Municipal Meltdown

I know that I am late getting to talking about the Commonwealth Magazine article on municipal finance so aptly titled “municipal meltdown” but this subject does not fade with time. It was a fine article, and has prompted much discussion, including a major opinion piece in the Eagle Tribune. The article gives us the consensus view that municipalities throughout Massachusetts are in serious financial trouble. (Even Barbara Anderson agrees with that). That is where the consensus ends. One of the highlighted cities is Stoneham. You can refer to a post I did on Stoneham here. The article refers to what is strangling municipal finance, which is the cost of health care.

Like most municipalities, the town’s quandaries begin with health insurance costs. Health care costs consume $7 million, or 12 percent, of the town’s current $58 million budget. Five years ago, health insurance consumed 5 percent to 6 percent of the budget.

A recent joint study by the Boston Municipal Research Bureau and the Massachusetts Taxpayers Foundation reported that from fiscal 2001 to fiscal 2005, health care costs rose 63 percent, even as municipal budgets overall went up by only 15 percent.

“In an era of declining resources, health care and fixed costs to the town are rising at an explosive rate, higher than what we can raise through Proposition 2 1/2 constraints,” says Leon Gaumond, the town administrator in West Boylston, where a $3.1 million override request was voted down last spring by a 3-to-1 margin.

And so a major cost factor is identified. And what of the proposed solutions. Well Governor Patrick, in filing his Municipal Partnership Act, included a provision that allowed municipalities to join the State system, called the GIC, which has experienced about half of the cost increases of local systems.

With exploding health insurance and pension costs at the center of the fiscal storm, it is perhaps not surprising that the two components of Patrick’s plan that have been passed by the Legislature and signed into law deal with those issues. Municipalities can now join the Group Insurance Commission, which provides health insurance coverage to 286,000 state employees and retirees. Using its bulk purchasing power and other negotiating clout, the GIC has held down increases in health care premium costs far better in recent years than have cities and towns, making it an attractive option for municipal managers. (Between 2001 and 2006, municipal health care costs grew 84 percent, while Group Insurance Commission costs grew 47 percent, according to the Boston Municipal Research Bureau and Massachusetts Taxpayers Foundation’s 2007 report on municipal health reform.) However, the legislation requires that communities secure approval to join the state system from 70 percent of a municipality’s public employee committee, a panel made up of union representatives and retired municipal workers.

But therin lies the problem. The GIC legislation gives local unions veto power over such a move, effectively derailing real reform in this area. Only a handful of cities have signed up for this benefit, and the union veto has to be considered a major stumbling block.

Some supporters of the GIC measure argue that making it more ambitious would have alienated unions and doomed the legislation. They point out that two years ago the Massachusetts Teachers Association helped scuttle a bill that would have allowed municipalities to join the state system without consulting unions. This time around, the teachers’ union and AFSCME were on board, though the Professional Fire Fighters of Massachusetts opposed the law.

It is interesting to note that beyond greater buying power the GIC cost advantage is cited by some as proof of municipal mismanagement. The Luberoff op-ed piece linked below at least implies as much.

Similarly, recent reports documenting the poor performance of many local pension systems and the especially high cost of health insurance for local government employees do little to inspire confidence that local governments would make good use of new funds.

The governor might consider proposing similar requirements on localities where healthcare costs are rising much faster than the state’s costs for similar insurance.

And yet beyond the legislative fix of allowing cities to join the GIC there has been little or no talk of giving cities the same administrative rights that the management of the GIC currently employ. I fail to understand how a threat to take over local health care systems can be credible when the state will not give us the same management rights they employ to keep their own costs down. From the Mass Taxpayers Foundation Health Care Report.

The GIC also benefits from greater managerial flexibility than Massachusetts law permits for cities and towns. The GIC is able to use this flexibility to be creative and innovative in controlling its costs, while cities and towns are severely limited by the requirement that all
aspects of employee health insurance—including plan offerings, deductibles, copayments,
and the percentage of the premium share paid by the employee—must be negotiated with each individual union. This requirement prevents cities and towns from responding quickly to changing market conditions. In contrast, the Commonwealth does not negotiate its employee and retiree health insurance benefits with its unions; the GIC selects health insurance plans and adjusts plan design, including deductibles and copayments,outside of the collective bargaining process.

What about comparing apples with apples. Maybe if we at the municipal level had some of the same management rights that are available to management at the GIC the cost disparity between state and local systems would be substantially less and the GIC legislation would not be necessary. Another tough vote for state legislators, but one that would go a long way towards correcting some of the imbalance that exists today in local employee health care plans.

