FINANCE CONTROL BOARD MEETING, November 28, 2005
Present: Thomas Gloster, Chairman Alan LeBovidge, Mayor Charles V. Ryan, City Councilor Tim Rooke, Jake Jacobson, City Clerk Bill Metzger
[Meeting in progress]
Chairman Alan LeBovidge: Any changes or amendments [to minutes of the last meeting]?
**MOTION TO APPROVE MINUTES APPROVED UNANIMOUSLY.
AL: OK. The minutes are approved. And now I want to turn the meeting over to [FCB executive director] Phil Puccia so he can take us through various updating items.
Camera System to Enforce Infractions of Red Light Laws
Phil Puccia: Thank you, Mr. Chairman. Actually, the first item on the agenda doesn’t really require the formal approval of the board, but I did want to alert the board that we would like to issue a request for proposal for a red light camera system to track and enforce infractions of red light laws. It has been a successful program in many communities around the nation. It’s principal improvement is to public safety, and we’d just like to inform the board that we’ll be doing that over the near future and will report to you at some future date as to our proposed contract.
AL: Just a quick question. I’ve noticed that, in some cities and towns where they do this, one of the issues that comes up is privacy of the individual and what you do with the tapes, etc., so you’ll be looking into that as you go forward to see, you know, how you kind of....?
PP: Yes.
Voice from the hall: Speak up, please.
AL: I’m sorry, just the privacy... OK, just trying to make sure we are sensitive to the issues of privacy vs., you know, public safety.
PP: We will do so, sir.
AL: OK. All right.
Bill Metzger: Do you want to take a vote on that?
AL: We don’t need a vote on it.
Fire Department Administrative Reorganization
PP: Issue...the next issue on the agenda is an ordinance related to the fire commission and the fire department. As you recall, Les Adams and Carroll Buracker from Buracker Associates made a presentation to the board last month. One of its principal recommendations was in a reorganization of the Fire Commission, similar to what the board approved earlier this year related to the Police Department. The essence of our recommendation which you see in your package consolidates the functions of the existing Fire Commission into the office of Fire Commissioner. That is a non-civil service position. We also propose abolishing the Board of Chiefs as it was discussed in the Buracker Report.
The organizational structure that follows will be: reporting directly to the mayor. It will be for a contract period of between three and five years and will be not coterminous with the mayor, so that the position is freed from the political interference of biannual elections, but provide the CEO of the City the ability to manage one of the most critical public safety positions in the City.
AL: OK. What happens to the Board of Fire Commissioners?
PP: It will be abolished.
AL: But is there going to be an advisory board like we have with the police?
PP: [glancing at David Panagore] We have not formalized any future structure, but it’s certainly something the Mayor and I will discuss, to have a similar body that the police department would have.
AL: OK.
Mayor Ryan: Frankly, I’d be very much in favor of that. I think that the tradition of a lay commission, whether it’s in the police or fire department has served the city well, and, while I’m all for the doing away with the civil service position on the leading executive, of either one of those departments, I do feel that it would be a mistake to just say goodbye to that, now only the tradition, but also the men and women who, over the years in one administration after the other, in my opinion, have served the city very well. So, again, I’m satisfied with what Mr. Puccia says that we will sit down and try and come together with some sort of language and vehicle by which the department and the City can continue to take advantage of the talent and experience of these men and women.
PP: Let me be clear that the ordinance is not designed to prohibit the input of the public, but really to consolidate the management authority, and so we will...
AL: I’d like to clarify that we could have a role for the citizens. I’d be in support of this also.
Thomas Gloster: This is all as recommended by the report we reviewed last month.
PP: That’s correct, Mr.Gloster, yes.
AL: Any other questions on this?
Tim Rooke: Just had a quick question, I’m sure it’s incorporated in it. But was the residency requirement for the fire commissioner?
PP: Yes, it is.
TR: OK. Thanks.
AL: Do we have a motion for this executive order, adopting this executive order?
**MOTION PASSES UNANIMOUSLY.
Bill Metzger: You need a second vote, Mr. Chairman, on promulgation of an ordinance....
PP: If you recall, in your—wait a minute--we have to do this twice.
AL: OK. So we have to do it....
