Ruthanne Fuller

Moving from the Recession to Growth & Competitiveness

2011-10-14T20:47:00.002-04:00

One of the best analyses of the causes of the recession and the how we can return to health has been written by three authors under the auspices of the New America Foundation (a non-partisan, non-profit, public policy institute with Newton’s own Atul Gawande serving as a Board member). Look to your right for the link – it’s long but worth the read.

The authors point to three primary causes for the recession:

1. - Debt-Deflation: We borrowed against the inflated values of our homes and now face a significant debt overhang

2. - Excess Global Supply: In Asia, there has been an emergence of export-oriented, high savings, low wage countries that has resulted in excess supplies of labor, capital and productive capacity in the US

3. - Stagnant Wages & Increased Levels of Income/Wealth Inequality

Two of the important solutions:

1. - Significant public investment in public infrastructure (energy, transportation, education, R&D, water treatment) to put people to work and to lay the foundation for a more efficient and cost effective national economy

2. - Comprehensive debt restructuring, especially in banking and real estate

States, Cities & Towns: Going Bust?

2011-10-01T17:36:00.000-04:00

Check out the article to the right by Michael Lewis on the financial issues facing states, cities and towns. (Yes, this is the Michael Lewis that wrote The Big Short, Liar's Poker, Moneyball, and The Blind Side.) His level of anxiety is captured in the quote below:

"From 2002 to 2008, the states had piled up debts right alongside their citizens’: their level of indebtedness, as a group, had almost doubled, and state spending had grown by two-thirds. In that time they had also systematically underfunded their pension plans and other future liabilities by a total of nearly $1.5 trillion. In response, perhaps, the pension money that they had set aside was invested in ever riskier assets. In 1980 only 23 percent of state pension money had been invested in the stock market; by 2008 the number had risen to 60 percent. To top it off, these pension funds were pretty much all assuming they could earn 8 percent on the money they had to invest, at a time when the Federal Reserve was promising to keep interest rates at zero. Toss in underfunded health-care plans, a reduction in federal dollars available to the states, and the depression in tax revenues caused by a soft economy, and you were looking at multi-trillion-dollar holes that could be dealt with in only one of two ways: massive cutbacks in public services or a default—or both. Whitney thought default unlikely, at least at the state level, because the state could bleed the cities of money to pay off its bonds. The cities were where the pain would be felt most intensely."

A few other issues that Lewis explores: "Everywhere you turn you see Americans sacrifice their long-term interests for short-term rewards....What happens when a society loses its ability to self-regulate, and insists on sacrificing its long-term interest for short-term rewards?"

Lowering Health Care Costs

2011-06-23T16:23:00.000-04:00

Read the article titled "New Efficiencies in Health Care? Not Likely" over to the right under Interesting Articles.

Dr. Anthony Daniels comes to a grim conclusion in the last paragraph. He writes, "If we are to have health-care systems that don't bankrupt us, people will have to accept paying more bills out of pocket and perhaps lowering their standard of living. Tiresome as the advice might be, we had better start saving a good deal more."

But, he also suggests one possible solution: "The long-term solution ... is the same for health care as it is for pensions: to pay for it with the income generated by dedicated savings accounts, which can be transferred to the next generation after death."

Water and Sewer Pipes

2011-05-20T11:26:00.001-04:00

We’re facing serious deterioration in our water and sewer pipes. We’ll have to invest significantly in the next 5 to 10 years to repair them.

Sewer: In January 2010, the MWRA estimated that 56.3% of Newton’s average daily sewage flow was clean water that had infiltrated the system through leaks in the sewage pipes. With the MWRA charging the City of Newton $19.7 million for sewage treatment, that means that $11.1 million is being spent unnecessarily. By investing additional money in repairing the leaking sewer pipes, the City will have significantly lower average daily flow of sewage which is the basis for the MWRA assessment. The Chief Operating Officer has estimated that the City needs to invest approximately $50 million in the sewer lines to repair leaks.

