting, Dortone reported that the township had not advance funded its OPEB. As of Dec. 31, 2011, the township’s net accrued liability is $7 million, and a projected total unfunded actuarial accrued liability of $31.2 million.

Township Manager Doug Cleland explained the healthcare benefits were in the area of core health and prescriptions.

“Those are available depending upon the particular employee group for the employee and spouse retirement up to age 65,” Cleland said. “They don’t carry benefits beyond that…we’ve just not created any in the sense, prefunding in this obligation.”

Cleland added that there were employees in the future who could retire under the age of 65 and receive some health care benefits until they actually reach that age. The township manager said the issue is related mostly to future expense that could be incurred if people retire in such a fashion.

Commissioner Lewis Gould asked if the township would pay on an annual basis when retirees get the OPEB benefits.

Dortone reminded the commissioners the benefits were pay-as-you-go and also responded that the township pays in premiums on a monthly basis and that there are cut-offs to the amount of benefits depending on the worker group.

Gould then asked if there were any other retiree benefits, such as deferred compensation. Cleland said deferred compensation is set aside.

“That’s the employees’ funds provided, and when they choose to receive the funding is up to them upon their termination,” Cleland said. “It’s money that’s already in the account.”

Gould asked when it was put into the account, to which Cleland responded that it’s done on an ongoing basis. Cleland said every time a payroll runs, a portion of it is put into an account for the deferred compensation.

Gould said he heard about deferred compensation for management employees prior to the meeting for the first time in his 16 years on the board.

“I find it an absolutely personal betrayal and can’t begin to come to grips with it,” Gould said.

The Ward 11 commissioner continued that deferred compensation was “the most shocking thing,” he’s ever learned during his time on the board, especially, he said, since the board had never been told about it.

Gould said he was especially shocked that the public, whom he said pays for it, had not been told about it.

Commissioner Jenny Brown agreed with Gould. Brown said she discovered the township spends “in excess of $300,000 every year for a deferred compensation contribution by the township for approximately 40 employees.”

Brown added this was in addition to longevity, raises and base salary.

“I share a deep, deep concern that this was not something pointed out to the commissioners, especially when we had these suggestions as to whether or not management employees should have 2-4 percent raises,” Brown added. “Nobody ever mentioned they were in addition getting a 7 percent pay into deferred compensation.”

“I intend to investigate this to understand what’s coming out of the township taxpayers’ pockets that we seem not to understand unless we ask the right questions,” Brown added.

Cleland expressed surprise that the two commissioners were unaware of this benefit.

“It’s been part of the township for 38 years, no change,” Cleland said.

Commissioners Brian McGuire and Daniel Bernheim both said they knew about it. Bernheim even said info pertaining to deferred compensation was mentioned in memos he received in November.

Toward the end of the finance workshop portion of the evening, Brown said she went over to ask Bernheim to the see memo he referenced earlier, and she said neither of the memos were given to her, Commissioner Phil Rosenzweig or Gould.

Despite the fervor around that option, 13 others were discussed at the workshop.

Dortone and township staff divided the now 39 options for the unanticipated funds into categories.

The 14 discussed at that evening's meeting were placed in Category 1 because they required further explanation and more information. The remaining options were placed in Category 2 because no additional information was requested prior to the time of the final workshop.

At the meeting, Dortone said the decision for placing options in either category was based on township and residential feedback.

The remaining 13 Category 1 options discussed at the meeting are as follows:

No Township Real Estate Tax (RET) Increase for 2013: The 2013 General Fund Forecast, updated in Oct. 2011, projected a $2.3 million deficit. Dortone said an approximate 8 percent RET millage rate increase, or equivalent budget balancing measures, would be necessary to generate a more than $2.3 million of net new RET revenue in 2013. The option would project a $3.4 million of fund balance for other purposes and a $2.3 million drawdown of the general fund balance in 2013.