PP: So what’s the technical term, Mr. Clerk?
BM: The term we’ve been using is “to promulgate the new ordinances.”
AL: OK. So do we have a motion to promulgate the new ordinances?
**MOTION PASSES UNANIMOUSLY.
AL: Want to do this correctly. OK.
CVR: Now, there are two ordinances here. Do we need a vote on this? [holds up piece of paper] On the second one also. You have Chapter 2.54 and Chapter 2.56.
PP: You need a vote on them individually.
CVR: So, we’ve just voted on 2.54.
Jake Jacobson: I move to promulgate of 2.56.
**MOTION PASSES.
CVR: I just, from a discussion point, I’d just like to have either Mr. Puccia or Mr. Panagore summarize what is in 2.56.
PP: OK. Mr. Panagore?
David Panagore: 2.56: the only changes made to 2.56 are changes to reflect the “fire commissioner” as opposed to a “fire chief.” All other changes...no other matters are effected. It’s to consolidate authorities which were in the Board of Fire Commissioners and the Board of Fire Chiefs into the Fire Commissioner and consolidate all that. No other changes have been made.
**MOTION PASSES UNANIMOUSLY.
AL: OK. We’ve done both of them. OK, Phil, what’s next?
Elimination of Personnel Policy Board
PP: OK, Mr. Chairman. The next proposal is an ordinance to eliminate the current Personnel Policy Board which is supposed to govern personnel decisions within the city, but, in fact, it has never really operated in that function. It’s a seven member board: the personnel director, three members from the citizenry, and three members of the labor work force within the city. What we are recommending to you today is more reflective of how we manage city government today, which is that the director of personnel has the authority, in conjunction with the appointing authority (the mayor) and the spending authority (the CFO) before personnel decisions are made.
In this case, Ms. Montagna approves the different positions, how they’re structured, what the pay rates are and the like, and we’re just trying to formalize that policy here in a new ordinance.
DP: Within the scope of the operating budget as passed by the City Council or as supplemental funding as necessary is passed by the City Council
PP: What we have established, just so you know, from a day-to-day operating perspective, is that, once a month or once every six weeks, the Mayor, myself, the CFO, the city auditor and the director of personnel have a monthly or every six weeks meeting to talk about vacancies, promotions, transfers, new positions and the like. And we bring the department in, and he makes a pitch for any change or additional body that they would like. We make a decision based on the performance of their budget or the critical service need for which the position is required. This policy represents that.
AL: OK. Any questions?
JJ: So then, what are the changes to the ordinance since we’re going to come to the ordinance next?
PP: I don’t have, I didn’t provide you with side-by-side ordinance comparisons.
JJ: But I’m just saying that just...you have your henchman here...
DP: The changes to the ordinance reflect, basically, reflect what Phil just laid out and streamlines responsibility in the personnel director as reporting to the mayor and as also authorized by the CFO. Under the previous structure, what would occur would be that a series of reports would be issued. Under our structure, it places responsibility in the individual prior to sign-off. So, rather than just requiring a process, it requires explicit approval of the CFO to make sure that the funding is there. And so long as this occurs within the existing operating budget as passed by the city council in any fiscal year, they don’t need to go back to the council. So, as long as the authorization has been granted, the mayor is able to move personnel and change items.
AL: Is this just expedites the system?
DP: It expedites the system and yet still allows for appropriate City Council overview through the operating budget. There is one amendment that I have asked...I would ask that be made, and that is on page...what would be your, page 2 of the ordinance, at the bottom of the page, reflecting this change, Number 14, “to make all reports to the City Council concerning the creation of a new office or increasing compensation of any existing or the performance of any duty.” We request that that be deleted and that Number 15 be changed to Number 14.
It is our recommendation that although the city council should be informed of changes if they so request, if they’ve authorized it in the operating budget, the mayor needs the authority to be able to make decisions and make personnel changes as opposed to have it go to a deliberative process of the city council and then be issued again.
Jake Jacobson: So, to say that back: this is saying that, as long as the city council has passed a budget, authorized the position, or authorized the increase, then the mayor and the staff can execute on that without going back to the city council, but it’s not usurping city council prerogatives in terms of creating positions and things that are not already....
