It’s Not What It Seems
Recently the state Senate and House are renewing an expiring $1 million grant that paid salaries for ten Lawrence police officers, and added another $1 million to allow the city to hire even more.
Mayor Rivera is cautious on the hiring of new Police Officers with the $2 million dollars, and he should be. Two million dollars would be more of an expense on the city’s budget. Although many legislators see funding for additional public safety position as a benefit, it is only a benefit when a city or town can actually produce a budget from its tax base. Lawrence’s tax base is not big as it should be and it won’t see any significant increases due to the fact that there is no growth, no large vacant land for expansion of businesses and is currently under a sea of debt, specifically unfunded liabilities and loans. Simply put, the city’s unfunded liabilities are catastrophic for future taxpayers and economic growth.
In accepting a temporary grant or temporary state funding for any job position, the City of Lawrence would actually be spending much more money than the $2 million dollars. The actual $2 million dollars would probably be more like $25 million dollars of spending. Of course, we are not stating that the city would spend $25 million in one year to make the $2 million dollars a reality in public safety. However, what many politicians and leaders do not take into account is the amount of money that needs to be paid into the Lawrence retirement of every new hire; not only for one year but if the city agrees to continue funding the safety position they are looking for long term liability debts.
The unfunded liability for the City of Lawrence stands at over 1/3 of a billion dollars. According to Budget and Finance Director Mark Ianello before the City Council on June 3rd, over $300 million will be required, and this is just for active employees’ future liability. Another $300 for retirees is in order. These are just projected based on the lower end of the valuation. The more employees are hired (the higher the amount of people in the City’s workforce) will increase these unfunded liability numbers by millions. This year’s contribution totaled out to be over $28 million dollars (the OPEB Cost for FY2014).
I spoke to Mr. Ianello the next day to confirm my figures and he told me something different. He said that as of January 1, 2014, the liability has been reduced to $210,203,000, contrary to what he said the night before.
How did Lawrence get into this situation? Well, let’s start out by stating that in the past, the City of Lawrence hired awful Budget Directors and Comptrollers. Lawrence, as most cities in the United States, has made it a practice to pay as you go, and was not serious about paying more into the unfunded liability portion of its obligations.
The most undeniable factor is that many past mayors made agreements with its unions about including most benefits over the union members’ salary. Salary is what is utilized to calculated retirement and future unfunded liabilities, plus future health and dental expenses. At this moment some unions agreed with the City to include vehicle and gas allowance into their salary. Police and Fire union have agreed with the City to include their percentage based longevity payments into the salary as well. The calculation of salary is one part of what affects the OPEB contributions (Other Post Employment Benefits). The unions know it and take full advantage of it. Previous mayors have made deals with unions that the city cannot continue to sustain.
The more workers the City hires or if City leaders agree to include benefits of union agreements into bottom line salaries the more the unfunded liabilities grow and the possibility that will take the taxpayers pass the year 2040 to fund those liabilities. However, Mr. Ianello doesn’t think the new hires will affect negatively that amount because new employees will be paying higher withholding of 11% (9% = 2% over $30,000) which means that they will be contributing to their retirement the correct amount.
According to the City of Lawrence’s assumptions, these unfunded liabilities were on track to disappear by 2040 but it has been reduced to 2038. The reason for the change is that the City was paying retirement benefits for employees of the Water Department, Cemetery and Airport which are Enterprise Funds and should have been paying for that. When the City charged back those expenses, the liability was reduced to 2038.
According to a State Budget Crisis Task Force, “The ratio of active public employees to retirees has fallen drastically. Today it is 1.75 to 1; in 1950, it was 7 to 1. This means that a loss in pension investments has three times the impact on local budgets than 40 years ago.” Forty years ago, the City of Lawrence had more employees on its books than today. We will see even less employees in the future.
So when you ask yourself that you wish the City had more employees, just think of the future liability and all the money that could be used for other purposes such as new parks, streets, led lighting, senior and youth centers, better transportation systems, solar and Wi-Fi friendly city.
So $2 million to add more police officers will definitely be a larger expense on the back side of it all. Politicians don’t care of these unfunded liabilities. They just want to look good now and let someone else deal with the future issues when they get to that bridge.
