Sunday, July 21, 2013

Resolution & Financial Report

Hi All,

Monday, July 22, 2013 @ 7 PM  the township will approve at the Board of Trustees meeting a:

Resolution Authorizing Issuance of General Obligation Limited Tax Pension Obligation Bonds, Series 2013.
In that Resolution are these words:
the sale of bonds to " all or part of the costs..." "... for the purpose of defraying the costs of the unfunded pension liability of the Township defined benefit plan and for the costs of issuance of the bonds..."

QUESTION:  Why are the words...PART of the costs?   I thought this BOND issuance was to pay ALL the underfunded amount?

Each year  "... the Township shall be obligated, as a first budget obligation, to advance moneys from its general fund or to levy ad valorem property taxes on all taxable property within its corporate boundaries to pay such principal and interests as the same become due."

QUESTION:  Exactly what amount will come out of the General Fund each year to pay the principal and interests of these pension bonds?

This will be a Negotiated Sale.
Bond Counsel is;  Dickinson Wright, PLLC   Troy, Michigan
Registered Municipal Advisor:  Bendzinski & Co   Detroit, Michigan
Underwriters:  Fifth Third Securities, Inc;  Citigroup Global Markets, Inc.; PNC Capital Markets LLC

QUESTION: What is the total cost of the actuary, administrative, and legal costs to pay for the bonds?

Conditions of the sale of bonds:
  • interest rate not to exceed 9% per annum
  • final maturity date 5/1/33
  • purchase price shall not be less than 97% of the principal amount
  • underwriters discount not to exceed 0.295 % of the principal amount

