MMA Policy Committee on Personnel and Labor Relations Best Practice Recommendation: Managing Other Post-Employment Benefit (OPEB) Liabilities BEST PRACTICE:

 Take necessary steps to modernize benefit structures and implement pre-funding options to effectively mitigate and manage Other Post-Employment Benefit (OPEB) liabilities. This includes using the authority that localities have under state law to change retiree health plan contribution ratios and plan design elements, and investing funds in a reserve account to pre-fund the OPEB liability for current and future retirees. Cities and towns face a $30 billion liability for their Other Post-Employment Benefits. Under current law, eligibility for benefits is quite generous. In most cases, employees qualify for health insurance for themselves and their dependents for life if they work as few as 20 hours per week for 10 years and are 55 years of age.
Access to this level of retiree health benefit has left cities and towns with a liability far larger than their pension liability, with bond rating agencies and the federal government taking notice. In the absence of statewide legislation, there are several actions that cities and towns can take to manage their OPEB liability. It is important to regularly review and consider a wide range of options to make changes to health insurance as an opportunity to manage OPEB costs. Cities and towns should be creative, and consider measures such as increasing new hire contribution rates, making meaningful plan design changes, and engaging in conversations with active employees about setting money aside to fund their future benefits. Similarly, under state law (recently affirmed by a Supreme Judicial Court decision), cities and towns may change the contribution rate for retired employees without engaging in collective bargaining. If municipal retirees are paying less than 50 percent of the premium, or have the same or lower contribution rates as active employees, it may be worth considering a change. On the funding side, there are a handful of steps municipalities can take to begin funding their liability. In order to have all of the information and have all parties be on the same page, it is first important to conduct the required actuarial analysis every two years, as well as to have an agreed-upon reserve or financial policy. Once the size of the liability is agreed upon, municipalities should consider funding their normal costs each year. Cities and towns are encouraged to use savings from changes in health insurance, such as using Municipal Health Insurance Reform, to fund their Annual Retired Contribution (ARC). This would at least fund OPEB obligations from this point Managing Other Post-Employment Benefit (OPEB) Liabilities – continued forward at their annual cost. Additionally, cities and towns are encouraged to begin to pay the normal cost for new employees immediately from the date they are hired. If financially feasible, this could eventually be expanded to existing employees. Finally, it is a best practice recommendation that communities establish an irrevocable trust through Chapter 32B, Section 20 of the Massachusetts General Laws, and use a meaningful and recurring revenue stream to fund the trust (such as a portion of the local-option meals tax, local-option lodging tax, or other local revenue source). Communities are encouraged to use an irrevocable trust rather than a stabilization fund. This ensures the money is earmarked for OPEB and is segregated from other municipal responsibilities. Similarly, it is worth weighing the pros and cons of managing the funds locally or investing through the State Retiree Benefits Trust Fund (SRBTF), an option now available to municipalities. These best practices will allow cities and towns to manage the costs of retiree benefits and begin to pre-fund their OPEB liabilities.

Not popular with some folks, especially town employees, but if you wish to keep the ship afloat, something has to change. Especially with a 50 million dollar debt soon to be on the books. Remember this when you see, read about or hear anything about new job descriptions and or job title changes, because that usually equals an increase in pay and other things. If you want this, fine, but if you do not or you do not feel you can afford it, you need to show up, you need to vote accordingly and to do that, you have to take the time, you have to make the time to vote.

Jeff Bennett

MMA Policy Committee on Municipal and Regional Administration Best Practice Recommendation: Sharing Municipal Services BEST PRACTICE: Evaluate opportunities to save money and improve local government services by sharing municipal service delivery with other cities, towns and governmental entities. This could include equipment-sharing arrangements, contracts for sharing municipal and school services, and group purchasing. Collaboration could take the form of intermunicipal agreements (IMAs), contracts, special acts, or the formation of districts or regions. Cities and towns across the Commonwealth routinely look for opportunities to lower costs and improve local services by sharing services or equipment with other municipalities, regional organizations, or state government. These agreements offer substantial savings and efficiencies, yet should be framed so that all participating communities have common understandings, goals and commitments. Examples include: • Adopting a shared services model for underutilized capital equipment via an inter-municipal agreement, such as having one community purchase a sewer flusher truck and renting it to surrounding communities to significantly offset the purchase cost. • Sharing a Veterans’ Services Officer among municipalities, with rotating office hours at community or senior centers. • Forming a Regional Housing Services Office to monitor affordable housing compliance and other housing opportunities more broadly than in a single community. The Government Finance Officers Association (GFOA) suggests that inter-municipal agreements should include provisions that establish the legal basis of the agreement, specific provisions for service delivery levels and performance measurement, a structure for governance, finance and dispute resolution, and a time period.

