Lifetime healthcare benefits of Tredyffrin Township Police Association result in $40M unfunded liability — What’s the Solution?

I attended the public meeting this week to discuss the township’s proposed preliminary 2013 budget.  About 10 residents attended plus township supervisors Michelle Kichline and Mike Heaberg (Heaberg is a member of the Finance Committee) and Acting Township Manager and Finance Director Tim Klarich.

Over the course of two hours, various topics were discussed with Klarich and the two supervisors, providing answers and background on numerous issues.  The townships’ $40 M unfunded medical liability and the open issue on the labor agreement between the township and the police union, Tredyffrin Township Police Association (TTPA) were of particular interest to me.  The ‘elephant in the room’ for the township’s 2013 budget and major obstacle (and the reason for the township’s $40M liability) is the ongoing arbitration with the police contract and their lifetime health benefits.

Since January 2012, the contract between TTPA and Tredyffrin Township has been in arbitration; the 3-year police contract expired the end of 2011. Kichline was quick to point out that both sides want an arbitration decision but unfortunately, for 10+ months, the process has been held captive, waiting for a ruling from independent arbitrator, Michael Zobrak from Aliquippa, PA.  According to PA Department of Labor & Industry website, Zobrak’s fee is $1200 per diem (however, his page was last updated in 2007).  Interesting to note, there is no requirement for the arbitrator to be an attorney — Zobrak’s education background includes BA, Geneva College and M.Ed, U of Pittsburgh.

According to Kichline and Klarich, Zobrak has held meetings with the attorneys representing the township and TTPA.  It was unclear how many meetings have been held and/or how often.  Although I am sure both sides hope that a resolution is forthcoming, there was nothing definitive stated as to when that might happen. For the record, I called Zobrak’s office and left a voice mail – I will update if I receive a response.

The biggest roadblock in collective bargaining contract disputes these days is health care benefits (in addition to salaries). Certainly health care benefits were an important component in the recently settled T/E teacher contract negotiations.  Appreciating the current economic environment, the teachers agreed that their generous healthcare plan of the past was no longer possible, changes were made in their teacher’s contract accordingly.  Considering the healthcare provisions of the former TESD contract, made it even more surprising to learn the details of the health care benefits of TTPA.

If some residents were bothered by the health care benefit package contained in the previous TTEA contract, I think they would be shocked at the level of TTPA health care coverage.  Currently, all Tredyffrin police officers receive free full lifetime health care benefits for themselves and their families after 25 years of service to the township.  At present 52 retired police officers and families, receive full free healthcare in Tredyffrin Township.  In addition there are a number (not sure of the exact count) of currently employed police officers that are in the 25+ years of service who will receive this  lifetime healthcar coverage under the conditions of the existing contract.

The lifetime healthcare benefits of TTPA constitute the township’s $40M unfunded liability.  According to Kichline, the lifetime health care benefits afforded members of TTPA in their current contract, is not found in most other area municipal police contracts. Here was an interesting twist — I assumed that any change to the current health care benefit of TTPA would affect new hires only (similar to what is being discussed in Harrisburg as it relates to the pension situation, where changes would not affect those employees already in the system).  It is possible (however, probably not likely) that the independent arbitrator could change the lifetime healthcare benefits to affect not only new hires, but also include TTPA members already receiving these benefits. As I have previously stated re the state pension, I support changing the benefits for new hires but not for those employees already in the system.  I am of the same opinion that the same should hold true for members of TTPA.  The healthcare benefits should only be changed for new police department hires – however that means the township still has the $40M unfunded liability ‘noose’ around its neck!

We spent much time during the meeting discussing the township’s $40M unfunded liability.  In the proposed 2013 preliminary budget, Klarich has increased funding from $250K to $500K as a way to start to buy down this debt.  A couple of the residents in attendance were advocating for a greater yearly contribution, say $2M annually, as a way of addressing the $40M debt.

Personally, I think there should be a degree of concern that this enormous liability of $40M could have an adverse effect on the township’s current AAA bond rating.  On the other hand, is it reasonable to expect that Moody’s would view the township’s yearly $500K contribution favorably and continue to award the township with its gold star rating?  Remember at $500K/year, it will take the township 80 years to reach that $40M mark.