THE FINANCIAL COMPREHENSIVE REPORT  by Ray Perkin, Director of Finance
about 6 pages of report... and about 98 pages of attachments.... mind boggling to review in a day or two.
  • Why didn't our elected Treasurer write this report? Dan Devine is the main person involved in the negotiating of contracts with the employees.  He is also responsible for the investments and being the link to report to the trustees on the state of those contracts and investments. How and when did the disconnect becomes so huge without adjustments being made either to contracts or to investment policy?
  • The library employee issue is still not completed because the last agenda item on Monday continues to deal with library employees. Now the township needs to make an amendment to the 401 (a) pension plan to include library employees.   Again, needing to have the defined benefit  pension plan really CLOSED before being able to do this state approved bond deal... all this last minute negotiating and back dating of plans could have been done in 2005 if the township was more honest about WHO was part of the plan in the first place.
  • It was only when the opportunity to SHIFT the unfunded liability to a liability represented by the proposed bond issuance did the township seek NEW actuarial reports for these funds.  Were the assumptions used in this latest report meant to show a worst case scenario for the plan? What were the previous dates for an actuarial review?  This latest actuarial report used assumptions that other reports did not use.  The more underfunded the report showed the pension fund to be, the more the township could borrow via bonds.  New report:  1/1/13.
  • The unfunded actuarial liability of the plan went from $29.2 million to $ 80.3 million.
  • The plan actuary lowered the projected rates of returns on plan assets from 7.0 % to 5.25 %.
  • It was stated that low interest rate returns and poor equity investment returns also factored into the steep increase in the cost of the plan. Why did the township allow for such a large portion of the funds to remain in fixed incomes while the market soared in the last few years?
  • The township does not believe that benefit levels paid to employees helped drive the cost increases.   What?  The employees may have had a wage freeze in "base pay", but the terms of the contracts allow for multiple ways to increase income.  One, which SHOULD have been eliminated for all, not just those hired after May 2011 is longevity pay.  That percentage raise automatically each year varies but definitely increases pay each year.  There are tuition reimbursement plans, uniform allowances, overtime, sick pay accrual, etc.  that continue to raise the accrued benefit level in the pension funds.
  • Several numbers have been put forward as to the number of participants in the funds.  One complete and final set is all that is needed.   It would have been helpful to see the calculation for retirements accounts - what is the multiple, what is it based on and describe an example in the financial report.
  • The financial report stated that there was very limited opportunities to negotiate the liability away.... yet the contracts were often reopened early.   I believe it was the responsibility of the township to find ways to pay for the liabilities of those negotiated contracts... and that was to make sure all contract obligations could be covered in the budget annually....even if that meant reducing the number of employees.   Why can't the Township understand that the management of taxpayer dollars might need to include the idea that laying off employees is not a bad thing? The Township can't continually assume that staffing calculation are always correct.   The township needs to explore the potential savings from outsourcing some work.
  • I have read two different ways of discussing the annual contribution....  employers suggested contribution and employers required contribution.   Is there a required contribution annually? There certainly will be a required BOND and INTEREST payment.  Many municipalities play with these number putting in more money some years and less other years and it is OK as long as they do not fall below a minimum.  However, there is no "playing" with bond payments each year.
  • The Bond Debt Retirement Schedule (Exhibit E) was based on the assumption of interest at 3.95%.  Is this data still valid at this time?  We need to be told this at the Monday, 7/22/13 meeting.
  • The township does say:  "There is an acknowledged risk that the investment of the bond proceeds may not provide a return greater than the cost of the borrowing."  Of course the statement needs to cover extreme conditions..but a reality of very poor returns means  that the taxpayers will need to pay again and again until the defined benefit pension no longer has anyone left... 50 plus years from now.
  • Prudential has a guaranteed deposit account.  Gregory Schwartz & Co. does an investment portfolio.  WHERE ARE THE NUMBERS of the existing accounts and the projected account balances with the bond proceeds? Need more information on the investment PLAN of this bond money and future earnings.  Could some other company become involved in this bond money and investing?  Or, are they under contract?  For how long? Most investment prior meeting minutes are found under the STUDY SESSION section in Minutes on Demand on the township website.  Look at the various years to see the trends.
  • The financial reports mention people who "unanimously concur" with the sale of bonds to fund the underfunded portion of the defined benefit pension plan.  What are the names of these people and how are they qualified to make that decision?  The report mentions the : Township audit team; the financial advisory group; the plan actuary; bond financial advisors and bond counsel, .... and.... among others.  Who are these people and will they benefit financially from the sale of the bonds?  Is there any conflict of interest ?
  • There are many parts to this bond issuance that really bothers me. However, maybe it is the employee contract language that bothers me the most that got us to the necessity of considering this bond issue.   
  • I do understand the obligation to the employees, but at the same time, these same long time employees need to reopen the contracts and make some more significant adjustments.  When the township taxpayer Contribution to this pension plan is between  $5.5 million and $10.7 million PER YEAR and the employee Contribution to this pension plan is only $371, 498 PER YEAR.... an adjustment needs to be made to lessen the burden of the taxpayers.
  • I do hope that the bond issuance does what the township leadership claims it will do...but the risk of the investments need to be monitored and adjusted as the markets change.  The taxpayer has reached his/her limit and doesn't want to fund this pension plan again and again and again. 
  • Provides:  medical, dental, vision, life insurance.... plus an annual 1 % COLA  increase for all employees hired before 2005 and their beneficiaries.  This plan could and should be changed to eliminate dental, vision and life insurance.  The annual 1 % COLA increase came at the same time as the  2011 six year contract. 
  • Last reported actuarial report:  7/1/11    I guess the township didn't need to update this report to reflect the current conditions....but they may... because there is talk to do another bond issuance before the 2014  State of Michigan deadline for this underfunded health pension fund... currently projected as also a $86 million underfunded liability to the township.
  • Currently, the township pays this retiree health plan as a "pay as you go"... with the necessary payment coming from the general fund each year.  Estimated to be $3.8 million for the 205 retirees plus their dependents.  You don't see one line item for this cost because the township takes money from each department ....but it certainly adds up.
  • The only employees NOT in this retiree health plan are those hired after May 2011.  No medical, dental, vision...but do qualify for a life insurance.  They have a different retirement health plan.
  • Eligibility requirements vary.  See Milliman report... page 98/308 of the board packet.
  • This retiree health plan should last as long as the defined benefit pension plan as it is the same people.   So... another 50 plus years?
  • Here are some items mentioned as a comment in this financial report but needs DETAILS  for this report.  They are:  the township has set aside $1.6 million to be used ONLY to help pay for Other post employment benefits.  WHERE is this money and what "other" benefits? What is this account called?
  • And the second comment was a significant amount is set aside in a premium stabilization account with CIGNA for active or retiree health care.   What number is "significant"?   This is a financial report...give details.  What is the account called?
  • This report did mention that IF the township ALSO bonded THIS underfunded retiree health benefit plan... the estimated cost would be $7.0 million year.  How many bonds can this township afford as a "first obligation" ?
  • Not mentioned in this financial report is the fact that the township "OPTS OUT" of a state law requiring the employee to contribute more to their health plan.  You pay instead. This can only last a total of six years...(2017)  then the township MUST follow the law.  My question is WHY did our leadership negotiate/sign a contract for six years intentionally knowing that the taxpayer would have to cover the required percentage of health care costs the employee didn't pay? 
  • This plan is for the post 2005 hired employees and the library employees.What is that current number? 
  • The township employer contribution is 14% for public safety and 10% for others.  This is quite high as private sector employers are usually in the 3 - 7% range.
  • The employee contributes ? whatever they want up to the max by federal guidelines?
  • 3/31/13 township contribution to this plan was  approximately  $293,000 for the year.  Why not an exact figure?  This is a financial report.  How many employees in this plan at this time?
  • Neither of the pension plans mention how the library employees are funded.  Those employees are in a different taxing authority.  Why is funding of library employees not clear?
  • This financial reports states:  "Clearly, this pension plan will offer significant budget relief in pension expenditures over the long term."    I don't agree with that.   With employer percentages like that... and their estimate of 3 % pay increases each way.
  • In both pension funds, the employees are provided group and individual investment counseling as part of the plan.
  • In May, 2011 this plan was started with the new 6 year contracts.
  • Township, as employer, contributes $2500/ year   per employee.
  • Employees contribute 2 % of their base pay.
  • 3 years then vested.
  • The 28 employees hired since May 2011 .... cost the township $70,000.
  • The LAST agenda item on 7/22/13 is an amendment to this savings plan... adding LIBRARY employees.  Read more about that in the board packet.
  • WHEN... all employees are in this about 25-30 years... ASSUMING the same contribution of $2500...  the cost to the township would be $650,000/ year.
  • I did read somewhere that these employees do have a life insurance policy. ... from whom and payment amount I don't know... but the facts should be in this financial plan.
  • NOT mentioned in this financial report is the fact that the township "OPTS OUT" of a state law requiring more contributions by employees to their health care.  You pay instead.