DP: ....not already...yes, correct, although if the, if the city, if the operating budget had included a line item for salary increases, rather than for specific positions, the mayor would be able to move that money over.
JJ: OK.
AL: OK? Any other questions?
TR: David, what if...
DP: [to city clerk; doesn’t hear TR.] Yes, remove 14 in its entirety and make number 15 Number 14.
AL: Any...?
TR: David, I just had a question. If it’s after the fiscal year, the budget is passed and the position’s included, so any city council would have to know the ex--, I guess I’m questioning, would any city councilor know the exact dollar amount of each budget previous, or would we ask at the budget hearing, “Are there any new positions that have been created?” Is that...?
DP: My opinion would be that would be asked at the—depending on the preparation of the budget, but that it would be asked at committee, but rather than open each position up to an extended during-the-year process, you’d do it through the operating budget.
PP: We’ve tried to design this to give...once the budget has been approved by both the legislative and executive branch of city government, to provide the executive, the chief executive, the ability to manage within that budget by determining, you know, management priorities and needs really is what we’re hoping to do with this ordinance and to reduce the amount of---for lack of a better term---political interference with day-to-day management of city government once the budget has been approved.
JJ: And these changes are actually bringing the ordinance more into line with what’s actually done.
DP: Correct.
PP: That’s correct. It’s important to note that while this ordinance has existed for years and years, it wasn’t followed in the first place.
AL: The concept was in existence, it’s just that the ordinance didn’t exist. OK.
BM: The motion is to approve the executive order?
AL: Right. Do I have a second for the motion?
CVR: Wait a minute. Mr. Metzger, do you have something?
BM: I was just commenting to the chairperson that the first question here is to approve the executive order.
CVR: First of all, I’d like to ask a question on that point. Do you know, Mr. Metzger, whether or not reports are currently made—I’m looking at Section 14. Are reports currently made to the city council from either the personnel department or the personnel policy board?
BM: Oh yes. Not since the board came through, but prior to that reports and orders were poured into the city council from the personnel policy board, yes.
CVR: Well, I’m, again, this is discussion, I guess. I’m prepared to vote for the ordinance, but I don’t think I’m prepared to vote for the suggested amendment, because I do feel that this is information that a city council is entitled to. And to merely....and there’s nothing in here that corresponds to what Mr. Panagore and Mr. Puccia are saying: that this is an annual thing that you pass the budget and that’s the city council’s chance for information, and then for the rest of the year, it just says that there’s.... In other words, if you eliminate Section 14, there’s no device or no vehicle by which the city council is ever informed of anything. And I just feel that that’s going too far. So I’m prepared to vote in favor of the ordinance, but not the amendment.
TR: I would agree with you, Mayor. I’m all in favor of abolishing the board, but I think the reports are important just to keep everybody informed of what’s being established and it’s open airing of the check’s and balances.
AL: Fine.
PP: Upon reflection, we....
AL: OK, so we’re going to move the executive order as it is without that amendment.
JJ: The executive order votes for the executive order then we’ll come to...
AL: OK. So one, we have a motion the executive order
**MOTION PASSES UNANIMOUSLY.
AL: Now we have to do the...what do we have to do next?
BM: Promulgate the ordinance.
AL: Promulgate the ordinance.
PP: As amended.
AL: Without that change.
CVR: Without the amendment.
AL: As submitted. OK. Do I have a motion?
**MOTION PASSES AS SUBMITTED.
AL: Wow. Tough stuff. OK. That’s done. Next?
Roll Over of $22,625,00 in Debt to December 29, 2006
PP: Next is a motion to roll over the city’s borrowing of $22,625,000 to December 29, 2006. If the board recalls, there was a...in Fiscal 05 we borrowed $25,000,000 to cover the shortfall for the operating budget for that fiscal year and we also borrowed $1,625,000 from the trust fund earlier this year for the purchase of St. Matthew’s School. This is a consolidation of those two pieces of debt into one roll over loan for an additional year. It’s consistent with the terms outlined by the Secretary of A & F, the Comptroller and the Department of Local Services at DoR [Dept. of Revenue], and I offer it for your consideration.
JJ: If we didn’t roll over what would happen?
PP: It should be due and payable next month.