Knowing that the township has an open issue on the TTPA labor agreement and the $40M unfunded liability, what is the answer?  I get it that we all want to keep the highest level of service in our community and pay nothing additional for those services, but practically speaking that is not possible.  Beginning in 2015, the state is requiring all municipalities to include their unfunded liability in its accounting.

There are few avenues available to the township to handle the staggering debt beyond an increase in our real estate taxes … except for the option to institute an Earned Income Tax.  Unlike the School Board, the township supervisors would not need a voter referendum to institute this tax.  The topic of EIT was brought up at the meeting, there appeared to be little interest in furthering the discussion.  Although not seen as a favorable option by some, shouldn’t there be serious consideration given to an EIT?

How many Tredyffrin residents work in another jurisdiction that has an Earned Income Tax?  If they do, the EIT dollars the Tredyffrin resident pays stays in that jurisdiction because our township does not have an EIT. There has always been much misunderstanding about who would pay an EIT but unearned income, such as Social Security, interest, dividends and pensions are exempt from the tax unlike an increase in property tax which affects all homeowners, whether they are on a fixed income or not.  I have struggled to understand why it is that the supervisors are reticent to consider the option – especially considering that most of our neighbors have an EIT and many of our residents are already paying this tax.  Millions of dollars leave Tredyffrin in EIT payments, helping to subsidize the budgets of neighbor’s budgets.

The proposed 2013 preliminary budget for includes a 5.5% tax increase in addition to a decrease in the police staff. Part of the rationale behind not replacing police staff is that any new hires will come in under the conditions of the last TTPA contract, which includes the lifetime healthcare benefit.  If the arbitrator were to come back with a contract that removes the lifetime healthcare benefit, it would be financially better for the township to wait until after the new contract is signed before hiring new police staff.

Again, no one wants to pay additional taxes but how much longer will it be OK with Tredyffrin residents to see their services reduced in order to balance the township budget?  What happens if the $40M unfunded liability jeopardizes township’s AAA bond rating? And what about capital improvements, ongoing maintenance and infrastructure needs of our community? With residential and commercial real estate transfer revenue way down, what is the funding solution for Tredyffrin …  if it isn’t raising real estate taxes or instituting an EIT?  What’s the answer?

What about the Tredyffrin Township resident who pays EIT to another municipality when it could be helping this community?  How does that resident feel – below are comments from John Petersen, a resident who pays EIT to a neighboring municipality:

Ever since the Tax Study Commission Report of 2006 was released, I’ve called it an intellectually dishonest exercise. I said that and continue to say that because of the factors that were willfully ignored. The unfunded pension liability under discussion was one of those factors. Back then, the unfunded liability was estimated to be around $25MM. As predicted, in a short amount of time, that figure has doubled. I remember Bob Lamina prophetically saying at a BoS meeting that this issue was the most significant one facing the township and the township will have to face up to this impending reality.

I pay an EIT – as do thousands of Tredyffrin residents. I for one am tired of being disenfranchised by this government – a government run by the TTOP proletariat that refuses to discuss an EIT. Not that the points have to be enumerated again, I will do so here:

  • Many pay an EIT already
  • Surrounding governments plan their budgets around the fact that Tredyffrin DOES NOT levy an EIT (read as we subsidize other townships)
  • Had an EIT been levied years ago, part of the unfunded liability could have been paid off
  • An EIT is the only means of providing property tax relief
  • At least one large company (Shire) is leaving Tredyffrin for East Whiteland (that does levy an EIT)

Indeed, there are some who will be adversely affected. Those who live in and work in Tredyffrin. I believe that to be an extreme minority of people. Regardless, the realities of the situation are such where an EIT must be discussed.

I won’t bother getting into who one particular political organization has sucked the oxygen out of the room re: stifling the conversation or how the opposing party has succumbed to fear by adopting the same philosophy re: the EIT.