Now for the "AMONG OTHERS"   reports that were required?  
  • What about the over $69 million in current bond debt?  I believe that payment is between $5-6 million/ year.  THIS IS ALSO A FIRST OBLIGATION from the General Fund.  How many millions toward Bonds can we afford?
  • What are the dollar balances in all the different departments and accounts at the various banks?
  • Where is all the township money?  
  • How much money is in all these pension funds?
  • Are all these moneys mixed with other accounts?
  • How much money is collected in property tax and stays at the township each year?
  • See the BUDGET... but realize... many accounts and plans and money movement and investments are NOT included in the budget report nor in the dashboard of financial facts.
Lastly,  the Financial Report states:  "The township intends to use General Fund moneys to satisfy its obligations to pay the debt service amortization schedule for the bonds." 
I thought the township told us in the meetings that the interest earned from the INVESTMENTS would pay for the bonds?  I need clarification at the  7/22/13 meeting.

However, if the BONDS are an asset in the pension fund.... it appears that the pension fund would benefit from any increases in investments..and that money would stay in the pension plan making the plan more than 100% funded.... and more importantly, not available for use by the township to help with the annual budget.  However, should that fund decrease below the 100 % funded status,  the township taxpayer would have to contribute MORE.

I still don't think the Bond issuance is a good idea.  I say... make budget cuts and live within our means as a township.  Unfortunately, I don't have one of the 7 votes to decide the issue.

The problem is that IF we make current cuts, it will not benefit us during our lifetime as we are paying for the indulgent benefits  granted over the last 30 - 40 years to people who are now retired.  A more prudent plan will maybe impact the costs for our children.   

THE 308 PAGE BOARD PACKET is found HERE.... click on Board of Trustees/ Board Packet/ 2013/ July 22, 2013....   then WAIT for this huge document to load on you computer

PS.  There are OTHER agenda items....... roads...etc.  ON the July 22, 2013 meeting.