OPEB Report and More Reform

Posted on January 24, 2013 by billmanzi

The Governor certainly appears to mean what he said about sprinting to the finish line. The latest reform that the Legislature will be grappling with is how to deal with the costs of retiree health care at the state and municipal level. This issue is a gigantic sword pointed at the fiscal heart of municipalities throughout the Commonwealth, with unfunded liabilities amounting to billions of dollars. With that in mind the Governor, Legislature, and stakeholders put together the OPEB Commission to deal with the issue, and make recommendations.

A good place to start might be with the obvious question: What the hell is OPEB? It is “other (than pension) post-employment benefits”. For our purposes it is the obligation of both the State of Massachusetts and its localities to provide health care to its retirees. That obligation, coupled with our “pay as you go” method for dealing with it, has left municipalities with a huge future obligation and no methodology for paying it. Some years ago the same issue existed for our pension system, which was also on a pay as you go system. That has been modified so that both the Commonwealth and localities are on a mandatory schedule set by actuarial calculation to become fully funded on pension obligations. (Yes that schedule has been fiddled with, but lets not get diverted.) Newer accounting requirements (GASB 45)now force communities to list the present value of OPEB obligations, with a calculation included called ARC (Annual Required Contribution) that is the number required to pay current obligation as well as amortizing a portion of the unfunded liability. But that is just a number to look at, since most municipalities are still on the “pay as you go”system, and no municipality (that I am aware of) is on a fully funded ARC. Is there anything to worry about here? The numbers please! From the OPEB Commission report:

In Massachusetts, the OPEB liability for state and local government amounts to approximately $46 billion- a liability larger than the unfunded pension liabilities in the Commonwealth- and budgetary spending for retiree health benefits exceeds $1 billion.

That is a substantial amount of future liability, with very little pre-funded, leaving a huge burden for future taxpayers. A study by the Massachusetts Taxpayers Foundation estimated that the top 50 cities in the Commonwealth currently pay about $500 million in retiree health care costs, and would be required, if put on a full funding schedule, to come up an additional $700 million annually. (The so called ARC payment would be $1.2 billion.) Yes you read that number right. Another number to dwell on is the Massachusetts Municipal Association estimate that between 2001 and 2010 retiree health care spending rose from 13.5% to 20% as a share of municipal budgets. (And folks wonder where, at the local level, tax dollars are going!)How about more numbers on where our money is going? From 2002 to 2009 health care costs for the 50 largest municipalities in Massachusetts grew by 85%, while property tax revenues grew by 42%. (So the next time you hear someone railing about bad budgeting and fiscal issues just lean over and say READ THE NUMBERS. It is HEALTH CARE bankrupting us, and nothing else.) And again that spending does not include ANY pre-payments to deal with the enormous unfunded liability. How did we get here, and how do we get out from under? The Commission talks about the drivers of OPEB liability, which are the loose standards for benefit eligibility, the richness of the benefit once qualified, and the spiraling cost of health care. The standards for eligibility mirror those that qualify folks for pension eligibility. So as an example a municipal employee in Group 1 may retire at age 55 after ten years of service, and would be eligible for retirement health benefits. From the Massachusetts Taxpayers Foundation Report titled “Retiree Health Care: The Brick That Broke Municipalities’ Back”:

After only 10 years of service, employees are entitled to lifetime health care benefits upon retirement.
By contrast, the pension system tailors benefits to years of service so an individual who works for 30 years receives a much greater benefit than one with 10 years of service. Retirees are eligible for health care benefits as early as age 55, 10 years before they qualify for Medicare.The state mandates that municipal employees must work only 20 hours per week to be eligible for the same benefits as full-time employees. Such part-time employees also need to have only 10 years of service to receive retiree benefits, so a part-time employee must work the equivalent of only five years of full-time service to obtain lifetime retiree health care benefits. State law requires that retiree health benefits include spouse and dependent coverage which costs more than twice as much as individual coverage. At local option, spouses retain lifetime coverage upon the death of a retiree.

So the Commission, armed with data on eligibility, costs, and huge future liabilities that will eventually crush municipalities has come forward with a set of recommendations in an attempt to at least partially right the system. Eligibility standards would be raised, with benefits varying depending on total years of service. The Massachusetts Municipal Association summarized some of those recommendations:

The governor is endorsing the commission’s recommendation that the minimum age for benefits be increased by five years (to age 60 for Group 1 retirees) and that the years-of-service requirement to receive the minimum benefit be increased by 10 years, to 20 years.

In order to recognize the accomplishment of career employees, the commission recommends pro-rating benefits based on years of service. An employee retiring after 20 years of service would receive 50 percent of the “maximum available benefit” – in other words, the health insurance premium contribution offered by the municipality would be no less than 50 percent. An employee retiring at 30 years would receive 100 percent of the “maximum available benefit.”

The commission made recommendations for two additional benchmarks, at 23 and 27 years of service.

Current retirees would be exempt from all proposed changes. The changes would apply to current and future employees unless there is a specific “grandfather” clause.

In an effort to be fair to employees who are close to retirement, the commission recommended a number of grandfathering and phase-in provisions.

Employees who are at least 50 years old with at least 20 years of service and employees who are 60 years old with nine years of service would be exempted from the reforms. Teachers enrolled in Retirement Plus, a provision implemented in 2001 that requires teachers to contribute an extra 2 percent to their pensions, would be able to retire at age 57, three years before their Group 1 colleagues, if they have hit the statutory maximum of 80 percent of their pension.

In order to recognize the impact these changes would have on future retirees, the commission recommended a three-year moratorium, beginning on Jan. 1, on changes to the premium contribution split. On average, municipalities pay 75 percent of the premium for retiree health insurance, with a minimum of 50 percent.

The commission also recommended that communities be required to cover health insurance for surviving spouses at a minimum level of 50 percent. Approximately 40 municipalities in Massachusetts don’t contribute to the premium for surviving spouses. If the additional cost of covering these surviving spouses exceeds 50 percent of the savings from the OPEB reforms, the state would cover the difference.

Lastly, the commission recommended a series of best practices and possible future reforms, including amending Chapter 32B, Section 9A1/2, which allows communities to charge back other communities for a portion of a retiree’s health insurance, to make the process easier to use; and changing procedures of the State Retirement Benefits Trust Fund to make it more accessible to municipalities.

As a best practice, the commission report recommended that municipalities periodically put retiree health insurance out to bid.

The commission, interested in the fiscal sustainability of its proposed reforms, included provisions for periodic review, using a benchmark of “sustainable spending growth.” If growth exceeds a benchmark of 4 percent for the state and 3.25 percent for municipalities, measures would kick in to help further control costs.