Bottom line – I pay tax dollars that could make their way to Tredyffrin. The local government is denying that right and in the process, disenfranchising those like me who already pay an EIT.

Maybe at long last, there can be an honest discussion.

23 Comments

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  1. Speaking from the outside, here is the general opposition to raising taxes –
    .
    Why would anyone trust government officials with additional tax revenue when they have recently demonstrated fiscal incompetence? How many supervisors agreed to extend lifetime healthcare benefits when the contract was renewed 3 years ago? Are any of the supervisors that first put lifetime healthcare benefits in the contract still around? Will the supervisors use new EIT revenue, if enacted, to continuously pay off the unfunded liability or will it eventually slide into the operating budget? Does anyone look closely at the township budget for savings just as Ray does for the school district budget?
    .
    Prior to giving additional revenue to any government official (school board, township supervisors, state legislators, etc.) I’d want several years of demonstrated fiscal competence. From a distance it doesn’t seem like the TE supervisors qualify. (the TE school board made a good start with the recent negotiations)

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  2. Was lifetime healthcare “negotiated” by Bob Lamina and ratified for solidarity, or did the board (many sitting there now) agree with the contract mosificTion and then ratify? HERE is why we need independent thinkers! Solidarity creates lemmings…except we all go off the cliff with them.

    I echo Keith. An EIT is free money to a taxing authority…they just “get it” …the only incentive to taxpayers for implementing it would be to satisfy those who currently pay it. There is no cap on property taxes….at least that rate they need to discuss.

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    Township Reader Reply:

    “Completely false.

    Essentially, you buy into Keith’s “Can’t trust them, so don’t give them another funding source” argument. Yet you have supported these people and this poltiical party for years.

    Interesting…”.

    Completely false. I believe you were the one who was appointed by “this party” to an interim supervisor role.

    Yes — it does matter. Which is why I asked. I want to know if this group just ratifies whatever someone tells them to ratify, or if they purposely chose to bind this community to a lifetime cost. But then, with the contract not public, who knows.

    Who cares, right John?

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  3. I suspect that a cursory review of the contract with the police union would reveal many other over the top benefits for the members of the TTPD. The Westtown-East Goshen Regional Police just went through a protracted negotiation with their union and documents provided by the towsnship revealed, among other things, an average police salary of around $100,000/year plus a disability pension of 75% of the officer’s salary if they are inured and unable to perform the duties of a police officer. This would allow an officer to collect a substantial pension, even if they were capable of working in a less phyisically demanding vocation.

    Ultimately, I believe Westtown and East Goshen were able to obtain substantial concessions from the union after they demonstrated that they were willing to disband the regional police department and each go their own way for police protection.

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  4. Its funny how a few members of the public like to trash the police without knowing all the facts. First, Tredyffrin Police earn considerably less than other departments in the area. About $7 to $10k a year. In regards to healthcare; Tredyffrin pays less than most of the departments in the county. And changes that were agreed to in 2008 have saved the department over a million dollars. Due to the efforts of the officers, the township pays less in 20132 than they did in 2008 for medical benefits. Maube folks should investigate the facts before they throw the police under the proverbial bus. I think the truth might surprise them. A short eord on the unfunded liabilities ; don’t believe everything that you hear.

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    Pattye Benson Reply:

    Are you suggesting that the township’s claim of $40M in unfunded liabilities is incorrect? The Tredyffrin Township Police Association’s 5 year contract through 2008 and the 3 year contract through 2011 are not available for the public … so, we are left to obtain our facts from the BOS. We have been told by supervisors there is a $40M unfunded liability — this liability is due to the lifetime healthcare benefits of TTPA members who have served 25 yrs. or longer (and their families). There was a discussion at this week’s meeting about why the public has no access to the police contract yet the TESD has the teachers contract available. The public would understand if there was something ‘safety sensitive’ contained in the contract, such as patrol routes, etc. don’t know if that is the case or not. However, BOS Chair Michelle Kichline told us that she would not have a problem with making the TTPA contract available.

