by William Dowd
12/7/2013

Note: The author is a member of the Holliston Finance Committee. The opinions expressed in this column are his alone and should not in any way be attributed to the Finance Committee. 

It’s that time again. Only a few weeks after wrapping up the FY14 budget, the Town begins the process of shaping the FY15 budget and financial plan. Between a.) the lack of resident attendance at FinCom meetings, b.) the fact that it has finally sunk into my head that I am prohibited by state law from communicating my opinions to my fellow Committee members by email between our meetings and c.) our meeting agendas are busy, and I can’t expect the Committee to stay late into the evening listening to me. So I’ve decided to come back to HollistonReporter.com in an attempt to increase the awareness of what’s going on, and share my opinions on how to deal with the many issues we’re facing. 

One of the most important tasks for the FinCom is to provide guidance to all departments on building their FY15 budgets. It’s called setting the budget “guideline”. Typically it informs department heads of the “allowable”, or “permissible” or “recommended” increase in budgets for the next fiscal year. But as is usually the case, before it can be determined how much more can be spent on departmental operations, several important costs have to be taken into account. 

For example, before any budget increase guidance can be derived, the FY15 budget plan extracts over $400,000 for known increases associated with employee pensions and insurance – mostly health insurance. So before we even start looking at department service levels or needs, $400,000 of about $1,000,000 to work with is off the table. And by the way, that “$1,000,000 to work with” assumes a 2.5% increase in the property tax levy before a single budget is reviewed. 

On Tuesday December 10, the FinCom will be having a discussion about Pensions. For Holliston, pension costs – which were $1,681,829 in FY14 are estimated to increase 8% in FY15, which is 5 – 8 times the rate of inflation. Not only that, but even with an ever increasing assessment from the Middlesex County Retirement Plan, Holliston is still less than 50% funded on its pensions. And we can’t forget that the pension costs for Holliston’s teachers which are about $5.5 MILLION annually, are currently paid by the State of Massachusetts into another pension plan that is less than 50% funded. 

On Tuesday, I am hopeful that we can get a better understanding of how, after 30 years of funding pensions in a 30 year funding plan we can still be less than 50% funded. What will the impact of recent “pension reform” be on our future assessments? How long is it going to take to get caught up with this obligation? As we set out on a 26 -30 year funding plan for our retiree health insurance liabilities (OPEB), how can we avoid finding ourselves similarly situated on those benefits 30 years from now? 

On pensions, the question is not primarily about whether the public employee pensions are fair and reasonable. The questions are a.) how to pay for the benefits already earned, b.)how did we end up so far off target 30 years later, and c.) what is it going to take to finally put this behind us? 

More than two entire K-12 generations of public school students in Holliston – many not even born yet - will be educated in a system that will compete for scarce resources with tens of millions in unfunded employee benefits brought on by a historical mistake called “kicking the can down the road”. 

There’s been a lot in the news about the oppressive public employee pension liabilities in Detroit, Illinois, many cities in California and even little Central Falls, RI, nearby. In all those cases, public officials spent many years failing to properly account for and pay for the pensions that were agreed to with public employees. The only difference between them and us is that we are strong enough financially in other ways to not be facing bankruptcy. 

And as many will rush to point out, public pensions in Massachusetts are set by state law. Holliston can’t fix this problem on its own. But the same is true across the country. I believe that getting this problem solved will not happen as long as local governments accept without challenge 8% annual increases in pension expense that take money off the table for local services before the budget review process even begins. 

Holliston’s current approach is to extract the dollars necessary to pay off these huge past service liabilities for pensions and retiree health insurance from regular annual property tax increases and other revenue sources. At least one town resolved some of these liabilities with a long-term debt override. Then again, many towns aren’t doing anything about retiree health insurance (OPEB), so Holliston deserves credit for at least starting the painful 26 – 30 year process of getting this obligation paid off. 

These are the kinds of thorny challenges we face. The Finance Committee can certainly do its job without ever hearing from residents. But it’s also possible that a better outcome can be had with more residents aware of what we’re doing and giving us their opinions. Please free to attend any of our meetings which are posted on the calendar on the Town’s website, or provide your thoughts at any time to any member of the Finance Committee. 

I’ll continue to write about the other issues and challenges in the coming weeks.