AL: Not a good idea.
TG: This is the total debt that’s outstanding under this arrangement.
PP: That’s correct, sir. It does not include any proposed...
AL: No new debt.
PP: No new debt for Fiscal 06.
AL: OK. Any questions?
**MOTION PASSES UNANIMOUSLY.
AL: Another year.
Status Report on Group Insurance Trust Fund
PP: Mr. Ianello? And Ms. Montagna? If the board recalls, earlier this year, the board directed me to create a separate trust fund under, as required by law, for the management and review of both employee health contributions and the city’s contribution. That had not previously been done and those payments would wash in and out through the general fund. We can visit that matter another day, but what I’d like to do is present to you a brief status report on the status of that fund, and I present Mr. Ianello and Ms. Montagna.
AL: So this is not a vote, this is informational.
PP: No, this is just information for the board.
AL: OK. Welcome.
City Auditor Mark Ianello: OK. If I...You have before you, I hope, a set of financial statements. The first set of financial statements is for the Group Insurance Trust Fund. There’s a balance sheet before you.
TG: What’s the date of that, sir?
MI: It’s dated October 31, 2005. It’s just a snap shot of our fund. We have a cash balance, we have some accrued liabilities (just estimated). We estimated a claims payable to the fund at roughly two months worth of claims, so it’s $8.4million. We also have a little bit of deferred contributions from teachers that we’ve collected in advance. (They’re not paid in the months of July and August, so we’re setting aside some of their contributions, so we can pay those claims when they’re off the payroll. And we have an unrestricted fund balance of or deficit, in this case. Since it’s our first year of operating (it has been in existence only since January), we didn’t start the fund with reserves, and we’re setting aside $8.5million or anticipating claims of $8.5million, so we clearly have a fund balance deficit.
If I can just move to the next statement, it’s your statement of revenue and expenses, basically your income statement for the fund, and we did the best we could to match the revenues to the expenses , but they’re not matched perfectly. We have some claims that are paid. This is for a four month period, July through October. There could be some claims here for the month of May or June that didn’t get paid until July or October. We’ll try and do a better job matching the revenues to the exact expenses of the period as time goes on when we have some ability to do a comparison for some of these numbers. But we do have...the most important thing in this statement to show you and all the readers of the financial statement is that the City, an employer, is contributing 75/25%. That’s the number that has been or that, by not having the fund set up, the employees and employer really didn’t know who was contributing what, so at least we’re trying to show to the employees and the retirees that the city is matching 75/25.
AL: Mayor, do you have a question?
CVR: Yes, I have a couple of questions...First of all, you indicate that this fund began as of January 1 of this year?
MI: Right.
CVR: And so now...but I take it that you’re reporting on a fiscal year...
MI: Yes.
CVR: So that’s why you have four months. Would you just walk us through the process by which the money is paid into this fund, both from the City and also the contribution of either the employees or the retirees who contribute?
MI: Sure. What we do is: weekly (or monthly for retirees), we deduct out of the employee’s whatever the withholdings are, the city matches it times three. So we can make sure that each pay period, the money goes into the trust fund. And it’s matched, the city’s contribution is matched at the very same time. So we have a nice system in place, I think, to keep that match in accordance with the terms of our agreements.
CVR: So far as the city’s contribution’s concerned, a rough and tough 75% total liability, I take it that that is something that is done weekly or whatever by warrants...
MI: Right.
CVR: Signed by the mayor.
MI: Right.
CVR: And then the money is transferred out of the general fund into this trust fund.
MI: Into this trust fund. That’s correct.
CVR: Why is this current deficit of $2.5million?
MI: Well, we’re...we...because we’re reflecting the...some additional health claims here. We have roughly...we have revenues in here of...we can go to the income statement. We have $16million received. You know, we could be missing an exact pay period relating to the claims. For example, if we had October 31, it was a week ending, we may not have put that in yet until November period. Or we may have for the claims for that same period we’re paying out. So, the matching of the revenues and the claims is not exact. It’s not an exact science, but we do....the claims that were paid of...the drug claims, the health insurance claims, the stop loss premiums claims of roughly $19million is in excess of what we took in for that four month period. And again as we...
AL: So you’re saying that’s a timing issue or is it....?