Back in February of 2011 the Tribune wrote an editorial talking about the dangers to municipalities of the OPEB liabilities. OPEB liabilities locally are enormous, and would require major increases in spending to satisfy a full funding schedule. From that Tribune editorial:

A more realistic, and much more painful, scenario came from Methuen Mayor William Manzi, where the city’s liability is about $210 million. He said a study showed that the city could fund its obligations in 30 years if it started by setting aside $4.3 million in 2009 and added more than $4 million every year until 2038.

Some of the OPEB liabilities of local cities:

Lowell: $432,752,000
Methuen: $209,816,000
Haverhill: $299,042
Lawrence: $323,977,000

It is a major problem, with staggering implications for local and state government. The recommendations of the Commission for these changes were endorsed by the organized labor representatives to the Board, but rejected by the Massachusetts Municipal Association. The MMA issued a statement on the recommendations:

Cities and towns are committed to providing quality health care benefits for their retired employees, and it is important to recognize that the current system must be reformed to make it sustainable and affordable for taxpayers, municipal workers, and present and future retirees. Without effective reform that provides meaningful savings now, the cost of the system will soon spiral out of control and consume a larger and larger share of local budgets, forcing cutbacks in essential services and increasing a property tax burden that is already too high.

The Massachusetts Municipal Association appreciates the initial steps toward reform that have been offered by the OPEB Commission and endorsed by Gov. Deval Patrick and others. There are many elements of the proposal that we strongly support, and we look forward to working with the administration, Legislature and all stakeholders to achieve reform this year.

We cannot endorse the full package offered by the commission for two reasons.

First, although the proponents are predicting that cities and towns could save between $9 billion and $12 billion over the next 30 years, almost all of this savings would be delayed by more than a decade. Only 5 percent of the savings would be achieved in the next 10 years, and 95 percent of the savings would not be realized until 2024 and beyond. Cities and towns cannot wait 10 years for meaningful savings – especially since municipal retiree health costs are expected to grow by at least 50 percent over the next decade. Retiree health reform must offer immediate relief, otherwise OPEB costs will expand and squeeze out education, public safety and other vital services from local budgets.

Second, the legislation would impose a three-year moratorium on any changes to the percentage contribution paid by retirees, and after that, it would permanently strip cities and towns of their existing ability to adjust the premium percentage for anyone who has already retired, even for those who receive generous pensions. This proposal would effectively eliminate the most important tool that cities and towns can use to carefully manage the cost of retiree health benefits.

Again, we applaud Gov. Patrick and the members of the commission for recognizing that Massachusetts must take steps to reform the retiree health insurance system. We look forward to working with all parties to build on the commission’s recommendations so that the final product provides communities and taxpayers with immediate and meaningful savings and provides employees and retirees with an affordable and sustainable system that provides excellent benefits.

It is likely that we will see some legislative action on the Commission recommendations this year. I anticipate more weight will be given to the Committee recommendations than to the MMA position, but it will be very interesting, especially in light of all the other heavy lifting that the Legislature is facing this session. As far as municipal finance goes there is not a more important issue.

Link to the OPEB Commission report here.

Link to the Massachusetts Taxpayers Foundation Report here.

Link to the MMA Presentation to the OPEB Commission here.

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President Obama's Inaugural Address

Posted on January 22, 2013 by billmanzi

President Barack Hussein Obama, the 44th President of the United States, delivered his inaugural address today. The President, in my biased view, gave a wonderful speech that laid down some markers, mentioning Social Security and Medicare, equal rights for gays, and equal pay for women, as well as global warming. He laid out a vision of an active government working for the common good, and to the chagrin of Republicans had the nerve to lay out a value system based on what he stood for in the campaign. Republicans actually had the nerve to say that the President did not come forward in a spirit of compromise. From Politico:

“The words were code for a progressive agenda. I’m hoping that the president will recognize that compromise should have been the words for today, and they clearly weren’t,” said Rep. Darrell Issa (R-Calif.), a frequent Obama critic who has zealously pursued a contempt case against Attorney General Eric Holder.

Imagine Darrell Issa of all people saying that compromise is the word of the day. The President has taken plenty of criticism during his first term from his own party for his willingness to attempt bipartisan compromise. But as he has repeatedly found out he has no partner that can actually deliver substantive compromise. You do not have to be a partisan Democrat to understand that for better or worse the Republican Congressional Leadership, in 2011, made the calculated gamble that compromise would not be a part of their program. They felt that they could hold out for the whole enchilada by beating the President in 2012. It was a calculated risk, and they lost. Since then the Republican House majority, by any standard that I understand, has made asses of themselves. Speaker Boehner could not deliver a cup of coffee, much less a “grand bargain”. His marginalization comes not from Barack Obama but rather from his own caucus. They lost the gamble in 2011, and are in shambles today. The President will plunge forward and work towards realizing the values that he ran on, and won on. That may seem like partisanship to Republicans, but maybe they should have thought about that in 2011.

http://c.brightcove.com/services/viewer/federated_f9?isVid=1

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More on the Governor's Revenue Proposals

Posted on January 21, 2013 by billmanzi

Governor Patrick, as we know, outlined a very ambitious agenda for revenues and new spending on infrastructure and education in his State of the Commonwealth speech last week. The Massachusetts Budget and Policy Center has come out with an analysis of the Governor’s proposals that is fairly detailed. Let us take a look at some of what the Governor is trying to accomplish, without the politics.

As the Governor began this process the goal was (nominally) to fix the large structural deficit that everyone involved acknowledged we had in transportation. That deficit involved far more than the MBTA. It includes the money to repair roads and bridges, and to allow our road system, as well as our mass transit systems, to have enough funding to bring both into a “state of good repair”. Are you angry about some of the performance problems at the T? Well many of those issues center around poor, outdated equipment that the T is using due to lack of capital funds.

How bad is it? Capital funds are being used to pay employees, which means that we are incurring interest costs for every day work at the Department of Transportation. The Governor has invested in road and bridge repair, but we simply cannot keep up within the current revenue stream. So his commitment of dollars there has been insufficient, a fact with which I think the Governor would readily agree.

So the Governor, as he had two years back, was looking to plug an obvious hole. But rather than play for the short ball the Governor decided to add education, and new transportation spending, and go for the gusto. His proposal would transform the sales tax, alternately lowering it, but rededicating all of it to school building and transportation. (The Massachusetts School Building Authority would continue to receive 1 penny of the sales tax revenue.)He in essence replaces some of that revenue, and pays for additional education and transportation spending, by increasing the income tax from 5.25% to 6.25%. That is about a 19% increase in the relative tax burden.