Water: The Commissioner of Public Works noted that the City is experiencing 26.7% of “unaccounted” water but the goal is 10%. In other words, between leaks in unlined water pipes and meters underreporting the amount of water being used (possibly as well as flushing of hydrants), the City is not able to account for 26.7% of the water for which the City is charged. While the installation of new water meters should decrease the amount of unaccounted water, leaks need to be stopped as well.

Investing in the pipes translates into raising water and sewer rates. The Board of Aldermen sets water and sewer rates. Fees are meant to cover 100% of operating costs in these stand-alone enterprise funds, including debt service for capital projects and regular maintenance. Despite all the increases in fees in recent years, we’re still not investing sufficiently to improve the condition of the pipes in a meaningful way.

Revitalizing Newton Center

2011-01-24T14:08:00.000-05:00

Two recent articles highlight innovative strategies for downtown locations.

The Boston Globe on Jan. 16th (see the article to the right) focused on Quincy. Quincy (population of 91,000 -- slightly larger than Newton) is partnering with a private developer, Street-Works, to remake its sleepy downtown center into a dense commercial and residential hub.

The plan is to take advantage of the MBTA's Red Line while upgrading the road system and utilities and building 8 more parking garages. Simultaneously, they will add a 4 acres public green, 700 to 1200 homes, 1 million square feet of office space, 600,000 square feet of stores and restaurants, 2 hotels, and a health and wellness center.

They are using an innovative financing approach. The Globe notes, "To support the new construction, the city needs new downtown utilities, roadways, sidewalks, public spaces, and eight public parking garages. Street-Works will secure private financing for these improvements up front. Once revenues start flowing from new taxes and the public garages, Quincy would purchase the new infrastructure from Street-Works. The city has agreed to borrow $227 million for this purpose."

The New York Times had a front page article on Jan. 24th (link is to the right) on a garage! In Miami Beach, a private developer built a stunning $65 million parking garage in the cener of the city. Designed by a world-renowned architecture firm, it includes a loft apartment, a designer clothing store, and a top floor that can serve as an event space.

Perhaps some additional innovative thinking can get the ball rolling again on renovating Newton Centre.

Saving for a Rainy Day

2010-11-10T11:09:00.000-05:00

The Boston Globe ran a front page article on Nov. 8th about cities and towns bolstering their reserves even as they are making deep cuts to schools and services and laying off employees. (See the link to the right.)

The City of Newton has almost completely depleted its financial reserves in the last few years. The reserves have been in a Capital Stabilization Fund and we’ve dipped into them to balance the budget and help pay for the new Newton North. (In FY09, FY10 and FY11, we’ve used $2.6 million, $1.2 m and $5.8 m respectively … in FY12, FY13 and FY14, we’ll use up the rest of these reserves when we spend $4.8 m, $3 m and $1.8 m respectively … Look in the Mayor’s Five-Year Financial Forecast dated Oct. 18, 2010 for the backup.)

A group of us have been working on financial management guidelines for the City of Newton. They’re still in draft form. The guidelines acknowledge that funds for financial contingencies and reserves are necessary in order for the City (1) to continue to provide essential public services in the face of extraordinary and unforeseen financial and natural events and (2) to satisfy credit rating agencies and therefore keep our AAA bond rating and the lower borrowing costs that rating provides.

While still in draft form, the idea is to have four types of reserves.

First, we’ll have an annual appropriation for budget contingencies. These are non-recurring and unforeseen expenses.

Second, we’ll have an inclement weather stabilization reserve fund for unusual but not extraordinary weather related costs. It is likely to be a non-lapsing reserve fund of $1 million. (These funds help us in a heavy flood or snow year, for example.)

Third, we’ll have a rainy day stabilization reserve which we’ll dip into when we face a multiple year economic recess or a rare, catastrophic expenditure. The target size is 5% of the annual general fund operating budget. It will take us a while to fully fund it. (These monies help us in periods like this when the state cuts local aid or when we face a 100 year storm.)

