Leominster’s Long-range Planning Saved City Millions
I submit this to inform you and the public of the strategic financial steps the city of Leominster administration was taking during the seven-year stretch of not granting COLAs for retirees (but also not raising Medex rates).
Unlike most communities, the city felt obligated to start paying for the retiree health insurance benefit it is promising for its employees in a manner like pension funding. The city has gone from paying $0 toward this multi-million-dollar expense being incurred annually, to contributing $4.5 million annually today.
This allows the city to meet its OPEB Annual Required Contribution (ARC) and thus able to utilize a higher discount rate for investment purposes when calculating our OPEB unfunded liability. The city has accumulated over $30 million in assets thus far, and the city was able to shave over $100 million off the OPEB unfunded liability due to the higher discount rate being used for net present value calculation purposes.
The city has been aware, since FY2009, that starting on June 30, 2018, the GASB issued financial statements would reflect the unfunded liabilities for the pension and OPEB programs. For most communities in Massachusetts both unfunded liability amounts, when added together, will exceed their amount of assets, especially when combined with other debt
For Leominster, the GASB issued financial statements will reflect $0 liabilities for the pension system and over $100 million less for OPEB liabilities due to the successful execution of this multiyear financial strategy.
I hope this enlightens you and the public as to the actions of the city during this seven-year time. The city does not have an endless amount of taxpayer money to be all things to all people, and must make tough decisions sometimes for the benefit of everyone in the long run, including taxpayers. It should also be noted, that prior to 1997, the city never paid a COLA to retirees, if it was granted, it was paid by the state, which went several years without granting COLAs. Each 3 percent COLA granted costs the city well more than $1 million dollars and is not a benefit guarantee, as the recipients of Social Security and past city retirees subject to state funding know so well.
The city also offers two deferred compensation investment programs, like 401(k) programs in the private sector, which both offer multiple types of investing options including self-directed brokerage accounts.
City taxpayers will be paying hundreds of millions less in these two budget-buster cost centers because of the successful execution of this multiyear financial strategy.
John Richard is comptroller for the city of Leominster.