But the Governor does not stop there. He looks to add some provisions that would make the income tax slightly progressive, by doubling the Personal Exemption, from $4400 to $8800 (single filers) and from $8800 to $17,600 (for married filers). The Governor would also eliminate a host of income tax deductions in the code, with the bottom line being that higher income earners would feel more of a pinch from this increase than folks who earn less. If enacted in that fashion it would almost certainly be subject to a court challenge on Massachusetts constitutional grounds. But that is a story for another day.

The Governor has identified the new Transportation projects he is looking to fund in this package, and it is a pretty big group. From the Budget and Policy Center:

Specific projects funded under this proposal include improving highway interchanges; increasing annual funding for Regional Transit Authorities; resurfacing several major roadways; completing the Green Line extension into Somerville and Medford; connecting rail service between Springfield and Boston, Boston and Hyannis, and Pittsfield and New York City; replacing outdated buses and Red, Orange, and Green Line cars; completing the South Coast rail extension; and expanding South Station.

The Governor, in his many stops after the speech, has defended the proposal on taxes as “bringing choices to the table”. I recognize that the Governor’s proposal is very likely to be scaled back in the Legislature. But what I consider to be important is the concept that the Governor starkly brings forward. If you want it you must pay for it. If the Legislature scales back the revenues they will have to scale back the investments, unless they can find other revenues that nobody is aware of. Over at the conservative Pioneer Institute Jim Stergios has written, and talked about, the Governor’s proposal. Stergios is against, but he does talk in terms that I can understand. He openly says two things that I consider important.

1) That a major part of our existing transportation finance problems come from “expansion spending” that would have been better spent on maintenance. From the Pioneer website:

Just as the Big Dig drained money from other state road projects, new transit lines diverted funds from maintenance to expansion. Today, nearly half the MBTA’s $8.6 billion debt can be traced to building, operating, maintaining and paying debt service on those projects. So can much of the T’s $3 billion maintenance backlog.

I happen to agree with Stergios here. If a project must be done then it should be paid for. I may not agree with Stergios on the relative merits of the projects he includes on that list, but his point is well taken, and the idea that transit expansion can be done for nothing has put us in this mess. In making his filing in this fashion the Governor appears to agree as well.

2) The Governor’s new list of transportation “expansion” projects is also undeserving of new dollars. From Pioneer:

We need to stop calling the same old political projects “transportation needs.”

Compounding past mistakes, the report includes no mention of what these projects will cost to operate and maintain over their lifetime, instead focusing only on construction costs over the next decade.

The $1.02 billion annual number is hyper-inflated with a wish list that includes South Coast commuter rail, passenger rail from Boston to both Springfield and Cape Cod, and even between the Berkshires and New York City, over $40 million a year for bike and pedestrian projects, a doubling of Chapter 90 local project funding.

That debate will now be had. But Governor Patrick has placed that debate on a new, higher plane. And the Governor, while being a strong advocate for his own transportation spending recommendations, has also struck what so far seems to be an unnoticed blow for fiscal responsibility in transit spending. If you want it you must pay for it. And the Governor is willing to step up and have that debate. After you look at this you realize that on fundamental principles maybe the Governor and Jim Stergios are not that far apart. And that principle will force the Legislature, like it or not, to make some very difficult choices in the months ahead.

A clip from Michael Widmer of the Massachusetts Taxpayers Foundation is below. Mr. Widmer was a member of the Transportation Finance Commission, and is a budget and policy analyst without peer.

http://www.necn.com/common/thePlatform/web_45/swf/flvPlayer.swf

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Governor Patrick Goes Long, and Local Reaction

Posted on January 19, 2013 by billmanzi

Governor Patrick unveiled his finance plans for transportation and education during his state of the state address Wednesday night, putting together a package that includes a cut to the sales tax, and an increase in the income tax. I have done a post on this before the speech which which looked at the menu of options that Governor Patrick had laid out. Now we have the plan, which not only seeks to stabilize our rickety transportation system but to increase investment in that sector by financing projects that the Governor feels the Commonwealth needs. I hope to have a separate post that will look at some of the key data involved in this plan in the next few days, but for now let us focus on the politics, and initial local reaction.

The Eagle Tribune ran a story asking local legislators for their initial reaction to the Governor’s proposals, and locally there was not a bunch of enthusiasm shown. Democratic Senator Barry Finegold expressed reservations about increasing the income tax, and has in the past been a vocal critic of the MBTA. Republican Rep. Jim Lyons was not supportive, and looks to take additional investment out of the existing budget. A very key player is House Ways and Means Chair Brian Dempsey (D-Haverhill), who was non-committal. Democratic Rep. Linda Dean Campbell spoke out forcefully against the Governor’s plan. From the Tribune.

State Rep. Linda Dean Campbell, D-Methuen, said Patrick’s plan is “too expensive and risky.”

“We need to remember unemployment is still high and we have some big health care expenses coming up,” Dean Campbell said. “The Legislature and the governor have done some good work recently cutting spending and building our reserves, that’s what needs to continue. … Our transportation problems have built up over a decade. We’re not going to solve them overnight.”

In the past, Dean Campbell said she opposed attempts to increase gas and sales taxes, but that she would potentially consider a modest increase to the income tax or increasing tolls on state roadways to pay for important initiatives.

“It’s the fairest tax if we have to raise taxes,” she said of the income tax. “But we have to be careful not to derail our slow recovery and go backwards. The governor’s timing is off for these ambitious educational and transportation plans. He needs to go slower.”

State Senator Kathleen Ives was non-committal, and Methuen Rep. Diana DiZoglio was not a part of this Tribune story.

At least in the Merrimack Valley the Governor starts out from behind. But let us not count the Governor out up here just yet. He visited Haverhill this week and toured some key economic development sites, with Mayor Fiorentini hosting, along with Ways and Means Chair Dempsey. and the rest of the legislative delegation. And the Governor, to his credit, has placed some pretty large enticements into the package, including a substantial lowering of the sales tax, which will only help border communities. His inclusion of extra monies for the Merrimack Valley Regional Transit Authority, and additional Chapter 90 money for localities, means that there will need to be some big decisions made as the Legislative process begins to work. And that process will bring some counter pressure on legislators to consider including, and paying for, some of the items that clearly benefit the region. The Governor was also scheduled to visit the home town of Senate Ways and Means Chair Senator Stephen Brewer today, as well as other stops, and he brings with him projects that legislators have been clamoring for. The Governor, in his own way, is showing that there is no free lunch. And that, from a fiscal responsibility standpoint, is critical to understand. A major part of our fiscal problem, as a Commonwealth and as a nation, comes from thinking that you can have major projects that do not have to be paid for. It is not, and has never been, true. The State House News Service captured the conundrum for legislators this relatively simple concept has created.