Fourth, we’ll establish a capital project stabilization fund to set aside money for significant capital projects (the next elementary school replacement, for example). (Monies here will supplement funds from the general fund, debt, grants, etc.)

I’m feeling good that the folks in City Hall are thinking proactively about these issues and have a plan.

Regionalization

2010-10-18T09:07:00.000-04:00

As the 11th largest city or town in Massachusetts, Newton has the advantage of economies of scale in many areas.

Nonetheless, we may still be able to lower costs and potentially increase revenues by working with neighboring communities to provide some services. We should systematically review the services we provide to look for opportunities to regionalize.

Jennifer Fenn Lefferts, a Boston Globe reporter, wrote about regionalization studies for shared emergency-services dispatch centers and prisoner lock-up facilities in October 2010. (See the link on the right.)

Homelessness Prevention

2010-09-05T12:28:00.000-04:00

One of the great parts of being an Alderman is receiving information from a lot of sources.

I found this info from Newton’s Planning and Development Dept particularly interesting. The City of Newton, in concert with Watertown and Waltham, received a grant of $923,000 in 2009 from the U.S. Dept. of Housing and Urban Development for homelessness prevention and rapid re-housing. The program serves people who are homeless or at immediate risk of homelessness. These people receive financial assistance and housing relocation or stabilization services. To qualify, they must have a household income at or below 50% of the area median income.

The City of Newton selected Jewish Family and Children’s Service as the lead agency to provide the services. (JF&CS is working with the Metropolitan Boston Housing Partnership, The Second Step, and Newton Community Service Center.) Staff at City Hall in Newton monitor the provider agencies to assure compliance.

Demand for the service has been high. During the fiscal year 2010, the program served 248 individuals from 103 households. Of these, 73% received homelessness prevention services and 27% received assistance in finding housing or remaining housed. Intake for the program had to be closed in May 2010 because the commitment of financial assistance to existing clients will exhaust the funds in the grant.

This kind of work by government agencies and non-profits for neighbors who are facing tough times doesn’t get a lot of publicity. I’m glad to know this is happening.

Want more information? Contact Amy Yuhasz at 617-796-1122 or ayuhasz@newtonma.gov

The Financial Crisis & Public Safety

2010-08-31T09:47:00.001-04:00

Michael Cooper wrote a front page article for the NY Times on cities that are struggling financially closing firehouses, firing firemen, and instituting “rolling brownouts” in which different fire companies are shut on different days. (The link to the article is to the right.)

Five of the key paragraphs (see below) point out that public safety (police and fire) are often the last places cities cut as this can put people and property in danger. Pension costs and minimum manning agreements are two key bones of contention. While Newton is in a relatively better situation than others, we also have to wrestle with the costs of pensions and minimum manning while ensuring safety.

Cooper writes:

“Fire service was once a sacred cow at budget time. But the downturn has lingered so long that many cities, which have already made deep cuts in other agencies, are now turning to their fire departments.

Some are trying to wrest concessions from unions, which over the years have won generous pension plans that allow many firefighters to retire in their 40s and 50s — plans that many cities say are unaffordable. Others want to reduce minimum-staffing requirements, which often force them to resort to costly overtime to fill shifts. Others are simply cutting service.

Analysts worry that some of the cuts could be putting people and property in danger. As the downturn has worn on, ISO, an organization that evaluates cities’ fire protection capabilities for the insurance industry, has downgraded more cities, said Michael R. Waters, ISO’s vice president of risk-detection services.

‘This is generally due to a reduction in firefighting personnel available for responding to calls, a reduction in the number of responding fire apparatus, and gaps in the optimal deployment of apparatus or deficiencies in firefighter training programs,’ Mr. Waters said in a statement. …

Several cities — including Lawrence — have said that they were forced to cut service because the unions failed to make concessions. Mr. Schaitberger, the union president, who was here for a union convention, said that protecting the pensions his members have won over the years was a top priority this year.”

