Bill Manzi.com

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.