“To say, “Hell no, we won’t go,’ isn’t necessarily a good vetting process,” said Sen. Brewer, the recipient of a Patrick visit on Friday to tout investments in infrastructure.

Rep. Patricia Haddad, a Somerset Democrat and top deputy to House Speaker Robert DeLeo, summed up perfectly the corner Patrick has backed legislators into.

“It’s hard not to think they’re great ideas, but I do have to worry what it means for the people in my district. We have a (higher) unemployment rate than anywhere in the state, but we’re the ones who want the South Coast rail so badly, so I’m on kind of a swing,” Haddad said.

The question is how many will jump.

The Governor is very good at his job.

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RIP Ronnie Ford

Posted on January 18, 2013 by billmanzi

This week saw the passing of long time Methuen resident, City Councilor, and sometimes gadfly Ronnie Ford at age 75. Ronnie was a tremendous personality, beloved in Methuen for his gregarious nature and his willingness to always lend a helping hand to his neighbors, constituents, and even people with whom he disagreed politically. Ronnie was on the City Council when I arrived on the scene, and although we disagreed frequently he never held that against me (for more than a day). He was committed, like his friend Franny Roberge, to public housing, not always popular in a suburban community. But his commitment to help people never wavered, and his easygoing personality made him friends that lasted a lifetime. Methuen has suffered a big loss with his passing. Rest in Peace Ronnie Ford.

The Tribune story on Ronnie can be found here.

Posted in Methuen, Methuen City Council | Tagged | Leave a comment

Transportation Finance: The Gorilla in the Room

Posted on January 15, 2013 by billmanzi

The Governor and the Massachusetts Department of Transportation yesterday unveiled the Administration’s much anticipated transportation funding plan. The Governor has built upon the the findings of many studies detailing how deficient our transportation funding system is. You do not necessarily have to be a fan of the Governor’s approach to understand that the way we fund transportation in Massachusetts is seriously broken, and honestly cannot be corrected without either new funding, or pretty stark cuts in services, or fare and toll increases. What the early Republican critics are saying is that funding needs to increase, but that other budget areas need to be cut so that the shortfall can be made up through budgetary re-allocations. Fair enough as far as it goes. But what specifically would that entail, and is there an alternative plan that would show just how this budgetary re-allocation would work? If not then the criticism implies acceptance of the transportation status quo.

The Governor will not be satisfied with simply correcting the transportation funding problem, but he has put forward an ambitious plan of new investment that would be paid for within this package. Those investments include: (From State House News Service)

The plan calls for $1.18 billion to be invested in bridge repairs, $1.25 billion in hundreds of local and regional highway projects, $930 million for Interstate 91 in Springfield and the Interstate 93 and 95 interchanges in Woburn and Canton, and $430 million for bicycle and pedestrian improvements.

Drawing applause from the crowd at UMass, including local leaders like Gloucester Mayor Carolyn Kirk, the plan also recommends an additional $1 billion over 10 years be pay for Chapter 90 municipal road maintenance projects.

Davey said $2.4 billion would be used to purchase new cars for the T’s Red, Orange and Green lines, some of which were purchased as far back as 1969 for the Red Line and 1979 on the Orange Line. Unlike cars and trolleys purchased with federal funds, Davey said using state money would allow the state to require that those cars be built in Massachusetts, creating more jobs.

Another $850 million would be used to replace MBTA and RTA buses, and $300 million would go toward MBTA power and facilities upgrades to reduce frequency of delays and disabled trains.

Envisioning a expansion of commuter rail options that includes the South Coast rail extension ($1.8 billion) and the Green Line extension ($674 million), as well as rail service between Springfield and Boston ($362 million), Boston and Hyannis ($21 million) and a connection between Pittsfield and New York City rail ($114 million), the plan also calls for an $850 million expansion of South Station.

If there is an area that might see some “legislative work” this could be it. But the Governor knows that already, and by bringing such an ambitious agenda for transportation improvements and investments he has stretched the discussion in such a way that the core of his plan is likely to move forward in one fashion or another. He has also created some ready made advocates by identifying specific projects, which will make it hard for legislators to vote against a package that will benefit their constituents.

The Governor has identified some critical areas that have cried out for action in his plan.

1) Forward Funding the RTA’s. This reform will bring budgeting sanity and additional resources to the state’s Regional Transit Authorities, allowing them to forego borrowing for budgeting, thereby saving interest costs and allowing them to spend more on their core functions. The Governor is also bringing additional monies for them to the table for them, which will help expand services and modernize infrastructure. It will also help to create a statewide constituency for the Governor’s plan.

2)Getting transportation employees off of the capital budget, and into the regular budget. This has not been a big secret, but it certainly is not prudent to pay for everyday expenses via a capital budget, leaving our ability to fund capital projects lessened, and incurring unwarranted interest expense for the taxpayers.

3) Adding $1 billion over ten years to the Chapter 90 allocation to cities and towns. An important component, and one that Mayor’s and Manager’s throughout the Commonwealth will appreciate. Additional built in constituency for the Governor.

I have attached some of the comments made by the Governor at the plan unveiling, as well as by Senator McGee. The Governor has begun to tout the benefits of his plan, appearing on radio this morning and saying: (State House News Service)

“Everybody’s going to have to pay more, but we’re going to get more. We’re going to get open-road high-speed tolling on the Pike; we’re going to get a T that is well equipped and runs until 1 or 2 in the morning; we’re going to get regional transit authorities that have updated equipment and operate on the weekends; on the commuter rail, you’re going to be able to take a train from Boston to Springfield, and from Springfield to New York City – or Pittsfield to New York City,” Patrick said. “That is what it means to have a 21st Century transportation system, and we cannot keep acting like we can have it – first of all, that we have it right now, because I think it’s something most people understand that we don’t have.”

This is a comprehensive plan that identifies a menu of options that could be used to fund it. The Governor has identified those specifically, without saying which ones he might favor. That will come in Wednesday’s State of the State address, where he is likely to recommend what he believes is appropriate. Critics of his approach on Wednesday will be in a difficult spot, as he will of course invite them to choose from the other menu options. The full menu of funding options is below, taken right from the Governor’s plan.