Pensions and Retiree Health Care

2010-08-28T08:04:00.000-04:00

Check out the Op Ed by Arnold Schwarzenegger in the Wall Street Journal on August 27, 2010. (The link is to your right under “Interesting Articles.”)

Gov. Schwarzenegger writes, “State employees are hard-working and valuable contributors to our society. But here's the plain truth: California simply cannot solve its budgetary problems without addressing government-employee compensation and benefits.”

Ditto for the City of Newton.

Like the state of California, employee salaries and benefits comprise nearly 80% of all municipal costs. (77% to be precise.)

Costs for the City of Newton are growing at a faster rate than our revenues. Opportunities to increase our revenues are modest at best. We certainly need to implement cost efficiencies. But, the bottom line is that the City of Newton provides a broad array of necessary public services accomplished primarily through the employment of staff. We will need to control the rise in salaries (forecasted to grow at approximately 4% to 4.5% annually) and benefits (projected to grow at 7% annually).

We will need to reexamine each part of the compensation we offer from salaries to health care benefits to pensions.

The benefits portion of this review will be especially important because Newton may not be able to bear the same level of benefits in the future that it has committed to in the past.

Bankrupting Newton: Health Care for Retirees

2010-02-10T16:17:00.004-05:00

To recruit and retain public service employees, state and municipal governments across the country have for decades been offering pension and other post-employment benefits (OPEB), most notably health care.

At present, Newton pays for its retirees’ health care and life insurance coverage on a pay-as-you-go basis.

In other words, Newton did not set aside money in the past when these employees were actively working in order to pay for their health care and life insurance when they retired. Nor is Newton now setting aside funds for its current employees in order to pay for their health care once they retire in the future. Rather, these “unfunded” retiree health care costs are, as a matter of policy, paid for through annual appropriations. In FY09, the cost of the pay-as-you-go method came to $14.1 million dollars.

New accounting standards issues by the Government Accounting Standards Board require municipalities to disclose the total amount of these future liabilities and the amount required to be paid currently to cover these future health care and life insurance costs. According to the FY09 Comprehensive Annual Financial Report prepared by Newton’s Comptroller, the total unfunded future liability stood at $595 million as of June 30, 2009.

The annual required contribution (ARC) represents a level of funding that if paid on an ongoing basis in the present is projected to cover these future liabilities. For FY09, Newton needed to pay $54 million dollars (above and beyond the current $14.1 million that we did pay) to fund our future liability. This $54 million payment is not a one time payment. We would still need to pay more than $20 million next year and for each of the next 28 years.

In light of Newton’s current budget of approximately $300 million in which there is considerable concern about lack of funds to pay for current level of services and such underfunded areas as capital maintenance and refurbishment, this $54 million represents a significant amount.

The pay-as-you-go method that Newton (like so many other cities and towns) is using is not sustainable. Because life expectancies and health care costs are rising simultaneously, the future retiree health care costs represent a significant unfunded obligation. Newton, like so many other cities and towns, has made a commitment to public service employees to provide health care benefits after they retire – these commitments are growing annually and Newton, like so many others, has not adequately saved to pay for these commitments.

Pre-funding is both prudent and necessary. By saving early, the total liability is reduced dramatically. According to an analysis by the Commonwealth, full pre-funding following the guidelines of the Generally Accepted Accounting Principles for Governments reduces the liability by 45%. Without pre-funding, Newton places on future Newton residents a crippling obligation. Without pre-funding, Newton also seriously threatens its commitment to pay former, current and future retirees health care and life insurance benefits.

Waiting until the Commonwealth passes legislation to force municipalities to fund these liabilities (as it did with pensions) simply puts off until tomorrow payments that should be made today.

One of the important choices that the City of Newton has been making is to not set aside money currently for any of Newton’s health and life insurance post-retirement benefits for employees that have already retired and for current employees who will eventually retire.

