Westport election '11: Board of Finance candidates
The pivotal issue of the 2011 campaign for the Board of Finance came to light June 8. That day, finance board members learned that a 2008 actuarial report had miscalculated the town's liability for retired municipal employee health-care costs by omitting more than 400 town employees from its calculations.
Since then, the Board of Finance has focused intensely on formulating a strategy to fund those health-care benefits, which are known as Other Post-Employment Benefits. The town's unfunded OPEB liability could total as much as $120 million, according to a report released last month by the town's current actuarial firm, Pentegra Retirement Services.
As a short-term measure, the board last week endorsed a plan from First Selectman Gordon Joseloff that would fully fund this year's annual required contribution of $8.2 million to the OPEB trust fund.
Board members, however, are grappling with unresolved long-term questions about how the town will fund its obligations to employee benefits packages. The finance board could be compelled in the future to raise revenues to meet rising benefits costs by raising the tax rate. This year's tax rate jumped from 14.85 to 17.43 mills. That hike will raise $3 million this year for the OPEB fund, although the increase was mainly attributable to declining property values.
During the last year, board members from both parties have repeatedly called for employee benefit plans to be restructured to reduce the town's liabilities. Solid bipartisan support also exists for full funding each year of the annual required contribution to the OPEB fund.
Following the OPEB report miscount, board members from both parties have repeatedly criticized the fiscal management of Joseloff's administration. In particular, board members have assailed the hiring of the firm that prepared the 2008 OPEB analysis and questioned the accuracy of the new benefits report produced by Pentegra.
As the 2013 election for first selectman approaches, Joseloff could face increased pressure if Republicans gain control of the finance board. Democrats currently have a 4-3 majority on the board.
Five candidates are competing for four seats in the Nov. 8 election, with the four highest vote-getters winning election. With the departure of two current members, Democrat Allyson Stollenwerck and Republican Edward Iannone, the board will have at least two new members.
Democrat Kenneth Wirfel was elected to the Board of Finance in 2007 and is running for a second term. He is a lawyer who has worked as a federal prosecutor and in private practice.
John Pincavage is a Republican running for his first term on the Board of Finance. He is a financial consultant who has also founded and co-founded several aviation asset leasing companies.
Tom Lasersohn is a Republican running for his first full term on the Board of Finance. He has served on the board since February after being appointed to replace Charles Haberstroh, who is now a selectman. Lasersohn is a private investor.
Michael Rea is a Republican running for his first term on the Board of Finance. He is the chairman of the Representative Town Meeting's Finance Committee and a vice president at the reinsurance company, Gen Re.
Q: Town budget deliberations in recent years have focused on limiting and cutting public spending. At the same time, many residents have expressed concerns that reduced expenditures may diminish the quality of public services. How can the town maintain high-level services while it contains spending?
Wirfel: In the four years prior to the recession, the number of full-time employees in town government grew by almost 10 percent. In the last several budget cycles, however, the present Board of Finance has reduced the number of employees and persuaded the first selectman to institute a hiring freeze, except for designated essential positions. The loss of these employees has led to little or no diminution in town services.
We must continue to seek the consolidation of town departments, consolidation of business functions between the schools and the town, and pursue outsourcing opportunities where practicable.
Pincavage: I believe that the administration and the Board of Education must redouble their efforts to find ways to spend each dollar more effectively. Every function performed by the town and Board of Education must be on the table for possible consolidation between them and within their respective organizations.
Collins: We need to address the source of our rising cost of services which includes replacing unaffordable pension plans and costly benefit programs with programs and plans that make sense for both employee and taxpayer. Additionally, we need to provide sufficient funding for the proper maintenance of our valuable school properties and recreational facilities, since ignoring routine maintenance will simply cost us more in the long run.
More specifically, we must look for ways to drive efficient delivery of our high-quality services by continuing to consolidate services where we have redundancies, leverage technology to streamline processes and improve productivity. We need to benchmark Westport with other towns of a similar profile in Fairfield County and share best practices with these towns. We can learn why and how they are doing a better job than we are in the purchasing and provisioning of important town services.
Lasersohn: The management failure to properly understand and report the cost of our retiree medical benefits was exacerbated by the structure of our pension and medical benefit programs and some more bad choices we made. Our programs left us exposed to how the financial markets performed, but when the market performed well early on, we, in effect, spent that money, and had less cushion for when the market performed poorly later on. (Some other towns planned better.) In addition we were exposed to the rapid increase in medical costs. Both of these factors put additional stress on our budgets.
It would be counterproductive to slash our operating budget and town services to pay for these past mistakes. The result would be a reduction in Westport property values that would end up costing residents much more than they would save in taxes (not to mention the diminution in services). We would be cutting our nose off to spite our face. But we must not just continue business as usual.
Rea: I share the concerns of residents about cost reductions that may impact the quality of public services. These last four years have been difficult.
I am intimately experienced and familiar with the broad range of town services offered and the budget details involved. We can start by looking to leverage technology to improve efficiencies and services. We must reduce or eliminate redundancies in town government where possible. The Board of Education and the town should seek to consolidate or outsource non-core duplicated services like IT, payroll, personnel, maintenance and purchasing functions.
Q: At an Oct. 5 Board of Finance meeting, First Selectman Gordon Joseloff said, "We can't afford the obligations that we have already made" to town employee benefits packages. What short-term and long-term measures should the town take to make employee benefits financially sustainable?