Commonwealth Payroll Tax
According to Moving Forward with Funding: New Strategies to Support Transportation and Balanced Regional Economic Growth, published by MassINC in 2011: “A 0.16 percent payroll tax would provide revenue in the range needed to close the MBTA’s annual operating deficit ($140 million to $207 million, depending on how the tax is levied in overlapping RTA districts). This 0.16 percent payroll tax would cost the median full-time worker in the MBTA service area just $1.77 per week. In RTA service districts, a payroll tax at this rate would generate nearly $100 million in revenue…at a cost of approximately $1.50 per week to the median full-time worker in RTA districts.” A payroll tax would be a new tax in the Commonwealth that employers would pay on the wages of their employees.

Motor Fuels Taxes
The current tax of 21 cents was last increased in 1991. Only 14 states have lower per-mile fuel taxes than does Massachusetts, making our fuel tax one of the cheapest in the U.S. Increasing the gas tax by one cent per gallon would yield $32 million per year. To raise $1 billion, consumers would need to pay an additional thirty cents per gallon, resulting in a total gas tax of 51 cents per gallon, which would be the highest in the nation. The Commonwealth could also index the fuel tax to inflation and/or other adjustments in the price of gas, which would allow the Commonwealth to benefit from increases in the per-gallon cost of gas.

State Sales Tax
To raise an additional $1 billion in sales tax in calendar year 2013, the sales tax rate would need to increase from the current 6.25 percent to 7.75 percent.
Income Tax
To raise $1 billion in the personal income tax paid by residents of the Commonwealth in CY2013, the existing income tax rate would have to be increased from 5.25% to approximately 5.66%. This would be approximately an 8% increase over the existing income tax rate.
Green Fee
Under a ‘green fee,’ existing vehicle registration and title fees would be assessed additional fees based on a vehicle’s level of carbon emissions. Under a green fee scenario, owners of motorcycles and hybrid cars could pay an extra $15 every two years for registrations, car and hybrid SUV owners could pay an additional $30 every two years, SUV and light truck owners could pay an additional $60, and heavy truck owners could pay an additional $85. The fee would be adjusted to reflect the age of the vehicle and the anticipated emissions produced – higher polluting vehicles would pay more, while cleaner vehicles would pay less.
Vehicle Miles Traveled Tax
A 2.4 cents-per-mile fee on vehicle miles traveled would produce $1 billion in annual revenue. The fee could be collected at a vehicle’s annual safety inspection or through an onboard device that would record miles travelled but protect user privacy by not collecting location information.

Routine, Regular Increases in Fees, Fares, and Tolls
Some experts recommend shifting the burden of funding transportation services from broad-based taxes to specific user fees in order to more clearly draw a connection between cost and use. To accomplish this over the next decade, MassDOT could enact a series of modest, regular increases to transportation fares, fees, and tolls to keep pace with the cost of inflation. MBTA fares could increase 5% every two years beginning in FY2015, yielding an estimated $145 million in cumulative new revenues by 2023. Tolls could increase 5% every other year beginning in FY2015, resulting in $84 million in new annual revenues by FY2023. For services provided by the Registry of Motor Vehicles, a 10% fee increase every five years beginning in FY2018 would result in $54 million in new annual revenues.

New Tolling Mechanisms
MassDOT could introduce new tolling mechanisms to support state road maintenance or expansion, local roadway improvements, or public transit expansion. This could be done through dedicating existing toll revenue differently than it is done today, implementing high-occupancy/express lane tolls (so-called “HOT” lane tolling), developing congestion pricing policies, or introducing tolls on new facilities such as I-93, I-95, or I-84 as a way to fund ongoing maintenance and capacity improvements. In order to implement innovative toll concepts on interstates other than I-90, MassDOT would need approval from the Federal Highway Administration.

Western Turnpike Tolls
Tolls currently collected on the Western Turnpike generate nearly $120 million in annual revenue. Eliminating these tolls when the bonds on the Western Turnpike reach maturity in 2017, as is currently mandated, would greatly constrain MassDOT’s ability to continue to maintain the Western Turnpike in its current condition, and would exacerbate inequities on the roadway. The financial analysis discussed throughout this document, therefore, assumes that the revenue generated by the Western Turnpike tolls will continue to be available to MassDOT after 2017. MassDOT proposes maintaining tolls on the Western Turnpike in order to continue to dedicate sufficient resources to this important corridor, and to use a portion of those tolls for transportation projects off the Turnpike in the region in which they were collected (for example, dedicating a portion of tolls collected west of Sturbridge to transportation improvements on the Turnpike as well as locally in the Pioneer Valley and/or the Berkshires). This change will require legislative approval.

http://www.statehousenews.com/video/13-01-14gov/player-viral.swf

http://www.statehousenews.com/video/13-01-14reax/player-viral.swf

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Consensus Revenue: By the Numbers

Posted on January 15, 2013 by billmanzi

I did a post yesterday on the upcoming Massachusetts State budget, and a major portion of that post dealt with the “estimated revenue” that plays a central role in the formation of the spending blueprint for the Commonwealth. My post had estimates from the Massachusetts Taxpayers Foundation and the Massachusetts Budget and Policy Center. The Legislature and the Administration each year take input in open session from some of these budget experts (including the Massachusetts Taxpayers Foundation)and devise what is known as the “consensus revenue number”, an estimate of revenue that will be used by all three branches in the formulation of the state budget. The legislative chairs of Ways and Means, as well as the Secretary of Administration and Finance, work together to develop that number.

With all of the news activity yesterday’s announcement of that number was somewhat lost in the shuffle. But it is one of the critical legs holding up the budget, and everyone, including the locals, needs to pay attention.

It looks like Mike Widmer was just about right on the nose, as yesterday’s announcement showed an increase of 3.9% over the revised FY 2013 revenue estimate. From the Secretary of A&F.

The consensus tax revenue estimate for Fiscal Year 2014 is in the middle of the range of tax revenue growth estimates projected by economists and others at the December hearing. The $22.334 billion estimate reflects actual growth of 3.9 percent above the revised tax revenue estimate of $21.496 billion for Fiscal Year 2013.

“The projected growth in tax revenues for Fiscal Year 2014 reflects an improving economy,” said Secretary Shor. “While this is good news and our estimate of modest growth in tax revenues will help, we will continue to have to make tough and thoughtful decisions necessary to balance our budget in Fiscal Year 2014 and set Massachusetts on a path towards long-term, sustainable growth.”

Widmer had pegged revenue growth at $835 million, while consensus came in at $838 million. For our purposes it is identical. As I said in my post yesterday this is a number that bears close scrutiny, as the Administration had to lower its revenue estimates this year (FY13) by $500 million.

The revenue number also has what we know as “carve-outs”, which are portions of the revenue stream not subject to appropriation, but simply sent to the respective recipients as a matter of law. An example would be the Massachusetts School Building Authority, which receives a piece of the state sales tax. Those carve outs were listed in the A&F Press Release.