    What I find fascinating is that Lower Merion Police Association has their contract, 2010-12 available.
    https://docs.google.com/file/d/0B6C8sHXDr6DCNEk3dHI2T3lvTU0/edit

    Lower Merion Twp provides full healthcare benefits to their retired LMPA members (and spouses) until they reach 65 or qualify for Medicare. After age 65, LM Twp has no further healthcare obligation for retired LM police. The healthcare benefits of retirees in the LMPA vers TTPA seems quite different to me. If you have information to suggest that TTPA members (with 25 yrs. or longer of service) are not receiving lifetime healthcare benefits under the existing contract, please provide that information. You also claim that Tredyffrin Twp pays less in healthcare than most of the departments in Chester County, please provide that information. You think that folks should investigate the facts – all we can go on is what is available. Again, if the BOS is inaccurately claiming $40M in unfunded liability due to lifetime healthcare benefits, we’d ALL like to see that documentation. Any back-up information would be greatly appreciated.

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    Rob Reply:

    Tredyffrin Police DO NOT receive their health benefits for life. When officer’s become Medicare eligible, they are required to sign up. The officers agreed to do this on their own to save the township money in 2008. Tredyffrin then provides the officers with a supplement. Since the township is not telling the public this information, one must ask what else you are not being told.

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    Pattye Benson Reply:

    Rob, I want to make sure that I have this straight (since it appears to contradict what the township has told us) — once a police officer qualifies for Medicare, he/she receives only the Medicare supplemental insurance paid for by the township. What about the spouse/children — do they continue with the healthcare benefits through the township? My understanding had been that it was the option of the police officer as to whether or not to take Medicare; that there was no requirement – they could be fully insured through the township for life. But it sounds like that information is incorrect, that once they qualify, the officers do go on Medicare. Was this change included in the last contract — is this the concession that you referred to that saved the taxpayer’s $1M.

    For the record, I could not agree more that the public needs the correct information. Thank you for weighing in on this topic!

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    Rob Reply:

    In 2008, the officers agreed to go to Medicare when they turn 65. The township continued to fight the police, and it then went to arbitration. After the officer goes on Medicare, the township provides insurance to cover the gaps between Medicare and what the officer had while under the group plan. As you may already know, gap insurance is much less expensive than traditional coverage. The officers also agreed to switch from BC/BS to DVHIT (Aetna) and saved the township over a million dollars there as well. Once again, Tredyffrin pays less for health insurance now than they did in 2008. At that time TT paid about $600 a month less than Radnor Twp. and $800 a month less than WIllistown Twp. for health insurance for a family.
    Officers who retired before 2008 are not required to go on Medicare. The township never even made the request. What some seem to forget is that Tredyffrin Police do not pay Social Security taxes either. Hence, they lack some of the benefits that Social Security provides a family. The township saves 6.2% since they don’t pay the Social Security either. This savings needs to be calculated into the cost of having an officer on the street. As I said before, don’t believe everything that you hear. Investigate the issues on your own and you will see for yourself that I am right. In closing, the healthcare benefits are for a husband and a spouse. Children are covered up until age 26, and that is only because of Obamacare. It has nothing to do with the police contract.

    Rob Reply:

    The point is that it is simply not true that the officers and their families receive healthcare for life. The husband and spouse receive healthcare until they go onto Medicare. At that point the township provides the employee and spouse a supplement to make up the difference between Medicare and what they had under their TT plan.

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  5. Pattye,
    Any contract, past or present, is available for public review under the RTK law. All one has to do is ask.

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    Pattye Benson Reply:

    Thanks Keith, I will file RTK requests for the 2008 & 2011 contracts between Tredyffrin Twp & TTPA. Tim Klarich, Tredyffrin’s Finance Director & acting Township Manager has the $40M unfunded liability in his presentation on the proposed preliminary budget for 2013. I do not doubt the accuracy of the number as a couple of years ago at a BOS meeting, I asked the current unfunded liability and at that time, the number I was given was $36M. As explained, the mega-million unfunded liability was due to the lifetime healthcare benefits. I guess the only way to know whether the ‘lifetime’ benefits for TTPA and their families is in the contract — is to see the contract. However, this is the information that was given to us by Finance Director and BOS members.

