Moody’s AAA bond rating

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.

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