Personnel Director Marilyn Montagna: Can I add something?
MI: It’s a little bit of both.
MM: Can I add something to that, because I think there is a very large factor that plays into this? When we set the rates, and those are the contribution rates that the employees pay and those are the contribution rates that we use to estimate the amount of the general fund budget. We, we...as you know, effective July 1, a large proportion of our retirees went on Medicare B. There’s about a two to three month claim lag. So, during the July and August time frame, you were still paying claims that were incurred back prior to the implementation of Medicare, so it’s going to take a while, while the rates were set were valid for an annual basis, it takes a while for the old claim run out and start to realize we have, starting in the past probably sixty days, noticed a dramatic decrease in the amount of their claims that we’re paying weekly.
AL: Are you saying that at the end of the fiscal year, this will all true up and you’ll zero out the deficit?
MI: In a perfect world it would, but I don’t expect that to happen. I expect that, depending on how Medicare claims are paid, you know, and I think that’s what Marilyn’s referring to, are health claims that we’re paying should lessen, but the odds on that getting exactly zero would be, I should think she’d have to be a....
AL: A zero.
MI: Again, you’d have to be...
JJ: So is it fair to say this $2.5million deficit right now is largely timing differences, and we should be continuing to watch it, and it should trend in the direction of zero, but it won’t balance out exactly unless we’re blind lucky.
MI: That’s right. It could have a surplus, it could have a deficit. Hopefully. it’ll have a little bit of a surplus and we’ll start building one up.
JJ: But you’re not telling us that we have a $2.5million problem that we should start being concerned about. This just reflects the timing differences of switching to the Medicare...largely.
MI: Largely.
CVR: Let’s just assume, for the sake of discussion, that a deficit continues on for the rest of this fiscal year, and, let’s say, that at the end, by June 30 of 2006, there’s a deficit of $2million. I then take it that maybe in July or August, the general fund will be making a payment back in so that this balances for the fiscal year or...?
MI: No. What we would do is, the way the...again this fund stands on its own. It’s Health Insurance Claims Trust, so that whatever the balance is in that fund can off-set future premiums for the employees or employer or, conversely, if there’s a deficit, we’d have to increase our premiums, so we can maintain the 75/25 relationship. So that’s really how the fund is supposed to act. If it has a deficit, claims for our employees are going to have to come up to bring it out of a deficit. For this particular purpose, the treasurer is authorized under Statute 32B to borrow to make sure this fund...all claims are paid.
TG: So what happens if you have a $2million deficit at the end of the year? How...is the 75/25 rating preserved?
MI: Yes.
TG: And so you would be obligated to increase the city’s proportion and the employee’s proportion to make up for the $2million deficit.
MI: Yes or whatever deficit may occur. Conversely, if there’s a surplus, we can hold premiums, perhaps....
AL: That’s what I’m trying to understand. In one answer, you’re saying it’s timing, and in the other answer you’re saying we could have a deficit. That’s two different things. The timing would be like an accrued income or an accrued expense, so I’m not worried about that, but if it’s a true deficit, then we have a problem.
MI: Well, it would be a true deficit depending on the claims. I mean right now we’re saying there’s a timing difference here. We don’t have a good...we don’t...this trust fund wasn’t established several years ago; it just began in January, so we don’t have a good period to compare expenses to to get an accurate sense of what these claims are going to be.
Secondly, we’ve also switched from Blue Cross to CIGNA. So again, you’ve got...Marilyn would have to be a genius to get these claims and these premiums exactly...
AL: I hope she’s a genius.
MI: Well, we hope she is, too, but there has to be some room for error. As you all know, health insurance claims or health insurance as a whole has been increasing 15% a year, and so it’s very difficult to take this back to zero.
AL: OK. Well, take me back to before we had this fund. Before we had this fund, you’re saying money was just paid out from the general fund so you never knew. It was the city just some place absorbing the cost, because it just came out of the general fund, so they never really knew if they had a deficit or excess as far as this account is concerned, this type of account.
MI: Right.
AL: OK. So this problem probably...
MI: So there was a deficit.
AL: There was a deficit that was existing for years. No one just isolated it.
