New PTC budget improved, but what about pensions?
I was pleasantly surprised in the most recent Peachtree City Council meeting. Staff had recommended increasing the millage rate and the PTC budget for Fiscal Year 2015. The actual action was a vote to keep the millage as is, and manage costs better.
This was, I believe, a dramatic improvement over the city staff proposal. Having sat through the entire meeting (yes, until 11:15 p.m.), I was also struck by the dramatic improvement in the PTC Council’s interaction.
Gone were the histrionic antics of past council meetings. Even as the meeting was (it seemed to me) contentious, Mayor Fleisch kept the decorum professional and constructive. In fact, all of the council members interacted respectfully and appropriately. Whatever ultimately happens with the budget, at least we know that this PTC Council is revived in professionalism and up to any future challenges.
As to the staff’s request for a millage increase and increased spending, I had a few concerns (which I was given time to express).
The problem of landscaping maintenance was to have been addressed by a large increase in full-time staff. In fact, of the 7.5 percent increase in full-time staff in the city proposal, most were related to landscaping and maintenance.
This is counter to what almost all other governments (state and local) are doing. Most governments are recognizing the exploding cost of healthcare, and avoiding new, unnecessary hiring.
It was pointed out that a more prudent way to improve landscaping services would be to improve the contracting process. Namely, contracts should be written with clear performance objectives, and payment should be tied to, and dependent upon, acceptable service. If needed, there are many contract templates, utilized effectively by many governments, that could serve as models for PTC contracts. (And the good news is that they are available for free.)
Another problem with the staff budget proposal was the defined benefit pension plan. It would absorb (according to the budget proposal submitted by staff) 4.5 percent of all General Fund expense. But adding more full-time staff, under PTC’s defined benefit pension structure would also add great long-term cost to future PTC budgets.
Again, PTC staff proposed to buck the trend of many other governments, which have modified defined benefit plans to manage long-term liabilities (many governments now offer a mix of defined contribution and defined benefit plans, which limit future costs).
The Government Accounting Standards Board (GASB) recently promulgated new accounting rules that are intended to show citizens the true nature of the long-term liability costs of defined contribution pensions. (These new rules were being proposed even before Detroit went bankrupt due to its defined benefit pension obligations.)
Starting next year, under GASB 68, PTC and all other state and local governments will be required to include the long-term liability in their financial statements. This new requirement will put many governments into deficit (“Net Asset Deficit,” to be more precise).
It seems to me that the long-term defined benefit costs should have been part of the city staff’s analysis. Do we know the long-term costs; and should we consider restructuring the plan for new employees?
The city staff also proposed to increase taxes now, in order to fund 3 percent across the board pay raises for all staff. Interestingly, the tax increase was being proposed BEFORE the city’s $40,000 pay study had been completed.
Does it not seem rather obvious that we should wait for the pay review to be conducted before we raise taxes? Also, pay assumptions are a major component of the 30-year defined benefit pension plan long-term obligation. Has anyone considered the cost of the pay increase on this obligation?
The alternative budget proposed by Councilman Eric Imker avoided the need for a millage rate increase, and thoughtfully managed much of the cost increases down. It is available on the PTC Website, so I will not to go into much detail here.
I will note that Mr. Imker’s proposal was able to reduce new staff, to increase pay for lower paid staff and to show that there will be dramatic improvement in cart path upkeep.
Additionally, PTC will be borrowing another $3 million dollars for improvement projects. In addition to the new borrowing, city tax revenue will grow, despite not increasing the millage rate.
The PTC 5-year projections show the city’s tax digest will be growing by 1.45 to 2.5 percent in each of the next several years (partly offset by uncertain lower car and inventory taxes). This will mean more revenue to the city, unless the millage rate is “rolled back”.
The PTC staff is currently working on a new budget proposal commensurate with the officially adopted millage rate (no increase). This should not be a difficult task, since the budget increases originally proposed by the staff were mostly driven by new staff and broad raises.
Keeping the budget similar to the prior year should be a simple task. And if more time is needed, state law allows for a continuing resolution to be adopted by the council, which allows the city to spend the same amount as in the previous year – until the final budget can be adopted.
In closing, I thought the revised proposal (agreed to by the PTC Council) was much more reasonable, and appropriate. I doubt that the previous council would have been able to work though such improvements, especially coming as late as they did.
At least we know that we have the right mayor, and the right council for the job ahead. Getting the revised budget will be the easy part. Getting improved services through better contract management, spending cart path monies on the cart paths and spending the new borrowing of $3 million on appropriate projects will be the hard part. I believe we have the right leadership to accomplish it.
Peachtree City, Ga.