Thursday, January 22, 2009

Now What Do We Do?

Signs of a serious situation abound. Commercial banks, investment banks, mortgage companies, and all three US auto manufacturers have collapsed or seek government help to avoid doing so. Government revenues have begun to plunge and the jobless rate is rapidly increasing. At least 43 states are already running deficits, including Massachusetts.

The economic crisis that erupted during the Presidential campaign in September dwarfs concerns that last spring partly motivated a decision not to seek an override in Milton. We are now faced with an even larger need for new revenues to avoid even more serious cutbacks in town services. And we do so in an economic environment far worse than last year.

How we handle this coming year’s budget will play out over the next two to three months. It will involve drastic cuts in services, an override, or a combination of the two. More important in some ways are possible measures we can take as a town to safeguard our fiscal health in the next few years.

So what things ought we be considering to protect our financial health, cut our costs, and maximize our revenues?

Join the GIC

As of November two rounds of negotiation between the town and union representatives have failed to produce agreement to join the state insurance system. The sticking point is the unions’ insistence on a 5 percentage point increase in the town’s share of premium payments. Milton’s experience on this issue is mirrored statewide. Only 27 of 480 entities (communities, charter schools, regional schools, planning councils) have voted to join the same insurance system that state employees participate in.

Virtually all of the towns who have joined have agreed to an increase in the town’s share of premium payments as a cost of reaching terms with their unions. Here is a sampling of readily available information.

Community-----------------------------------------Increase in Share of Premium

Quincy-----------------------------------------------------85%-90% + $300/employee/year





Randolph--------------------------------------------HMO 72.5%-85%
------------------------------------------------------PPO 50%-85% over 4 years



At some point, it could be argued, the town should capitulate on the issue in order to enjoy significant, though reduced, savings. But the recent crisis offers another opportunity. Speaker of the Massachusetts House Sal DiMasi has indicated his intention to introduce legislation removing union veto power over a decision by local communities. Our town leadership and citizens should lobby our elected representatives, and our Governor, to support this idea.

Current projections show a savings of $1 million on health insurance costs for the town in year 1(assuming no new additional members), as well as the freeing up of another $1 million currently held in the self-insurance trust we maintain as part of our self-insurance program. These are sizeable sums of money. The increased town share of premiums proposed by the unions (from 85% -90%) would eat up close to $500,000 of that savings. Statewide, savings for local communities could be as much as $750 million.

Outside of local government, employees have for some time been experiencing increased co-pays, increased deductibles, increased share of premiums, and increased premium costs –all at the same time. No one can blame organized labor for wanting to avoid this reality. How many of us would not choose to avoid it if we had the right to vote at our places of work? But the times dictate the need to act. We will lose too many of our services and the unions too many of their fellow employees if we don’t. The paralysis of no options must end.

Increase the Stabilization Fund

The Stabilization or “Rainy Day” Fund is money put aside by communities to use in the event of emergencies. For background see:

We currently have about $1.3 million in our fund. Use of the money requires a 2/3 vote of town meeting.

Our balance constitutes about 1.5% of our annual budget. The state recommends a 5% balance. The uncertain severity and length of the current crisis puts into stark relief the importance of an adequately funded account to help mitigate loss of services during downturns in the economy.

Our fund was established in 1996 at the urging of then Warrant Committee chair Mary Fitzgerald. Since that time there has been no regular contribution to augment the initial $500,000. Only a couple of windfalls of one time money have been added.

Experience has shown that to be effective a Stabilization Fund must satisfy two criteria. It must be large enough to provide a significant infusion of money during hard times without being completely depleted. And it must have a funding mechanism that provides for both consistent and meaningful contributions to quickly return the fund to appropriate levels after it has been tapped. Without these features Town Meeting is unlikely to use the fund.

Today neither of these needs are being met. At $1.3 million the fund is not large enough. Nor is there a regular flow of money to replenish it. A 5% balance (about $4.5 million) that received regular contributions would be a different matter.

There is no more important time than now to address this issue. Since 2003 Massachusetts law has permitted a Stabilization Proposition 2 ½ override. Unlike normal operating overrides, contributions to a Stablization override can only go to the fund, even beyond the initial year of the funding.

An override of $250,000 would cost the owner of an average priced home in Milton about $30 per year. It would have the following positive benefits.

-- triple the size of the fund in 10 years

-- ensure regular, sizable additions outside the annual scramble for money

--make it more realistic to judiciously tap our current balance in what is shaping up to be the worst financial times in decades

--strengthen our financial house in the eyes of bond rating agencies at a time when many communities may face downgrades, and when Milton will be selling bonds for the new library

--provide a much needed sign of proactive foresight to a citizenry that craves solutions, security, decisiveness, and some kind of good news

That’s a pretty good return on $30 per year.

Revise the Master Plan

Two current members of the Board of Selectman included this in their election platforms. It’s past time to get started. The current chair of the Planning Board, Emily Innes, has begun the process with a planned town-wide survey of issues. A Master Plan means different things to different people. Development, housing, open spaces –all of these have their constituencies.

Given present circumstances, as well as systemic issues of taxation, development must be an important part of any plan. Whenever talk of a Master Plan is heard, one quickly hears that Milton is a built out community and the prospect of increasing our commercial revenues slight. While that may be true, I’d rather have that be the conclusion of the planning process, not a going in assumption that dictates the direction of the undertaking. In addition to new development we should take a look at redevelopment, which itself can add to commercial revenues. We need to be completely open about what we can do before we proceed to what we ought to do.

Support Passage of the Municipal Partnership Act

In his recent state of the state address Governor Patrick signaled his intention to resubmit those elements of the Municipal Partnership Act the legislature failed to act on last year. These include a local option for a 1 or 2 percent restaurant tax. Two years ago estimates indicated this could provide Milton with $150,000 in added revenue should we adopt the measure. With two new planned restaurants (they are coming aren’t they?), both more upscale in price, this amount might be higher. But first the legislature must pass the law. We need to support this and other initiatives for local control. Today, the hands of local officials are often tied by state laws. If we’re going to manage in hard times, we need the authority to do so.

The national crisis in our economy is of unknown depth and duration. But a crisis it is. As President Obama noted in his inaugural speech on Tuesday, the time for “putting off unpleasant decisions…has surely passed.” We should heed these words here in Milton and in the Massachusetts legislature. It will determine to a great extent how well we weather the storm.