Conclude 2013 with a general fund undesignated fund balance at 18 percent: The 2013 General Fund Balance forecast projects a $57.5 million of general fund expenditures. Without an RET millage rate increase for 2013 and the projected $2.3 million drawdown on general fund balance, the general fund balance decreases to $13.8 million or 24 percent of the 2013 projected general fund expenditures, $3.4 million higher than the maximum 18 percent goal level for the balance.

Defease a portion of the township’s outstanding general obligation bonds, or cash fund some existing/future capital projects: The third and forth options were presented together because they address the issue of bonds and funding of capital projects. Whether defeasing, or paying down a portion of the debt, or cash funding future or existing projects, the township financial advisor analyzed three different scenarios, taking into consideration a potential refinancing opportunity and new money needs for 2013 and after.

The following scenario was deemed the best that provides the greatest opportunity for future debt service cost avoidance: $14 million refunding in 2012 and new money with cash funding the capital improvement plan (CIP) in 2013 provides the greatest opportunity for future debt service cost avoidance.
Dortone reports that the scenario commits equity to the bond issuance with the longest life and highest borrowing costs, accomplishes the goal of smoothing the township’s overall debt and allows for refinancing eligible existing debt with refunding bonds at overall lower interest rates.

Install new sidewalks at various locations: the township could consider adding capital funding and reinstituting the sidewalk replacement program, with initial annual funding estimated around $100,000.

Fund more traffic improvements: CIP includes a total of $500,000, or $100,000 annually, of spending for a township-wide traffic network evaluation.

Create a revolving loan project for economic development, historic preservation, façade improvements and so on: The township typically funds these areas through county, state and federal grant programs when available, but this option proposes the establishment of a one-time funding source to create a township loan program, self liquidating for further loans as loans get repaid. According to Dortone’s presentation, there is currently no township grant program for example, for historic residential properties.

Create and fund a Length of Service Awards Program (LOSAP) for volunteer fire fighters: This is a long-term program aimed at retaining, recruiting and rewarding emergency volunteers.

Modify the Township storm water management policy to include study and/or funding of private property issues: The township’s 2007 storm water management study identified 135 projects, categorized in priority order 1 through 4. All priority 1 and 2 projects were completed at a cost of $5 million through capital project funds, while many other priority 3 and 4 projects were taken care of with routine maintenance by the Public Works departmental operating budget.  
The CIP for 2012-2017 includes a total of $3 million of proposed sepnding for public improvements to the Township’s storm water system. The township has not funded comprehensive studies or implementation for improvements of private properties along open water courses.

Township’s Historical Street Sign Names: This option considers increased funding for maintenance of existing signage as a result of the mandate by the Federal Highway Administration (FHWA) that requires all regulatory and direction signage meet standards regarding reflectivity, color and letter size when replaced.

Realignment of non-contractual base wages: Dortone said in recent years, employee base wage rate increases have been provided at various levels to the township’s employees and work groups. Approximate base wage variances, comparing with actual base wage rate increase for the non-uniform workers and police management with a four-year period are as follows: $100,000 in 2009, $200,000 in 2010, $300,000 in 2011 and $200,000 in 2012.

Paperless Board of Commissioners agendas and information: Dortone explained that township staff are evaluating tablet technology like the iPad and Droids for commissioners’ offsite use and use during meetings. A one-timer purchase of equipment and minimal ongoing maintenance expense could cost as much as $20,000 with recurring annual maintenance and licensing $5,000.

Online payments by citizens for township fees: After evaluating online payments for Parking Services for traffic tickets and parking permits, Dortone said staff determined it is necessary to upgrade Township software systems and purchases at a price of $30,000. An additional $3,000 is needed for recurring annual license and maintenance.

The next step in the process is for the township manager to make recommendations in March, which the chair and vice chair of the finance committee review and bring to the board.

Click here to see the slideshow presentation on the proposed options for the $6.9 million.

About this blog
Josh Fernandez is a 2011 graduate of Temple University where he studied journalism and gender studies. He was a writer and editor for The Temple News, and has interned at Philadelphia City Paper and the Philadelphia Daily News. Josh lived in Aston, Pa. in Delaware County before moving to University City in Philadelphia.

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