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    Keith Knauss Reply:

    I would ask to see the assumptions used to estimate the $40M unfunded liability. Was this a “back of the envelope calculation” or something done by an actuary? Especially interesting would be the current fund balance and assumed rate of return on the current fund balance.

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    Rob Reply:

    Patty, Keith is correct.

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  6. And, while you’re at it, ask for “any document that estimates, calculates and/or explains the $40M unfunded retirement liability”. These are your (the public’s) documents. Don’t be afraid to ask for them. The BOS should be happy for the public to be informed.

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  7. Before the anti-tax crowd gets worked up about the cost of an attractive benefit they don’t enjoy, how about looking at the big picture….

    First, our Township is contractually obligated to provide retiree healthcare to 56 employees and former employees who have worked a minimum of 25 years for the township. That obligation won’t change – regardless of taxpayer sentiment. PA has among the strongest protections of any state in the country for workers promised pensions and OPEB’s (other post employment benefits). Even a “Supervisor Paul Ryan” couldn’t reduce this expense without court approval, given a judge’s determination of extreme financial distress.

    The township has already discontinued this benefit for new non-union employees. And as Rob said, the police union made concessions in their 2008 contract that have saved taxpayers $1 MM.

    Maybe current negotiations will yield further savings: a curtailment of this benefit for new hires, or an agreement requiring retirees and their spouses to switch from private insurance to Medicare when they turn 65.

    Further, the $40 MM unfunded liability has been factored into Tredyffrin’s borrowing costs and obviously hasn’t affected our AAA bond rating. The Township budgets for current expense. But the decision to fund future obligations with an additional $231k for OPEB in 2013 is only prudent planning that will add to the $1.5 MM already in trust for the future. This is more than most municipalities are doing to address the problem.

    Next year’s increase will cost the average homeowner about $15, with the rest ($13) covering contractual pay increases.

    I ask you to consider the overall value we receive from our police.

    In the 2013 Police budget, the total operating expense is flat – even accounting for the hiring of 3 additional police officers.

    We currently have 39 full-time officers and 7 non-uniformed support staff. (given vacancies) compared to 135 in Lower Merion. (Tredyffrin has a population of 30,000; Lower Merion has 58,000 residents.)

    Superintendent Giamo has reconfigured the department to maximize (wo)manpower by combining three separate regional squads into one force and assigning detectives to patrol duty. He’s making the most of his resources.

    -Our township’s first-year salary for a police officer is $41,600.
    -Lower Merion’s is $50,550.
    – Radnor’s starting salary for a 1st year police officer is $58,673.

    No small difference. Clearly, benefits matter.

    Attending last week’s budget meeting, I noted Supervisors Kichline and Heaberg’s take on retiree health benefits as a benefit few outside of government enjoy. Though they’re understandably frustrated by the lengthy arbitration process, I hope they are not thinking about rekindling the kind of anti-union sentiment that was in full form in the community during the recent teachers’ contract negotiations.

    That’s one way to try to move things along…..but not a productive one.

    If the police are holding out on a new contract, I trust there is a good reason.

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    Pattye Benson Reply:

    Kate, thank you for your comments.

    To clarify, starting in 2015 the township will have to disclose its $40M unfunded liability on its balance sheet. Up to this point, Moody’s has not factored in that liability in awarding its AAA bond rating to Tredyffrin. Will the $40M make a difference come 2015 for its bond rating, no one has a crystal ball.

    Thank you for offering the 1st year salaries of Tredyffrin, LM and Radnor police officers. However, as we also learned at the budget meeting, Tredyffrin Twp police officers receive a $20K raise after their first year. The township views the first year as a training year for the police officers; the second year their salary moves to $60K+. To have the full picture, this is an important fact. As for the $1M savings that Rob says the police officers saved taxpayers in concessions in the 2008 contract — he didn’t specify what the concessions were, do you have that information.