MI: That’s correct and, if I remember, I think the control board as part of their first order was, this is one of the deficits we raised at our tax recap to bail this health insurance...
JJ: We remember that when we first started talking about this, I’m doing this from memory, but the deficit was $7million or $7.5million.
PP: Actually, it was more like $11million: $6milllion that we owed plus $5million in run out claims.
AL: OK, so, hopefully, what Mr. Jacobson said was true, and we’re kind of going down and down and we don’t have a real problem. It’s more timing and we’re working off the old....
JJ: I think it’s safe to say that, even if it doesn’t go down, we’ve gone from $11million to $2.5million and so we’re trending n the right direction. But it sounds like it’s one of those things that we should, you know, get quarterly updates on or whatever so that we can see which way this balance is moving, and then we’ll take it up when there’s more of a trend line, and we can make a better informed decision.
TG: What happens to the money that’s in the fund? It is just sitting there pending payments for claims or is it invested...?
MI: It’s earning interest. The treasurer has it invested. We have a small interest of about $1000 here. How he’s investing it, I’m not sure.
AL: It doesn’t show up any revenue for interest.
MI: It is shown. It’s shown down below, Mr. Chairman
AL: Oh, OK. I gottcha.
CVR: Let’s assume....Your figures are only 1/3 through this fiscal year, so we’ve got eight more months. So let’s assume as we go along that a deficit of this relative size continues. What’s to prevent the city from putting money in to eliminate the deficit? You’ve already said that each year stands on its own. And so if you say that, OK, this is a trend for some reason, the revenues are falling behind the expenses, and we keep seeing a figure of this significance showing up. Why can’t we eliminate that and let ourselves run this fund at a plus? At the end of the year, that’s going to be figured in as you say, into the succeeding year’s...
MI: Premiums or whatever we ask the employees and the employer to pay.
CVR: ...premiums? Why can’t we do that? Is there something wrong with that or is...?
MI: If the city would like to set aside an amount to put into the fund, it certainly...
CVR: Well, because this all...it’s all based on estimates, I agree with you. There’s nobody can predict with finality what the exact amount of expenses or revenues are going to be, but why can’t we during the year make an estimate that certainly after several months begin to reflect what is going to be the probable outcome.
MI: I think that’s what we did in our budget this year. We reflected, Marilyn reflected what she thought the trust fund was going to need to pay claims of roughly $75million. And we think that’s what we’re going to be able to pay out, so it should come out to a zero balance. And, hopefully, maybe the claims run a little bit behind what she estimated, and maybe we build up a little surplus. Clearly, that would be the idea behind setting up the insurance trust. We’d like to have some kind of a surplus set up, so, if the health claims did go up unexpectedly, you’d have something in the fund to be able to pay those claims. I think the important thing here is to keep the money aside, and set it up in a separate fund. And if it is a deficit or if there’s a surplus, that could be shared with the employees and the employer accordingly. If there’s a deficit, or everyone will have to raise their rates here at City Hall and the retirees and so forth. Conversely, if there’s a surplus, maybe the board can make that case to maybe hold the claims to...down a little bit, hold the premiums down, so again, it’s all estimates.
CVR: When, as a practical matter, will you close the books on this year’s trust fund figures?
MI: We reported on June 30.
CVR: June 30? It doesn’t slide over another month or so for waiting for information to come in?
MI: Well, you know, our June 30 statement should reflect the best information we have at that time. We’ll try and accrue and defer accordingly at June 30 and it might be July or August before we have those right numbers, but we’ll print those numbers.
AL: I mean I think we have to watch it and see, because, obviously, it’d be nice if you don’t have to raise the premiums. The 75/25 as is is great, you know, not trying to move that up if we don’t have to.
MI: If I might add, the Department of Revenue has, because...I think a lot of municipalities did not have these funds set up correctly. There is a...the DoR booklet These do have to be audited now, annually. This is our first year...
CVR: But I don’t... I think the one thing we’re going to try and avoid if we possibly can is that to set up the fund on the one hand, which is a major step forward, but then to inure ourselves into deficit as we go forward, I’m I mean I think we’ve got the ability here to kind of make sure we don’t have deficit put the deficit one pay-as-you-go basis rather than begin to create a culture where several years from now, you get this minus two and minus three and minus four, and I think that we should be more aggressive to try and get this balanced as we go along.