The three branches also reached agreement on statutorily required off-budget transfers that are mandated by current law:

$799.6 million for the Massachusetts Bay Transportation Authority (MBTA)

$703.6 million for the School Building Authority (SBA)

$1.630 billion for the pension fund transfer, which represents full funding of the scheduled pension contribution for Fiscal Year 2014

$21.6 million for the Workforce Training Fund, which was changed to a non-budgetary trust fund in the Fiscal Year 2012 General Appropriations Act (GAA)

The total amount of off-budget transfers is $3.155 billion. Therefore, after taking into account the $37 million of capital gains tax revenue that must be deposited in the Stabilization Fund, the Secretary and committees agree that $19.142 billion will be the maximum amount of tax revenue available for the GAA in Fiscal Year 2014, and they will base their respective budget recommendations on that number.

So after all is said and done the budget writers may include $19.142 billion for all other state expenses beyond the listed carve outs. The Governor will be first out of the box, and will talk about the budget, and his transportation package, this week in his State of the State address.

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Massachusetts Budget and Finance Front and Center

Posted on January 14, 2013 by billmanzi

Later this morning Governor Deval Patrick will unveil his proposal(s) for financing the Massachusetts Transportation system. The Governor has done quite a good job of keeping the key provisions under wraps, but it is safe to say that the Governor will recommend some level of new revenues. This week the Governor will give his state of the state address, and we can expect his annual budget as well. Say what you want about the Governor but he is certainly not coasting in the last two years of his term. From pensions, municipal workers compensation, to housing authorities, and now to transportation, the Governor has (will) unveiled major proposals that will certainly keep the Legislature busy, and are substantive in nature.

The Governor’s budget will once again be a challenge, as there remains the after effects of the fiscal storm that has done so much damage to our national economy. What can be expected?

Revenue estimates for the new fiscal year (FY14) show growth of about $835 million, an increase of 3.9% over the FY13 number, according to the Massachusetts Taxpayers Foundation. The FY 13 number was revised downward mid-year by the Administration as revenues lagged. That reduction was over $500 million, and if the target is hit then FY 13 would show an increase in revenues over FY12 of $420 million, or 2%. I give some of those numbers because the initial estimate for FY13 was about the same as the new estimate for FY14, and we were forced to change that estimate mid-year. (by that $500 million). The Taxpayers Foundation, in the press release, acknowledges the doubling of the FY14 number, but looks to increased growth in U.S. GDP to provide that state revenue growth. From the Foundation Press Release:

The Foundation’s fiscal 2014 forecast anticipates a slightly better revenue picture due to an improving national economy as real U.S. GDP growth is projected to double from 1.8 percent in 2013 to 3.9 percent in 2014. However, while national employment is expected to grow by nearly 2 percent in fiscal 2014, the Foundation projects that state employment will increase by less than 1 percent, adding roughly 20,000 jobs.While 3.9 percent revenue growth in 2014 is nearly double the rate in fiscal 2013, it is well below the 5.8 percent average annual growth in total tax collections – excluding capital gains taxes – from fiscal 2003 to 2008 following the last recession and half the 8 percent average annual growth rate from 1990 to 2008.

I have great confidence in the work of Michael Widmer and the Taxpayers Foundation, but I am not sure we are going to see that level of revenue growth. I certainly hope that we do, and again accept the wisdom of folks that are much smarter than me.

As the Governor prepares to file his FY14 budget the Massachusetts Budget and Policy Center has put out a budget primer, and some of the numbers listed are not pretty. Lets take a look at some of the key numbers, as I see them. The Budget Center looks at how the FY13 budget was balanced, and points out that the original budget came in balanced with $743 million in one time revenues and savings. After the revenue downgrade the Governor has recommended additional utilization of one time revenues and savings of about $270 million, driving the FY13 budget utilization of one time savings, revenues (including utilization of rainy day funds) to over $1 billion. Ouch. From the Budget Center:

USE OF TEMPORARY REVENUES AND SAVINGS IN THE INITIAL FY 2013 BUDGET

The enacted FY 2013 budget relied on $743 million in temporary revenues and savings. This included a withdrawal of $350 million (plus $9 million in interest) from the Rainy Day Fund, and about $90 million from other reserves. The budget also postponed a special corporate tax break saving close to $46 million, and counted on $10 million in one-time revenue from the disposition of abandoned property.

In addition, the FY 2013 budget relied on some savings strategies in the state Medicaid program. These strategies included cash management policies that shifted $256 million of costs into future years. Since half of Medicaid costs are reimbursed by the federal government, the net savings to the state in FY 2013 of this shift would be approximately $128 million.

The Commonwealth also relied on $110 million in temporary savings realized by cancelling a requirement to reserve a portion of the state’s revenues in order to carry forward that amount into the next fiscal year.3

SUBSEQUENT USE OF TEMPORARY REVENUES AND SAVINGS IN THE FY 2013 BUDGET

In early December, the Secretary of Administration and Finance announced a downward adjustment of $515 million in the revenue estimate for FY 2013. To keep the budget balanced, the Governor announced a series of emergency budget cuts, called for the Legislature to enact additional cuts, and proposed balancing the budget with the use of additional temporary revenues. These measures withdrew an additional $200 million from the Rainy Day Fund, counted on $60 million from other state reserves and temporary federal revenue sources, and $10 million in other one-time savings.4

Despite the fact that the state budget can seem to be very complicated, the Budget Center uses some pretty straight forward methodology to estimate what it believes the FY14 budget deficit is as we prepare that budget.

FY 13 Utilization of one time revenues, rainy day fund, one time expense reduction: $1.1 billion
FY 14 growth in state expenses: $1.1 billion
Total: $2.2 billion
Less FY 14 growth in state revenues: $900 million.

Starting Deficit: $1.2 billion

A couple of quick notes. That starting deficit includes a revenue number with growth of $903 million. The Mass Taxpayers Foundation, listed above, has estimated an increase of $835 million. Both numbers are certainly ambitious, and bear close scrutiny. The starting deficit also does not take into account additional utilization of one time resources. The Budget Center estimates that the Rainy Day Fund will end FY13 with $1.2 billion in available cash. Another budget number that is interesting is health care spending. What are the numbers, and what does the next fiscal cycle look like?

Massachusetts will spend approximately $7.6 billion on publicly-funded health insurance in FY 2013. This consists of roughly $12.7 billion on MassHealth and other health reform programs, for which the federal government reimburses the state for approximately half of these costs, leaving the state with a net state cost of approximately $6.4 billion. The Commonwealth will also spend approximately $1.3 billion on health care for public employees.