    I support our police department and want to restate, that I support retirees receiving their healthcare benefits that they were promised — and that includes lifetime healthcare benefits. However, I think it is unrealistic in today’s economic climate, for taxpayers to fund lifetime healthcare benefits for ‘new’ hires into the police department. In the past, lifetime healthcare benefits was probably given in alot of police departments but I don’t see how it is affordable today. I think that if you serve 25+ years of service to the township, you are entitled to healthcare but I support LM’s approach; once you reach 65 or qualify for Medicare, the township’s obligation to fund healthcare should cease.

    The continuing contract arbitration between the township and TTPA is the hurdle for filling police dept vacancies. Until there is settlement with TTPA, any new police department hires will be working under the expired contract, which includes lifetime healthcare. The contract settlement will be interesting — I don’t see the police union easily giving up their lifetime healthcare benefit, but on the other hand, can the township really afford to keep that benefit in the next 3-yr. contract. To continue the lifetime healthcare benefit of TTPA members, means that the $40M unfunded liability will continue to rise.

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    Rob Reply:

    Kate. The police have no control over the contract at this point. They met with the township one time before they were advised that the township had filed for arbitration. Many believe that the township had no intention of ever working this out with the police. The Tredyffrin Attorney, John McLaughlin wanted an arbitration from the very beginning. He filed for arbitration months in advance of the deadline. I would love to see how much money he has made over this mess. A RTK request for his billing statements would reveal a lot.

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  8. This is a good discussion to have. Maybe it will help to bring the level of transparency that has been achieved with the school district. I did a cursory look at the BOS minutes at around the time the last police contract would have been negotiated, and there was a complete absence of any public discussion. As I recall the Supervisors at that time were: Kampf, Lamina, DiFilippo, De Haven, DiBuonaventuro, DiFeliciantonio, Olson.

    We did ask for the contract to be put up on the website, and the supervisors seemed supportive. Ms Kichline agreed to review this to make sure there are no issues with the union. I can’t find it published yet.

    A quick fact check: the total liability for post-employment healthcare is the $40 million being discussed but $31 million is associated with the police and $9 million with other employees. I don’t recall if it’s noted above, but I think that new hires into these other departments no longer receive this benefit. The numbers were apparently based on an actuarial calculation, and I agree that it would be very helpful for a RTK to get that report.

    This liability has arisen because the full cost of hiring a township employee has not been recognized during the term of the employee’s service. At the budget meeting, if I have this right, it was calculated that the actual cost to the Township of the average police officer is $180,000 per year.

    I think it’s important to determine if this is appropriate in the light of the incomes of those paying it and the compensation levels in other townships.

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    Rob Reply:

    Ray, here is the part that I find interesting. The township continues to argue $40M in unfunded liabilities. Well, since the police agreed to go into Medicare in 2008 with the township providing a supplement to make up the difference. How does the liability continue to rise when it should be shrinking? Less financial exposure should equal less future liability. That is unless you have an agenda that you wish to pursue. Most of us will use the majority of healthcare in our last year or so of life. Medicare will be the provider for the majority of those services for our officers. I find the $40M figure to be a fantasy. If someone was truly interested, they should request a detailed accounting of how that $40M number was calculated. Not just a spreadsheet with the words $40M printed at the bottom. Once again, with the townships future liability waning one has to ask why the unfunded liability number continues to rise. It just doesn’t make sense. That is what should concern the public.

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  9. I have always been of the opinion that police officers and firefighters deserve the best benefits that taxpayers can offer.

    Just think about the young woman whose husband was shot & killed near the Plymouth Meeting Mall last summer – she has a young child and is pregnant with another. Don’t we citizens have an obligation to them?

    There are extraordinary risks and circumstances associated with these occupations and I think the employees and family members should never need to be concerned about health care costs or coverage.

    The men and woman in these jobs literally put their lives on the line – for OUR safety – I don’t begrudge them a dime of my taxes to pay for their health benefits.

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  10. I agree that someone should ask for the details of the unfunded liability. Is it growing because of the ACA basically turning seniors to Medigap insurance instead of Medicare advantage (promoted by the AARP so we hear little about it, despite the fact that the bulk of the AARP “earnings” come from selling this same insurance).
    AARP is actively lobbying against reduction in senior costs…

    [Reply]

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