I think that was the problem with many municipalities, they were hiding some of their deficits in here by under funding this health insurance trust fund or keeping the claims down when they’re really needed to increase them, and because it was just going to hurt their general operating budget, and that is exactly why the Department of Revenue now has a...This particular fund has to be audited separately. They have to opine on this particular fund anyhow it stands. So if we are hiding deficits and so forth, this fund...this is not a place we’ll be able to....
AL: This is not a problem that’s unique to Springfield...or to municipalities.
MI: No. That’s correct.
AL: We could go up the scale.
MI: That’s why all municipalities now have to abide by this audit rule.
JJ: Well, does it make sense that we should just ask Marilyn, who’s looking at this day-to-day, if anything happens that is material and unanticipated in the way that this balance moves that we’ll leave it to you to get back to us and alert us to that fact? So we’ll take silence from as being that this is moving along more or less as forecast and that we’ll be updated formally in due course, but you’ll let us know if anything truly happens that you didn’t anticipate
MM: The other thing that I just want to point out, because there’s another very important, very large number in here that I think is that historically as the rates were set and the accounting was done, there was no reserve and no acknowledgement of incurred but not reported claims. In here, we’ve included two month IBNR [incurred but not reported]. Obviously it raises the expense side which contributes to the deficit, but in the long run, it’s an extremely important piece to start to build in, and so I think that’s a plus.
AL: OK. Thank you very much. That’s all the questions?
TR: The outside agencies that I see here, why are they included in our program?
MI: By statute—I looked this up several months ago because I was kind of surprised myself. By statute, the appointing authority, which in this case is the mayor, has the ability to allow certain agencies to participate in our group insurance plan. And these are the agencies over the years, I guess, that have been allowed to come in.
TR: So these, this...
MI: But we don’t match these, you know, the city is not matching the contributions, these...
AL: They’re 100% for the agency.
MI: They’re based on a premium, Marilyn, Marilyn’s...
TR: They pay 100%.
MM: They pay both the...the agency pays both its...or sends us both its employee and its employer share. I’m assuming...
AL: It’s just an investment vehicle for them.
MI: Allowing them to participate...at 100%.
AL: Yeah. We hope.
MI: Right.
AL: OK. Thank you. Phil?
“Urban Pioneer” Ordinance
PP: We have one further item on the agenda which is presentation of an ordinance by Mr. Panagore called the Urban Pioneer Ordinance, and he’ll explain it.
DP: Mr. Chairman, board members, as part of our on-going activities both the secure repayment of back taxes and remove blight in the neighborhoods, the, we have undertaken, as you all are aware, a variety of efforts including more...resources being put toward tax title foreclosure filings, but these tax title foreclosure filings which are targeted in the neighborhoods which have most abandoned and blighted properties of the North End, Maple High Six Corners, Old Hill and the South End. These processes take between 12 and 14 months, on a good day, going through the Land Court. In order to avail ourselves of the opportunities in the general law, we’re bringing before you a proposed ordinance...
AL: Excuse me, I don’t have the ordinance at least in my...
DP: It’s in the back of your package, it should be the title 4.40.
CVR: The last thing in your....
AL: Do you have one, Tom?
PP: Do you have one, Mr. Gloster?
TG: No, I don’t think I do.
AL: He didn’t have one either. Maybe I do have it. OK. Sorry.
PP: Do you have one, Mr. Jacobson?
JJ: I do indeed.
AL: I got it. I got it. You’re right, I did. I apologize, stand corrected. Go ahead, I’m sorry.
DP: As part of the work done this spring with the state Office of Commonwealth Development, the neighborhoods that were identified, as I mentioned, which are the North End (which is both Memorial Square and Brightwood), Old Hill, Six corners and the South End.
In these neighborhoods, we’re proposing that we avail ourselves of Chapter 60, Section 62 A which is the recent, the recently enacted, state statute which allows waiver of up to five, 50% of interest plus five-year tax repayment plans for certain classes of properties and owners as defined by ordinance. This ordinance would allow individuals to purchase properties that have back taxes owed in these neighborhoods and enter into repayment agreements with the city which would waive 50%of the taxes, and they would be required to be owner occupied.