The Tribune editorial recognizes the problem, but cites the growing disparity in pay and benefit packages between the private and public sectors, and the unwillingness of taxpayers to vote tax increases for what they perceive to be bloated pay packages. The citation of some of the outdated and ridiculous job protections afforded some classes of municipal employees also is a political sore spot that leads to anti tax sentiment. The Tribunes continuing point on this cannot simply be dismissed, because I hear it from citizenns continually. Is there an easy answer? Absolutely not. The same pressures that are buffeting the Big Three automakers in health care are about to strike at cities and towns. When the rubber finally meets the road without additional revenue sources beyond the property tax there will be substantial layoffs, and additionally added impetus to outsource some tasks that have always been the domain of municipalities. Regional cooperation in the cost savings area (shared equipment, manpower, and other resources) cannot come fast enough, and turf fights in this area need to be overcome. The bleak outlook will not change any time soon, and local government and citizens should prepare for a radical restructuring of municipal finance and service delivery.

Link to the Massachusetts Taxpayers Foundation Report on Municpal Health Care here.

Read the Commonwealth Magazine article here.

Link to the Tribune editorial here.

Link to the David Luberoff op-ed piece here.

Municipal Meltdown

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20 Responses to Municipal Meltdown

  1. Jules Gordon says:

    Your Honor,

    I one of my many complaints in our discussions has been the relationship between unions and the Democratic party, and in this case the affect of union vetoes had on the sinking the GIC legislation.

    The legislature and Administration should protect the population as a hole and not favor special interests (in this case unions).

    Questions:

    1. How did your Party become a servant of the unions? (remember the Andover youth center cost escalation to satisfy union inspired law that protected their wage while hurting the tax payer).

    2. I see yearly tax increases as a regular event. Do you?

    Women and Children first.

    Jules

    Like

  2. D.J. says:

    Very interesting piece. In my opinion, a government should attempt to operate within its means just like families must make efforts to live within their means. If that means making some temporary sacrifices and some cuts in any unnecessary spending that may exist, it might help to offset our woes for the time being. It’s merely a bandaid, but it might work.

    Sorry the change the subject, but being the political geek that I am, I can’t help asking about predictions for Thursday night’s caucuses in Iowa.

    Here’s what I think:

    Dems:
    1-Clinton
    2-Obama
    3-Edwards
    4-Biden
    5-Richardson
    6-Dodd
    7-Kucinich

    I think that the voters will come to the conclusion that, while Obama is considered the most likable candidate in recent polls, Clinton is the most electable of the bunch. Edwards has dropped in recent polls, and his aggressive persona on the campaign trail has been turning a lot of people off. I am almost certain that Biden will finish a respectable fourth…he is the hardest working candidate in the Democratic race, and it’ll pay off. Dodd will probably drop out after Iowa.

    GOP:
    1-Romney
    2-Huckabee
    3-McCain
    4-Thompson
    5-Paul
    6-Giuliani
    7-Keyes
    8-Hunter

    In Iowa, organization is key. The best organization in the state belongs to Romney, and I think his efforts will get him a narrow first place finish. On the other hand, Huckabee is currently leading but lacks a statewide organization. McCain will probably finish third, and Thompson will finish fifth (will he drop out after IA, or wait to exit after SC?).

    What do you think? (Sorry for the long ramble…I often get carried away…)

    P.S. — Hope everyone had a Merry Christmas! Sorry Jules, but 2008 is going to be the Year of the Democrat…

    Like

  3. Jim says:

    As a follow-on to DJ’s comments above:

    Democrats in 2008?! What did having a democrat control of congress do for us from 2006 on? Are our troops on their way home? Have the dems fought tooth/nail and prevented Bush from getting anything he wants? Has the economic downward spiral of this country stopped or even slowed down? Or better yet, have they won ANY battle (notwithstanding 12 second pro-forma sessions to prevent the shrub from loony recess appointments like John Bolton)? Isn’t this why they were voted in?!

    I used to think that all candidates should actively participate in debates/forums enough times so as to provide the voting public with enough info to make logical and informed choices. Hence, by that logic, having numerous presidential debates through 2007 should have been a good thing. No more.

    I simply cannot believe what a LYING pack of politicians are out there. They flip, they flop and they lie their way to the top. I mean John McCain who has gone from one end of the elliptical spectrum to the other is now viable?! Come on people!!! I’m sick of nearly the entire lot of them – dems and pubbies.

