[Ed note: My Southborough accepts signed letters to the editor submitted by Southborough residents. Letters may be emailed to mysouthborough@gmail.com.
The following letter is from Al Hamilton.]
To the Editor
If you want to really get depressed, spend some time talking to the town auditor and actuaries. In the last month the Select Board did both. We need to talk.
First the good news:
The auditors report did not find any financial irregularities in the town accounts. This was not an exhaustive review particularly of some of the smaller accounts but is consistent with past findings.
Now for the depressing parts:
When we typically talk about the towns debts we talk about the towns bond obligations to pay for such things as school renovations, the public safety building, open space and the road programs. However, there are 2 classes of debt that we almost never speak about but they dwarf the other categories. Both relate to our ongoing obligations to retirees.
Under Funded Pension Obligations:
We have about $33.4 million in unfunded pension obligations. We are not unique; this is a nationwide problem. Massachusetts as a whole appears to be in the middle of the pack but this is hardly good news. The Commonwealth is requiring that local governments close this funding gap by 2040. Over the last 37 years we have managed to close about 53% of our unfunded obligations. Funding the last 47% in 14 years is a daunting challenge. This will require significant increases in our contributions to the Worcester County Retirement system over the next 15 years. There is only one source of these contributions, your tax dollars.
Other Post Employment Benefits (OPEB):
In addition to pensions, our retirees are entitled to other benefits, primarily healthcare. Like pensions these benefits are underfunded. That gap is larger than our pension gap at $54.4 million. We have been paying this down at the rate of $250,000 per year. It does not take a degree in advanced mathematics to see that this sum is far from sufficient to close this gap. It should be noted that the $54.4 million gap rose this year by $11.4 million due to changes in insurance plans. A new plan which has been proposed could reverse this shift but regardless this sum is large and potentially larger than our unfunded pension obligations and at present it is unclear if we have a stable plan to address this matter. The ultimate source will again be you the taxpayer.
Is this really debt?
Yes, these 2 obligations have all the attributes of debt. They represent a stream of payments to 3rd parties (pensioners) into the future that are legally binding (no different than a bond or your mortgage). The value of that stream can be calculated by straight forward discounting calculations. The auditor confirmed that the bond rating companies view these categories as a form of town debt.
How did we get here:
The answer is somewhat complex for a detailed discussion you might want to read https://massinc.org/research/reckoning-with-historic-unfunded-municipal-pension-obligations/. The short answer is that for decades we did not fully set aside the monies to fund our obligation to our employees during the term of their employment. Indeed, for a while this was illegal. This practice violates a basic accounting principle of fully matching the costs of a service (in this case the employees labor) with the costs (salary, benefits, and retirement benefits) of that service. As a result, in the past we would be paying for an employee’s services long after, often decades, that service was delivered. The current programs to fully fund these plans are imposing an additional cost on current residents to pay for services delivered long ago in addition to fully funding the retirement obligations of current employees.
The second driver is that our retirees are living longer and health care costs continue to rise.
What can be done?
Unfortunately there is no magic cure. There are some things that would help like better management of our retirement systems but the grim reality is that to put our retirement obligations on a sound accounting and actuarial footing will require additional tax revenue and we the taxpayers are the only source. What we can do is pay attention and ask questions. On Saturday we will be asked to approve a large amount of borrowing. Town meeting members need to have a clear assessment of the impact of the town’s existing debt obligations both the formal borrowings and these less visible debts that dwarf our current bond obligations.
So much for this depressing subject, I think I will go out and stand in the spring sunshine and think about the summer.
Al Hamilton
35 Pine Hill Road
