Decrease in pension costs helps keep budget in line

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OCEAN CITY — Pension costs are decreasing for the first time in over five years, and maybe more, according to the data presented during the Ocean City Council budget appropriations workshop Thursday, Feb. 16 in City Hall.

“Pension costs, it is unbelievable to see this as a negative,” Director of Finance Frank Donato said.

 

The pension costs are a combination of contributions to the Police and Firemen Retirement System, Public Employees Retirement System and the CPFRS, which is a consolidated pension fund for police and fire. The city’s pension costs have decreased $155,884 over 2011 after steadily increasing from $2.16 million in 2007 to $4.19 million in 2011.

“You can see the fluctuation throughout the years,” Donato said. “You look at 2008, three quarters of a million dollars was just the increase that year.”

Donato pointed out that pension costs are usually one of the top expenses that increases each year.

“Some legislation at the state level really helped that number,” he said.

New laws require larger contribution to PERS and PFRS by the employees, lowering the city’s contribution, which is determined by the state.

“It’s literally a bill that we get handed down from the state; there’s nothing we can do about it,” Donato said.

In addition to savings in the pensions line item, some other savings in expenditures for the 2012 budget are a decrease in deferred charges associated with the reassessment in 2007, salaries and wages, terminal leave payments and library appropriations.

Meanwhile, health insurance, another big budgetary expense, is on the rise again.

“You can see this is an appropriation that has also grown by a considerable amount of money,” Donato said. “This is one where we’re going to see continued help from the state.”

New state laws have also changed the employees’ contributions to health benefits, phasing in a much larger contribution over the next four years, and basing that contribution off the employee’s cost of coverage and salary level.

According to the data, in 2002, the city spent $3.9 million on health insurance, including dental and vision. In 2008, that cost increased to $6 million. In 2009, the city was able to save about $745,000 by switching to the State Health Benefits Plan.

“We made the decision in 2009 to go to state health benefits,” Donato said. “The next few years represented a substantial savings to the city by entering that program.”

He said the city will continue to monitor savings with the health benefits plan, but so far it has worked well. He estimated that if the city remained self insured, it could have expended $7.8 million on health insurance in 2012.

The health insurance costs for 2012 are estimated at $6.6 million. Donato said the SHBP increased the premium by 11 percent this year, but the city’s increase is only 8.1 percent.

“Because of the changes in the state, employees are contributing more,” he said. “And this is only year one of a four-year phase in.”

Other items that are increasing in the budget are operating expenses, such as legal expenses.

“That’s for a few different reasons; that’s for some lawsuit settlements that council knows about, some bills that were getting in now,” Donato said.

He said it also funds the work of the labor attorney and anticipates payments of other lawsuits.

The budget for the tax assessment office is increasing in anticipation of another compliance plan to revalue several thousand properties, he said.

“If were successful in pulling off the style and size of assessment plan that we want to do … we think it would cost us $150,000 to do so, so that’s a large part of the increase in the tax assessors budget,” Donato said. “Albeit, it won’t be the entire island like we’d like it to be.”

The city clerk budget is another one that’s going up, he said.

“As you all know we have an election year this year,” he said, which is the main reason for the increase.

All other departmental expenses are increasing a total of $6,359.

Debt service payment and capital expenses are increasing $303,996; worker’s compensation insurance is increasing $88,825; general liability insurance is increasing $70,287; utilities costs are increasing $67,600; trash and recycling costs are increasing $53,400; citywide expenses are increasing $31,000; and unemployment and FICA costs are increasing $27,000.

City business administrator Mike Dattilo said that 2012 is the last year of the city’s trash and recycling contract and it will go out to bid again at the end of the year. The total increase in expenditures in the 2012 budget is $241,473.

“At the same time, there has to be equal change on the revenue side of the budget,” Donato said, referring to his presentation the night before on the budget revenues.

Councilman Keith Hartzell said that if any changes to the budget were made, they would likely be made to the salaries and wages, since most other costs cannot be adjusted. He said the changes would likely come from actions such as layoffs. He wanted to get it “out there” so people understand the variable of the budget.

“If they want that, just tell me where they want to get the 40 or 50 people,” he said.

Donato agreed that the only place to get immediate action on the budget is salaries. Mayor Jay Gillian said laying off people is harder than people expect it to be thanks to Civil Service and union contracts.

“I just can’t go and say I’m laying off 20 people,” he said, explaining that a plan has to be put forth first.

Hartzell said he also wanted to cover furlough days. He said the city can’t furlough fire fighters and police officers.

“You only get half the workforce that can do that,” Hartzell said. “We literally have to close the city one day.”

“I want to get this stuff out now,” he said.

Dattilo said that layoffs are very highly regulated.

“It’s not an easy or uncomplicated process,” he said, adding that furloughs are a form of a layoff.

Donato said when municipalities do layoffs or furloughs, it’s usually to get under the cap, not to get to a zero increase.

“We’re so far under the cap that it’s not even worth talking about here in Ocean City,” Donato said. “We’re doing everything we can to reduce taxes and reduce the budget here.”

“We’ve got a tremendous budget and you guys ought to be applauded for bringing that in,” Councilman John Kemenosh said.

A question was raised on how the city would fund the legal costs associated with the ethics board appeal outstanding. The mayor said the workshop was the forum to pose the questions and that he would get back to council with answers.


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