    Though I don’t agree with him in entirety, if Ron Paul had a chance in hell, he’d get my vote — if I could vote for him. Which by changing my voting status to independent, is my 2008 resolution…and my one small way of feeling like I still have some control – no matter how insignificant a token it is…

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  4. Jules Gordon says:

    DJ
    It will be interesting to see how your predictions stand up.

    I think your right, 2008 will be the year of the Democrats. In various Manzi Blogs I have made Massachusetts a model of overwhelmingly Democratic rule.

    2008 will be Massachusetts times 50. We will see how happy the citizens are of their choice.

    I believe a truly conservative approach is the best balance. Very few true conservatives running.

    Let’s keep in touch.

    A happy new year to you and Jim.

    Jules

    Like

  5. D.J. says:

    Being a Democrat, I obviously love seeing Democrats elected. However, any overwhelmingly biased body of government can be unhealthy for the democratic process. Various legislatures in the South and the West are overwhelmingly Republican, so MA isn’t necessarily the only one. Balance is always good, and is needed to keep things in check.

    I still think that Romney will pull off a win. The Democratic race has become so difficult to predict that any correct prediction in the end would be a coincidence. I’ve written about this before and I’ll do so again…watch out for Joe Biden. He’s definitely the sleeper in the Democratic race.

    On a side note, congratulations to Phil Lahey and Debbie Quinn on their elections to City Council leadership positions tonight.

    Like

  6. D.J. says:

    FYI…A fantastic website, RealClearPolitics.com, constantly updates the latest tracking polls and the averages of every poll taken concerning the ’08 race.

    Here’s what they’ve got as of tonight:

    IOWA
    Barack Obama — 29.0%
    Hillary Clinton — 28.6%
    John Edwards — 26.0%
    Bill Richardson — 5.0%
    Joe Biden — 4.5%

    Mike Huckabee — 29.0%
    Mitt Romney — 28.3%
    John McCain — 12.8%
    Fred Thompson — 11.8%
    Ron Paul — 7.5%
    Rudy Giuliani — 6.0%

    NEW HAMPSHIRE
    Hillary Clinton — 33.5%
    Barack Obama — 26.3%
    John Edwards — 18.3%
    Bill Richardson — 5.8%
    Joe Biden — 3.0%

    John McCain — 32.0%
    Mitt Romney — 28.3%
    Rudy Giuliani — 10.5%
    Mike Huckabee — 9.0%
    Ron Paul — 7.0%
    Fred Thompson — 2.3%

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  7. D.J. says:

    Just wanted to let everyone know that the New Hampshire welcoming rally for Bill and Hillary Clinton will be tomorrow morning at 8:00 a.m. at the Nashua Airport.

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  8. Jules Gordon says:

    DJ,

    Your are right about having some degree of balance in the governance of state and federal bodies.

    As Jim pointed out, the Democratic 2006 “landslide” did nothing to change things.

    Since you gentlemen are interested in polls, check out the congress vs George Bush. The Democratic leadership vs any used car salesman. How are the leaders, Pelosi and Reid, fairing in the polls?What happened guys?

    I will guarantee you guys one thing, if Hillery, Obama or John win the presidency, the empty withholding boxes in your W2 and W4’s will begin filling up with your former income.

    let’s look at the local news: Governor Patrick is proposing a budget based on successfully establishing casino gambling; A half a Billion dollars has been withheld from lottery earnings to backfill the “rainy day fund”; road tolls are up. The result is that the cherry sheet is being short changed and Mayor Manzi will be raising our property taxes for the next few years. I just received my water bill and property tax increases.

    I would like the Democratic writers, DJ and Jim, to explain what happened to the Governor Patrick’s promise to lower property taxes. Is he a Liar? I have asked before, but nobody can answer that question.

    Hang on, it gets rough from here on.

    Women and children first.

    Jules

    Like

  9. Derek Jackson says:

    I see people here bashing each other’s parties. Truth is, both parties are about as effective as an elephant and a donkey would actual be as leaders. Actually, that would be better because they would do nothing as opposed to selling their souls to special interests and corporations.

    Like

  10. Jules Gordon says:

    Your Honor, A question.