Wirfel: Existing pension plans and retiree health benefits are unaffordable. Amend the non-union plan immediately and pursue negotiations with unions for defined-contribution plans or modified defined-benefit plans requiring later retirement ages and more years of service before vesting.
Retired police and fire pay a decreasing percentage of actual health insurance costs yearly. This cannot be sustained. Raise contribution rates for health insurance plans of current town employees. Teachers in our schools contribute close to 20 percent toward their health insurance. Until their new contract was ratified, active-duty firefighters paid only 5 percent.
Pincavage: Short-term, the benefits for non-union employees must be addressed and modified, and new non-union employees are going to have to be paid on lower wage and benefit scales. In addition, both the town and Board of Education must become more efficient in achieving their missions.
Long-term, when union contracts for wages and benefits become negotiable, the town must prevail in negotiating two-tier wage and benefit levels for new employees as well as changing the existing contracts where possible, i.e., older retirement ages, increased employee contributions to pension and benefit plans and move to defined contribution from defined-benefit plans.
Collins: In the short term, we can do three things. We can immediately establish defined-contribution/401K plans that are in line with economic realities and the marketplace. We can offer these plans for new employees, and offer incentives to existing employees to switch to the new plans. And, we can examine the existing Other Post-Employment Benefits, and review specific options for restructuring to ensure they are more economically feasible for the town to support.
Enlisting the advice of a professional benefits/actuarial firm that has experience in municipalities' benefits that can price out our options is critical to making sure our benefit programs and plans are aligned with the marketplace and other towns, as well as sustainable in the long term. Third, we need to enter negotiations now, prepared to make significant pension and benefit changes.
Long-term, we need to develop a financial blueprint to guide the town's decisions, including employee pension and benefit packages.
Lasersohn: The problem is that for many years we were spending more money than we realized. We paid our employees their salary and current medical benefits and put away money for their pensions, but we also promised them medical benefits after they retired and did not put any money away to cover the cost of those promises. Now we have to pay for both the promises to past employees and put money away for current employees.
In addition, the cost of our promises is very high, because we agreed to things we probably would not have had we truly understood the cost. It was a classic case of "out of sight out of mind."
Rea: In the short term, I have called on the first selectman to issue a town hiring freeze (except for critical functions) until such time as the town better understands its full liabilities. The town also must come up with a game plan to bring our employee benefits in line with other towns and the private sector.
In the long-term, we need to reduce the footprint of town government. We must move toward defined contribution pension plans, which take the financial risk away from taxpayers. Unless we make these strategic moves now, our town's crown jewels (e.g., schools) will be placed at risk given budgetary pressures to pay for antiquated plans and inefficiency.
Q: What would be your top priority as a Board of Finance member during the next four years?
Wirfel: If we are to continue our history of keeping taxes low while providing for the needs of all of our citizens, from school age to seniors, we will need to continue our record of fiscal discipline and oversight.
The Board of Finance, because of its pool of financial and managerial expertise, should take an active role in preparing and guiding the town administration in the negotiation of the labor contracts and pension plans that will come due during the next four years. Success in these negotiations will be vital to the future financial integrity of the town.
Pincavage: Begin to stop the Other Post-Retirement Employee Benefits monster from destroying the town and Board of Education budgets while keeping any tax increases as low as possible. The annual contributions for pension and medical benefits have the potential to grow to the point where they reduce the amount of money available to fund other functions like education and town government.
If we do not achieve greater savings everywhere, taxes will have to increase, which will eventually make Westport a less attractive community in which to reside.
Collins: First, I will encourage the replacing of unaffordable town pensions and benefit liabilities with defined contribution/401K plans and restructured compensation and benefit plans.
Second, I will encourage the continuing investment in our critical town assets and infrastructure, so that the cost of maintenance remains reasonable and the value of these assets does not deteriorate. The importance of appropriate maintenance was just recently reinforced as a result of Hurricane Irene.
Third, I will emphasize delivering high-quality services more efficiently by consolidating where possible, outsourcing when it makes sense and leveraging technology.
Lasersohn: First, hire an excellent personnel director, skilled in benefits negotiation and implementation, and an excellent finance director, with the plan of having the finance director serve as de facto chief operating officer of the town.
Second, comprehensively review our employee compensation and benefit plans in comparison to other towns and private sector employers, and work to revise our agreements to conform to these benchmarks. We want to attract and retain great employees, but we must pay then in the context of what other people earn to be fair to taxpayers. To increase productivity, staffing and work rules must change, not just pay and benefits. Reduce our exposure to market risk and medical cost inflation.
Third, revamp our financial controls in town to avoid a repeat of this fiasco, and implement an effective cost accounting system to associate the true cost of all resources used with each function, to assure that the benefit derived justifies the cost. Adopt a multi-year budgeting process, so that we can be less reactive to events and more transparent and predictable to taxpayers.
Rea: Restoring fiscal responsibility needs to be more than a catchy slogan. My top priorities would be to put the necessary oversights, transparencies and checks in balances in place.
In the wake of the OPEB fiasco, I have asked the Board of Finance to conduct a full-scale third-party independent audit of the town's financial system. A sophisticated community like Westport should not be subject to these types of errors and lack of fiscal controls.
Westport residents deserve to have a fully transparent process -- one that makes parties accountable for bad decisions. An independent audit will help us put in place the oversight and checks and balances necessary to prevent such an error from occurring in the future.