Although it is difficult to project health care costs, we estimate that these costs will grow in line with the 3.6 percent growth rate identified in last year’s health care cost containment law. At this growth rate, MassHealth and health reform programs would increase by $229 million, and state employee health insurance would increase by $46 million. We also assume a 3 percent growth in enrollment in MassHealth, which adds another $191 million.

With these estimates, we project health care spending growth would add approximately $466 million in new costs in FY 2014. This is in addition to the $128 million in FY 2013 costs shifted into FY 2014 (discussed above).

The Governor will face great challenges, as he has every year during his tenure. The numbers listed obviously do not include the major deficiencies the Governor will try to address through his transportation package, unveiled later today. Looking forward to the Governor’s new budget format, which will be “program based”, which I really believe will be (potentially) a huge improvement over the traditional “line item” format. This budget cycle will present the Legislature with some difficult choices, with the Governor loading up the plate with plenty of policy options and changes.

We will try to cover this process as much as we can, and if possible will do an interview or two with some of the major stakeholders. Stay tuned.

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The Methuen High School Project

Posted on January 12, 2013 by billmanzi

Back in January of 2012 I posted the below as a summary of the Methuen High School project as I left office. With a year gone by I thought a re-post would be appropriate. I would only add a few things to it here.

1) The construction contract that was designed by our team was outstanding, and allowed us a clean sever from the original contractor, Dimeo Construction. We worked very hard on that contract, and unlike other projects we involved the OPM in the development of contract language that ended up saving Methuen millions of dollars. The Dimeo team were outstanding builders, but during the course of 2011 we simply could not agree with them on price, and we mutually agreed to go our separate ways. There were no lawsuits, and the process was managed seamlessly in 2011.

2) The Building Committee choice of the 149A process, Construction Manager at Risk, was a wise one. After the 2011 sever from Dimeo we chose to move forward under 149A, and explored two critical issues.

a) Whether the two “lower rated” candidates (Gilbane Construction and Consigli Construction) were willing to honor their original submissions. That process started in 2011.

b) The designation of either required close attention and adherence to the statutory requirement that only the 2nd rated “candidate” could be offered the job under the 149A CM at Risk law. We worked with Attorney General Coakley’s office to ensure that our process complied with the law, and had essentially settled this matter in 2011, since Gilbane Company, in correspondence to me as Mayor, refused to stand by their original proposal. A failure to manage that process correctly would have forced us to go to “design, bid build”, (149 without the A)and would have harmed the calendar immeasurably. That left us with Consigli, who was formally selected in 2012.

So the bottom line is that as I left office in 2011 our budget remained intact. Consigli was indeed chosen, and submitted a GMP (Guaranteed Maximum Price) in 2012 that met the budgetary number that we had laid out originally. In doing so the dispute that had led some critics to say that our budget number was wrong was settled in the City of Methuen’s favor. Rather than give in to the demand by the original contractor for an additional $6 million of taxpayer money I refused, and chose to potentially give up some time on our construction schedule in order to save the $6 million. That decision has been vindicated, despite the fact that people with political motivations tried to paint it in an unfavorable light.

Finally, in the Consigli submission of 2012, the construction calendar was shortened in such a way as to put the project back onto the original schedule. Mayor Zanni and the Building Committee, and the professional team working for the City of Methuen, deserve great credit for maintaining the schedule, and keeping the process on budget. That budget was developed and brought to the community through a very long process that started in 2006. I am proud of the fact that it was maintained through a difficult period, and very happy that I left the project on budget when I left office in December of 2011. Below is my original post:

The Methuen High School project has seen its construction schedule slip by a yet undetermined amount of time. This schedule slippage is due solely to the desire of myself, as the former Mayor, and the Building Committee, to hold the line on the construction budget. The facts involved in this delay point to a desire to protect the taxpayers of the City, and of the Commonwealth of Massachusetts. Let us start from the begining.

Methuen, in 2006, applied for funding from the Massachusetts School Building Authority, receiving approval immediately after the Commonwealth of Massachusetts lifted the moratorium on school building assistance. We were one of the first High Schools approved, having completed the process known as the “statement of interest” in 2006.

After approval Methuen constituted the “Building Committee”, which has been chaired superbly by Suzanne Lamoureux, who is an educator in Methuen, as well as an engineer who has worked in the construction field. The Building Committee selected the Owners Project Manager, which is required on Massachusetts Building projects with a total value of over $1.5 million. We then began the process. Our design team was selected by the Designer Selection panel of the Massachusetts School Building Authority, with some input from our Building Committee.

Our Building Committee determined that we would proceed with this process under a relatively new (to the public sector) process known as “Construction Manager at Risk”. The CM at Risk process brings on a Construction Manager substantially earlier in the process, on the theory that collaboration between CM, Design, and OPM teams will produce a construction process that has less problems, both financially and from a construction standpoint. This process requires the Construction Manager to provide to the City what is called a “Guaranteed Maximum Price”, or GMP, which would bind the Construction Manager to honor that price, and hence become “at risk”. This process is of course substantially different than “design, bid, build”, the standard for public construction in Massachusetts. Methuen received additional reimbursement points from the Massachusetts School Building Authority for the adoption of the CM at Risk methodology.

With the adoption of the CM-at Risk methodology and the hiring of the mentioned staff Methuen’s Building Committee went to work on design. Our project received a reimburesement rate of 68% after the completition of feasibility and schematic design. Our City entered into a Project Finance Agreement with the MSBA that codified this rate, as well as codifying the construction costs for this project based on schematic and preliminary drawings. That cost, for construction, was approximately $75.9 million.

The City, after a competitive selection process, picked Dimeo Construction of Providence to be the Construction Manager for this project last year. Dimeo was brought in with the design at 60% of completion. At that point, after review, the Construction Manager indicated that it was their view that the project, as drawn, could not be completed for the budget price. We apprised the MSBA of their view, and began the process of “value engineering’ on the project. The design team presented the Building Committee with options, which were adopted, which reduced project scope by over $6 million. We continued to work with the Design team and the Construction Manager to achieve budgetary balance, and we achieved budgetary reconciliation between the CM and the Design team at 90% of drawings. That is a critical point, and one that shows that the project, at 90% of drawings, had met our construction budget. Inexplicably, when the Construction Manager filed his GMP proposal it was over $6 million over the number, despite the reconciliation at 90%. At this point the City began to work with the CM, to understand the reason for the overage. These discussions led to a further reduction in the GMP proposal of over $1 million, but obviously it left us well over the construction budget. Without a further ability to reconcile with the Construction Manager the Building Committee severed its relationship with Dimeo Construction. So where does that leave us?

