Township grappling with retirement deficits

December 21, 2018

Cuts to police and fire service, added fees for property tax servicing and elimination of the township's animal welfare division are among the possible budget reduction measures the Bloomfield Township Board of Trustees are considering in an effort to balance a structural budget deficit linked to $164 million in unfunded liabilities owed by the municipality.

"They realize there's an issue and problem that we have to address," Bloomfield Township Supervisor Leo Savoie said of the township board, following a Tuesday, December 11, study session that focused on how best to meet new state requirements that call for municipalities to fund at least 40 percent of their unfunded liabilities. "The board directed me to have a survey done to get a pulse on the residents themselves and what direction they are going to look. Then, in the not-too-distant future, make a decision and go forth, either with a special assessment district (SAD) for public safety, or OPEB bonds or at cuts to services. All are viable."

OPEB are Other Post-Employment Benefits outside of retiree pension benefits, such as health care, disability and other services.

Under the state's constitution, municipal pension plans are required to be pre-funded, and the annual pre-funding payment for a pension is called the "normal cost." The normal cost represents the amount of money necessary to be contributed in a given year to pay for that year's benefits that are earned. If that money is invested and yields investment earnings, then the normal cost contributions grow and pay for pension payments in the future. However, if investments fail to earn as expected or benefit costs are higher than expected, a shortfall can occur. That shortfall is called unfunded actuarial accrued liability.

Under a new state law (Public Act 202), enacted in 2017, known as the Protecting Local Government Retirement and Benefits Act, municipalities must pre-fund retiree healthcare costs. Previously, the township paid for those costs as they arose, or on a pay-as-you-go basis. Under the new law, the township is considered to be "underfunded," and must boost payments until at least 40 percent of future retiree healthcare benefits are funded.

Savoie said in August that the township is among the worst municipalities in the state in terms of unfunded liabilities, with about $65 million needed to fund pensions and OPEB at 40 percent of the total $164 million.

In order to meet the new funding obligations, the township must increase payments for the next 30 years, resulting in a structural deficit of about $5 million to $7 million each year in the township's annual budget. Because the deficit is recurring based on revenue and expenditure projections, one-time payments will have limited impact on future deficits.

To find long-term solutions, the board contracted with Plante Moran financial consultants, which presented its findings at the December 11 study session. The findings included measures for cutting expenses and increasing revenue, all of which could total between $6.4 and $7.4 million annually.

Measures to be considered and estimated budget impacts include: eliminating the township's animal welfare division ($170,000 to $200,000); outsourcing police and fire dispatch services ($375,000 to $700,000); reducing police patrols in the township ($1.33 to $1.6 million); ceasing fire services at the township's Fire Station 4 ($800,000 to $900,000); instituting tax administration fees ($1.5 million); contracting out property assessing services ($140,000 to $400,000); cutting general fund support for the township's road division ($1.4 million); eliminating township programs, such as gypsy moth control and hazardous waste disposal ($300,000 to $340,000); and other reductions in services and/or increased fees for services ($400,000 to $500,000).

"These aren't one-time cuts," Savoie said about the potential measures.

While he said the township could take advantage of OPEB bonding to address the issue, he said bonding "doesn't get us quite where we need to be."

OPEB bonds totaling $65 million would cost the owner of a home with a taxable value of $199,870 about $3,858.20 over the course of the bond; $160 million in bonds would cost the same homeowner about $9,497 over the course of the bonds. Those amounts do not include interest expense on the debt.

While Bloomfield Township is one of the only municipalities in Oakland County to offer local animal control services, Savoie said residents have come to appreciate that service and others that are now being considered for elimination.

"They appreciate it when there's a dead deer on their property and they don't have to call the county," he said. "We send animal control to handle it. We get those calls all the time.

"Dispatchers know the community and the area, and they have background on problem properties or problem individuals. All of that goes a long way. I think they appreciate those services," he said.

Likewise, Savoie said annual support for the Woodward Dream Cruise tallies about $50,000 to $70,000, with little return in terms of added business in the township.

Savoie said he plans to have a survey out to residents after the start of January.`.

"We have some steps to take, but the community will be involved and decide," he said.

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