As a first step towards pre-funding, I hope to work with others to docket an item before the Board of Aldermen for the City to accept Chapter 479 of the Acts of 2008, allowing the creation of a dedicated trust fund for advance funding of post retirement health care benefits.

Modifying our Financial Management Guidelines

2010-01-17T10:16:00.001-05:00

I’m discovering that sometimes important information is hiding in plain sight.

The Board of Aldermen and the Mayor’s Office hammered out guidelines about Newton’s financial policies. It’s dated January 2008. (Here is the link: http://www.ci.newton.ma.us/comptrol/fy08_update/adopted_financial_guidelines_01222008.pdf)

It includes a wide range of policies, including guidelines about forecasting, competitive bidding, compensation, and use of particular funds. For example, the document says:

• Annually, we’ll do a multi-year financial forecast
• We’ll make maximum use of competitive bids to buy goods and services to demonstrate that City resources are being used in an effective and efficient manner
• Our compensation policies will be designed to attract and retain the most qualified officials and officers possible
• The primary purpose of the monies left over annually after all the expenses have been paid (known in the accounting world as “free cash”) is to pay for third tier budget contingencies and to hedge against reductions in annual state aid distributions to the City. The target amount of free cash is 1% - 3% of revenue in the operating budget (known officially as the General Fund).

I gave it a close read. It’s a solid document.

I did notice two areas that should be modified.

1. FUNDING HEALTH CARE BENEFITS FOR RETIREES: The guidelines are SILENT about the policy for funding what we owe retirees for their health care benefits. Right now, we’re not funding this at all.

In contrast, the financial management guidelines say that the policy for funding the pensions that we owe retirees “shall not be less than the annual required contribution (ARC) prescribed by the Retirement Board’s actuary.”

If we instituted the very same policy for retirees’ health care benefits, we would have had to spend at least $26 million last year. (We spent $0.) We’re way behind on funding this liability and need to start catching up immediately.

2. FUNDING FOR BUILDINGS AND ROADS: The guidelines set a LOW floor of 3% of General Fund revenues for financing capital assets (e.g., roads, sidewalks, buildings, etc.)

To quote the guidelines on capital outlay and improvements: “… the difference between budgeted debt service (NOTE: this is what we already owe on our long-term debt) and a minimum of 3% of total estimated revenues for the year will be budgeted for future capital outlay and improvements.”

We’re substantially underfunding repair, renewal and replacement of our capital assets; these financial guidelines unfortunately reinforce that underfunding. Interestingly, Brookline has as a financial policy to spend 5% of revenues on long-term capital assets like buildings and roads.

MAKING PROGRESS: The last policy in the ten page financial management guidelines report puts the onus on the Mayor for changing these guidelines. It says: “It shall be the practice of the Mayor to inform the Board of Aldermen whenever these guidelines, goals, policies and practices need to be modified in a particular instance.”

We should ask our new Mayor to modify these guidelines and practices so we start contributing to our retiree health care liability and start spending more on our roads and buildings. Deferring these investments puts an unconscionable economic burden on future Newton residents.

Welcome ...

2010-01-15T20:02:00.005-05:00

Welcome to my new blog!

As I said on the campaign trail, folks in City Hall should take advantage of technology. In addition, Newton’s leaders should communicate more often with residents to make transparent the challenges we’re facing, the choices we have, and the decisions we make.

For these reasons, I have decided to experiment with my own blog. I will admit to not having any previous experience with ‘blogging’, so I’m making it up as I go along.

My idea is to occasionally post:

• Some thoughts on the issues Newton is facing,
• Information about topical meetings and events in the city,
• Some reflections on what it’s like to be a freshman Alderman,
• Articles from newspapers and magazines that I find interesting.

Feel free to stop by the blog again for a visit — to read up and perhaps to comment on what I’m noticing and to write about what you’re finding. You can also sign up to follow my blog (look to your right – the top of the column) in which case you’ll be notified when I post something new.

You can also reach me directly at 617-738-5311 or ruthannefuller@gmail.com.

Take care,
Ruthanne