The Building Committee wisely determined that the project would be split into phases. Our contractual relationship with Dimeo was restricted to pre-construction services and the “enabling” work. Our contract allowed us to separate for convenience if agreement could not be reached on GMP. We have started and completed the enabling work. We completed the work on the Central School 9th grade campus on time and slightly under budget. So now we are faced with schedule slippage on the main project, but it should be clear: we are NOT over budget, nor is the project in disarray. We have stopped because of the differences with the Construction Manager over the budget.

So the City explores staying within the 149a process and hiring a new construction manager. If that is not possible the City will move to a 149 process, “design, bid, build.” That is what is being determined by the Building Committee. The main issue is the one identified by the Eagle Tribune in its editorial:

One serious question remains to be answered. That is whether Methuen officials are realistic in their expectation that the construction can be done for $75.9 million. An experienced construction firm would not agree to do it for that price. Will Methuen be able to find one that will?

It has been our belief, even after the GMP submission by Dimeo, that Methuen can hit that number. If additional value engineering is required to do so it has been the consensus opinion that the Building Committee would be supportive of such an effort. As we move forward it is now a matter of selecting the process (149a vs 149), selecting the new CM (if 149A), or preparing the documents for “design bid build” (149) if the City moves in that direction. This process is delayed, and the delay is unfortunate, but the building committee has made the prudent choice in defending its budget, and protecting the taxpayers of Methuen and of the Commonwealth of Massachusetts. For those that are confused by the process that confusion, in light of the complexities involved, is understandable. But the Building Committee has largely been unanimous in its decision making up to this point. Our professional staff has been outstanding, and has shielded the City of Methuen from the potential budgetary problems inherent in public construction. The process is ready to be moved forward, but will require much additional work. The Methuen High School project will become a reality.

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Housing Authority Reform and Local Control

Posted on January 12, 2013 by billmanzi

Governor Patrick yesterday unveiled a proposal that would radically alter the administration of public housing in Massachusetts. The Administration, rocked by earlier stories of housing mismanagement and corruption centered around Chelsea Housing Authority Director Michael McLaughlin, has now responded with this plan to centralize housing administration by creating six regional hubs that would provide administration and maintenance services to the 240 Housing Authorities that exist in Massachusetts. The Governor, in his press release, touted the need for reform of the state housing bureaucracy.

“This bill will simplify and professionalize our public housing system, improving transparency and accountability,” said Governor Patrick. “We owe the residents and the public no less.”

The legislation consolidates the state’s 240 housing authorities into six regional housing authorities and builds on the steps the Patrick-Murray Administration has taken to increase transparency, accountability, performance, efficiency, innovation and cost savings in the state’s public housing system. The reforms, part of a series of reforms the Governor is proposing to make government work better, are the latest step in the Administration’s efforts to upgrade oversight and management at local housing authorities, and address issues that plague some authorities while also providing another opportunity for municipalities to regionalize certain services.

The Governor would abolish local Boards of Commissioners and Executive Directors, replacing them with the regional hubs. The Governor is at once attempting to improve governance, address issues of lack of local resources for both maintenance and capital needs, and streamline administration in order to save money. Of course fighting against thousands of existing board members is a large political lift, regardless of the relative merits of the Governor’s plan. How hard? Mass NAHRO, the state organization that represents housing authorities and housing professionals, has already issued a rejoinder to the Governor. They have issued key elements of their own plan to address some of the issues the Governor is taking on. From Mass NAHRO:

Waiting list administration: MassNAHRO already provides services to facilitate applications and reduce waiting lists for federal Section 8 housing to 88 local housing authorities. Under the reform plan, a similar wait list would be established for all state subsidized units. MassNAHRO would be a potential administrator for such a list. MassNAHRO’s Section 8 centralized waiting list program has already resulted in a substantial reduction in waiting lists and processing times and costs for LHAs.

Vacant unit turnover: A number of housing authorities have had difficulty in preparing vacant state units for re-occupancy within the 60-day period required by DHCD, due in large part to a lack of funding for operating and capital costs. Under the MassNAHRO plan, a regional approach would be implemented by which small housing
authorities could contract with larger authorities in their region to provide unit turnover services.

Procurement: The plan proposes the hiring of additional staff members at those authorities who are designated as Regional Service Agencies, who are trained and certified in the area of procurement and who would assist smaller authorities in their region. These regional procurement staffs would meet on a quarterly basis to share ideas
and discuss common programs so that the services provided to the smaller agencies would be consistent and uniform.

Capital improvements: Local housing authorities currently receive capital funds through a formula funding program administered by DHCD. This is a highly technical and time-consuming process that could be managed on a regional basis by larger housing authorities. This would ensure skilled oversight of the state’s investment in the renovation and upgrade of public housing.

Annual Independent Audits: Local Housing Authorities would contract the annual performance of an independent financial and compliance audit to be completed within nine months of the LHA’s fiscal year end. LHA’s will arrange the transmission of financial data to the Department to improve its ability to monitor the financial condition of LHAs and to assure transparency in LHA operations.

Accreditation: The plan proposes the establishment of an LHA accreditation system, similar to those utilized in the healthcare and education industries. This system shall include the utilization of independent groups of public housing industry professionals as evaluators.

Implementation: Implementation of these proposals shall include consultation with stakeholders, specifically Public Housing Residents, LHA Commissioners, LHA Staff,DHCD Staff, and Municipal officials.

One of the major problems is that local housing authorities, (LHA’s) especially smaller ones, are having trouble with modernization and standard maintenance of existing units. Their budgets are such that in many cases vacant apartments stay vacant for far too long due to the inability of minuscule maintenance staff to prepare them properly for new tenants. Such vacancies cost the LHA’s money, and require them to ask for additional state assistance. The maintenance needs of smaller LHA’s certainly are not being met under the current system, and some elements of a regional approach would help to solve that very real problem. The Governor and Mass NAHRO come at that with distinctly different approaches, but both recognize the problem, and the need for change.

The potential for better governance, and some improvements in efficiency, are clearly there. And those potentials go beyond maintenance and capital needs. Shared backroom resources, including list management and accounting and procurement functions, are ripe for improvement. Whether real reform that produces those results requires an erasure of all local control is an issue that the Legislature will have to grapple with. But the need for some change appears to be agreed upon by all.

At this blog we will occasionally handicap a political result. In this case I make the Governor a 4 to 1 underdog on the issue of getting this legislation passed in the current Legislative session. It will be his last chance at this type of reform as Governor. We will try to get some of our local legislators to give us comment on where they stand on this very important issue. Here is a link to an interesting Commonwealth Magazine story on some of the politics involved inside the Administration on this issue.

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