    How will you bring stability to the budget over your remaining time in office? Is it possible? (OK that’s two questions)

    Jules

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  11. Bill Manzi says:

    Jules,
    It is always possible to stabilize budgets, even in very difficult times. If it was simply a matter of business and straight numbers the answer is to slash services and lay off personnel. But this is not a straight numbers excercise. Should Libraries be closed? Should a Fire Station be closed and firefighters laid off? If so then what station? Would residents of one section feel that political considerations went into the determination of which station should be closed? Should police be laid off? Should we lay off DPW workers and outsource park maintenance? Every decision made is subject to the charge that political considerations (not just financial ones) were predominant in making these determinations. Having said all of that I feel that in Methuen we miust now achieve structural balance in our next budget, which we have not had for some time. To achieve that structural balance is going to bring real pain in terms of employment and service, but it must be done. Stay tuned.

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  12. Jules Gordon says:

    Your Honor,

    What per cent of the budget is mandatory (Federal, state or local law) requiring funding?

    Jules

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  13. Jules Gordon says:

    Your Honor,

    The inevitability of all this is a declining service. The town is at full revenue capacity. Any future cost increases will rquire additional funding from the electorate. since this a limited resource you will have to trim to fit that additional revenue you actual get, if any.

    The town is not a business. A private business has more flexibility to affect sales and revenue that a town does.

    As far as I see, all the towns around are suffering the same fate.

    How do you bring control this disaster? The Governor seems to driving spending that will trim the cherry sheet contributions more.

    Can you tell me what happened to Duval Patrick’s promise to lower property taxes?

    We seem to have screwed up prop 2 1/2.

    We need a new proposition. How about having everyone in town vote on the budget? (you would hate that.)

    Women and Children first.

    A poorer Jules Gordon

    Like

  14. Bill Manzi says:

    Well I think that the Governor tried to help with revenues (Municipal Partnership) and he tried to help with expenses (GIC portion of municipal partnership)but that just hasn’t worked out. With the current cost structure(health care and pension liabilities) being not sustainable total employment must decline, or the cost structure must be amended to reflect what can be afforded at the existing level of employment. The ramifications of that iron law are just now being felt, but as bad as it is for cities and towns the worst part has not yet arrived.

    Like

  15. Thank you for bringing this critical issue of a pending muncipal meltdown to the attention of the public.

    Keep up your great work!

    Jim Fiorentini

    Like

  16. Jules Gordon says:

    Your Honor,

    I don’t share Jim’s feeling in this manner.

    I say this since you expressed your enthusiasm for the impending wins by the Democrats. I noticed that blog has fallen off the page. Hmmmmm.

    People are moving out of the state faster than they come in. We are closing “loopholes” in Business taxes with a double hit from Gov Romney (which may have caused him problems in his candidacy). That will dissuade future business growth.

    Taxes are poised to hit the ceiling. Municipalities are stretched out straight.

    Your good buddy, Duval, is building Casino revenue into his budget. What happens if it does not come to pass. Who pays for that shortfall?

    Your Honor, you have no way out. The Democratic legislation and municipal leaders have pushed us to the edge.

    If the Democrats win the federal elections, they will spend, spend, spend.

    THERE ARE NO ANSWERS THAT DON’T INCLUDE TAX INCREASES.

    Here’s a nice blog you should add to this site. The couple of Republicans in the legislature presented a bill to distribute 450 million dollars to the cities and towns of Massachusetts. Methuen would garnish more than 3 million dollars. This lottery revenue was suppose to be distributed some time ago but was put into a rainy day fund. Now the Republicans want it distributed. The Democrats think this is a bad idea. I guess 2.2 billion in the bank is not enough.

    I’m betting you will ignore this.

    Nice job.

    Women and children first.

    Jules

    Like

  17. Bill Manzi says:

    Jules, I never ignore your posts. Let me start with the Republican proposal to distribute the 450 million dollars to cities and towns. I have spoken publicly about my opposition to the cap on lottery revenue distribution to municipalities in the past. The Massachusetts Municipal Assosiation was instrumental in getting that cap lifted. As far as distributing extra money now based on that cap (or any other reason) I am for it. I am certainly understanding of the reluctance by the Legislature to give a one time infusion of cash to cities and towns based on an inability to do so again next year, but I would still welcome the cash infusion now. You have delighted in scoring Governor Patrick over his inability to lower property tax bills, but I do not remember Bill Weld, Paul Cellucci, Jane Swift, or Mitt Romney lowering them. What Governor Patrick has done is to bring a focus to the issue of property taxes that has not existed for sixteen years of Republican governors.

