(May 9, 2014) A projected windfall savings on retiree health insurance will put the city’s 2014-2015 budget roughly $660,000 in the black – but City Council decided this week to keep the funds in the city’s reserve until after the summer season.
The draft of the 2014-2015 fiscal year budget, which passed its first reading before council Monday night, had allotted over $3.8 million in contributions to the city’s Other Post-Employment Benefits (OPEB) fund.
This number was based on an estimated six percent rise in retiree health insurance costs over the 2013-2014 OPEB allocation of $3,617,000. However, the actuarial valuation of the fund received last Friday, City Manager David Recor said, called for a required contribution of only $3,083,000.
The OPEB fund is separate from the city’s pension funds, and covers non-pension retirement benefits, namely post-retirement health insurance.
The valuation – which takes into account factors such as employees’ ages, health history, mortality, and projected retirement dates in order to determine the level of funding needed to cover future costs – is done roughly every two years. The report released last week calls for the city to allocate $3,207,000 for the 2015-2016 budget.
Out of the $750,000 cost reduction, Recor noted, roughly $90,000 of health expenses were for employees whose cost is allocated to enterprise funds, which are run quasi-independently of the city’s taxation-based general fund.
This leaves the town with $660,000 of unrestricted money for the coming year’s budget. But Recor suggested that the town not go back on any of the budget cuts made earlier this year, and instead leave the savings in place until after the first three months of the fiscal year.
Fiscal years run from July 1 to June 30. Given the city’s seasonal nature, the first two months of any given fiscal year are the busiest of the entire span. By the end of September, the third month o the budget cycle, the city has made roughly half of its revenues for the entire year and gone through half of its expenses.
“I would like to revisit it in October when we have the first budget amendment, and see where we are in that timeframe,” agreed Council Secretary Mary Knight.
Every year, the city typically edges up its estimates for revenues – such as taxes, permits, and fees – by only a small amount, and realizes a surplus at the end of the year when those revenues exceed performance.
This year, to balance the budget, many of those estimates have been increased higher than normal – such as building permits, which were hiked $50,000 last week in order to zero the balance sheet. This gives the city much less wiggle room for revenue performance.
“Having the $660,000 in available balance will give us much more flexibility later in the year,” said city Budget Manager Jennie Knapp.
Any funds not needed by the end of the summer, Council President Lloyd Martin noted, would go toward street paving per the city’s policy. The allocation for road repairs this year is currently at around $1.3 million, short of the city’s $2 million annual goal.
In 2007, a study of city streets revealed $40 million in repairs over the next 20 years. It is unknown how that number has changed due to inflation or to repairs made in the past seven years, but Recor said the issue needs revisiting in order to determine how urgent the council believes it to be.
“If you made the choice to address the issue over a five-year period rather than a ten-year, for instance, there would obviously be an increased cost,” Recor said.
“We can have that discussion, because we talk about it theoretically as if we don’t know what these costs will be , but let’s not only identify the cost of the roads but what it will come out to cost the taxpayer.”
The OPEB report, compiled by consulting firm Bolton Partners, notes that “an increase due to the passage of time was more than offset by decreases due to updated data, favorable claims experience, and updating the trend to the most recent table released by SOA [the Society of Actuaries].”
A table comparing the 2013 actuarial valuation with the current report notes the majority of the savings, $351,000, as the result of changes in assumptions other than demographic and claims experience.
Ocean City Today has received a copy of the valuation and will report more on the city’s OPEB fund in coming weeks.