Look at how much was spent by Templeton taxpayers on dispatch last year and then check on how much, if any, that will go up in the next budget.

Jeff Bennett

By Jonathan Phelps
Daily News Staff

HOPKINTON – It’s a rare move: A town or city voting to reduce the amount of money that can be raised by property taxes, according to state data.

This is known as an underride of Proposition 2-1/2, which permanently reduces a community’s tax levy limit. Many cities and towns pitch overrides, which raise the tax threshold for operating and capital expenses.

Hopkinton could be the next to join 13 towns – of the 351 communities in the state – to pass an underride since 1988, according to the state Division of Local Services.

Selectmen voted 4-1 last week to bring a $1.25 million underride before voters at the annual town election on May 19. It will require a majority vote to pass.

However, property owners should not expect to see lower tax bills if the underride passes. Those bills might not rise as much if the underride vote is successful. 

The maximum amount of taxes Hopkinton is allowed to raise under Proposition 2 1/2 – the levy limit – is about $55.6 million for next fiscal year. The town is using only $53.9 million of that amount, meaning the town has an excess levy amount of $1.7 million.

The board has proposed to draw the underride from that excess levy amount, not the town’s operating budget.

Proposition 2 1/2 was enacted in 1980. The town's most recent override was in 2006 for $1.9 million, according to the data.

The largest underride amount in the state was in Plymouth in 1995 for $2 million, and the smallest amount of $10,833 in Gill in 2004.

The most recent underride vote was in West Newbury in 2012 reducing real estate and personal property taxes by $180,000. The town also approved another underride for $170,000 in 2011, according to the data.

Williamsburg has also passed two underrides, the first in 1997 ($51,580) and again in 2001 ($35,407).

Other towns that have adoped underrides: Ayer, Dennis, Groveland, Holland, Lancaster, Orleans, Sandwich, Shelbourne and Upton.

Hopkinton’s proposed $1.25 million amount would be the second highest if approved by voters next month, according to the data. The next highest was just over $1 million in Lancaster in 2003.

Hopkinton Selectman Chairman John Mosher voted against the $1.25 million figure, but supports the concept. He recommended an underride of $800,000.

"Over the past four years, we’ve taken a methodical approach to ensure responsible long-term planning while making sure immediate needs are met," he said. "I would have liked to see an $800,000 underride because it reduced our excess levy capacity in half and then spend the next year looking at a policy regarding our excess levy capacity."

The Appropriation Committee recommended the underride be between $800,000 to $1 million, said Mike Manning, chairman of Appropriation Committee. There were concerns about the possible need for an override in fiscal 2016 if the amount were too high, he said.

"We weighed the different options," he said. "It is what we were comfortable with. It gave us a cushion."Manning cautioned that the underride does not mean there will be lower taxes for homeowners, but rather reduces the amount in which taxes can be raised in the future.

Details on the underride will be presented at Town Meeting as a non-binding measure.

Selectman Brian Herr said the $1.25 million figure is a significant reduction of the excess levy, but gives the town some flexibility.

"From my seat on the board we didn’t save the money to spend it at a future date," he said. "We saved the money to keep it in the pockets of the taxpayers."

He said he believes the Appropriation Committee is being conservative based on assumptions of budget projections.

Jonathan Phelps can be reached at 508-626-4338 or jphelps@wickedlocal.com. Follow him on Twitter @JPhelps_MW.

posted for informational purposes only

Jeff Bennett

Division of Local Services

Municipal Databank/Local Aid Section

Underrides

Proposition 2½ allows a community to reduce its levy limit by passing an underride.  When an underride is passed, the levy limit for the year is calculated by subtracting the amount of the underride.  The underride results in a permanent decrease in the levy limit of a community because it reduces the base upon which levy limits are calculated for future years.

A majority vote of a community's selectmen, or town or city council (with the mayor's approval if required by law) allows an underride question to be placed on the ballot.  An underride question may also be placed on the ballot by the residents using a local initiative procedure, if one is provided by law.  Underride questions must state a dollar amount and requires a majority vote by the electorate.

For more information on levy limits, override, underride, capital and debt exclusions.  Please view the links under key terms.

Massachusetts Department of Revenue Jeff Bennett