    What is true is that this issue is complex and sloganeering about it can score points politically but does little to solve the problems of an increasing reliance on property taxes by cities and towns. I am frankly disheartened that every issue needs to be one in which a battle to the death needs to occur. You deride local tax increases yet you ignored my suggestions on local cuts. Should libraries be closed? Should we close firehouses and lay off firefighters? Should Police Officers be laid off? Should we not modernize our High School because it will cost local dollars? Tax increases do not need to be automatic, but with the existing cost structure of cities and towns draconian cuts will be needed to bring structural balance to municipal budgets. Those of us who have tried to avoid such cuts may be swimming against the tide, but it is a fight worth having.

    Now let me deal with the overtly partisan section of your attack post against the Democratic Party. Lets look at today’s Tribune to examine some of the “big spending” that you attribute to the Democratic Party. Link to the Tribune article here. With fuel assistance remaining constant for ten years many working families cannot find the money to heat their homes.

    During just an hour at Greater Lawrence Community Action, the agency that distributes the federal money to residents in Lawrence, North Andover, Methuen, Andover, Reading and North Reading, 10 people came in for help paying their bills, and twice as many tried to get through by phone.

    Among them were three Lawrence women.

    Jen Sweeney, 34, lives in an apartment with her three children, 4, 8 and 10. She’s a full-time teachers aide for the city of Haverhill.

    Charlotte Hamawai, 43, owns her own home and works full time at the Point After Club, which helps adults with mental disabilities.

    Maria Burgos, 18, just moved into her own apartment and three months ago, she became the mother of a baby girl. She works full time at Design Lighting in North Andover.

    Maybe this is a program that is “wasteful’ by Republican standards, but I thought that if government did one thing right it would be to help folks who are working but due to conditions beyond their control (oil at $100 a barrel under Republican President George Bush) have a hard time making ends meet. After reading this story I understand what you mean by “women and children first”.

    Finally Jules I am a Democrat who acknowleges that waste does exist in government, and it is difficult to ask taxpayers for more when such flagrant abuses continue. Government needs to be reformed, and such reforms are difficult but not impossible. Let me say that such abuses should not lead to a political condemnation of all governmental activity. As my last statement let me say that water rates in Methuen had not risen in fifteen years. The City has upgraded its water treatment facility at a cost of 20 million dollars plus, and has built a new water tank in the east end of Methuen at about five million plus. Should the City have foregone these improvements, and should we let a system that has parts that go back to the 1890’s fall apart? My answer is no. Such improvements are a necessary part of the delivery of a vital service, and government should not be apologizing for making them. Maybe the last Republican Congress could have given us an earmark for the improvement. It certainly would have meant more than the Republican funded “bridge to nowhere”.

    I also read the articles in the Sunday Tribune. For readers of this blog that missed them you can link to Chairman DeLeo’s column here. You can read the Representative Brad Hill story here.

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  18. bill says:

    Nice try Mr. Mayor. How about a true synopsis of what the GIC is all about-Control and redistribution. The GIC will be used by the state to subsidize its unfulfilled liabilities under the Mass health connector mandates. That is why deval and dimasi want this forced GIC legislation. This is fine if your a liberal minded puke who disdains the ideals of liberty and individualism. What a fascist notion-forcing working people to pay more of the share for people who won’t and don’t contribute.
    I’m curious Mr. Mayor, you speak of containing costs, however I hear nothing of the steps you would take towards illegal aliens taxing the emergency healthcare system nor is there any mention of steps that could and should be taken by municipalities now relative to prescription drug costs. Numerous examples have existed in the private sector where companies utilizing generic prescriptions save upwards of 40% in healthcare costs. Instead, your idea is to shift the burden to your employees (they should probably just be grateful to have jobs anyway), creating more free cash for you to pad city hall or the school department with extra personnel.
    Mr.Mayor, you clearly have disdain for the working person of this state. Only in Massachussetts and San Franscisco can a person with your lack of respect for American values gain public office. Shame on you and shame on the voters of Methuen for electing such a liberal fascist.

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  19. Bill Manzi says:

    Hey you sound like a follower of Lyndon Larouche. Are you a Larouche person? Either way you should immediately seek psychiatric assistance, or up the dosage on the very strong meds that you must be on. Are you importing those meds from Canada to reduce your costs?

    Like

  20. Bill Manzi says:

    Well maybe you are a Montana freeman? Are you out there doing military training in fatigues, and do the meds impact your ability to get around the forest without getting lost?

    Like

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