AL: Interest only?
DP: Interest only, interest only, interest only. They would be required to remain owner occupied for five years. If they sell or move in those five years, they would be required to repay the 50% interest. The, the, our intent of this ordinance is to avoid and forestall the cost and time it takes to do tax foreclosures--that 12 to 14 months--and assist people moving into these neighborhoods, as we would title them “urban pioneers,” who want to move back in this neighborhoods, fix up these urban...these abandoned and vacant properties and then become homeowners in those areas.
AL: So what happens if they live there more than five years?
DP: The five year period is only the period of repayment and the minimum period they have to be there in order to have the interest waived. If they’ve lived there more than five years, we think that’s wonderful as well. If they live there less than five years, though, the 50% waiver of interest would be terminated. They’d have to pay that 50%.
AL: OK, so it’s kind of a cliff, it’s not like a pro rata reduction over five years.
DP: It’s a cliff.
AL: You have to be there five years full term or else you owe all the money back.
DP: Yes.
AL: And how are you getting...what’s the security? How do you know people are going to pay if they move out in three years?
DP: We would secure the...the amount of the interest would be secured by a lien, mortgage or some other security interest in the property, and if the owner remains there five years, it would terminate or, if need be, the treasurer/collector would terminate it.
CVR: Does this apply only properties that have not yet been put into Land Court foreclosure?
DP: This could apply to properties...we could look into that if you wish, but right now it applies to properties in tax title which would include properties in foreclosure and properties that are not.
CVR: OK.
DP: But they would have to be in tax title which would mean they would have to be at least one year old.
CVR: OK.
AL: OK so this would allow a more convenient vehicle to get a new owner in who’s willing to commit to living in Springfield and developing it as a residence, so it only applies to residences, not businesses. This is just a residential...
DP: Residential only.
CVR: Let’s assume that a property goes all the way through foreclosure. And let’s say that, as it’s going through foreclosure, it owes, let’s say, $20,000 in taxes and interest. My understanding is once it gets through foreclosure, and the city is able to sell it, the city is able to sell it on an RFP or an auction. And so, then it gets not the back taxes, it gets whatever the price at the auction is, right?
DP: Correct, yes.
CVR: In other words, when it goes through foreclosure, we essentially are selling the property, but without the without any taxes as an add on.
DP: Yes and anything that at the sale, at the RFP, any funds we did receive for the property, would go in to repair the tax title account.
CVR: First?
DP: First.
CVR: I see. OK.
DP: Unless, of course, you use blight funds, and then it would go into the blight fund account.
CVR: OK
JJ: But how does this then work mechanically, David? What’s the flip side the Mayor just took us through if we were going through the whole process. What happens if there’s an abandoned property in one of these targeted neighborhoods that someone is interested in, how do they actually acquire, you know, clear title to it so that they can make the improvements and make it habitable and live there and everything?
DP: This would, instead of using the tax foreclosure process, the two private parties would enter into an agreement to buy the property. Someone would have a property that they are not doing anything with, that’s, that is abandoned, that has maybe $50,000 in taxes and interest owed, let’s say $25,000 in taxes and $25,000 in interest. They would come to the treasurer’s office, essentially, with a purchase and sale saying, “Oh, look, Party B is gong to buy the property from Party A.” A tax agreement would be entered into. One assumes they’d do that either before or after they close on the property, depending on their comfort level. And then the taxes, the $25,000 in taxes would be paid under agreement, and $12,500 of the interest would be waived, and they would have up to five years to repay the $25,000 plus the $12,500 in interest.
JJ: And is there a fixed amount of time that they have to bring the...to invest sufficient in the property to bring it up to code and get a certificate of occupancy and all of that?
DP: We have not addressed that. It’s one point that we wanted to discuss with you is how...what requirements we’d place around that. We did place in the prior ordinance was that they’d have to do it within the two to three years that they have to repay. In this ordinance, we could make, we could amend this ordinance and have that language.
JJ: Well, it seems like it would be prudent to have some kind of time requirement, because otherwise, you could just go from one private owner to the other. And where’s the benefit to the city if they don’t actually start making the improvements in the property? So...
AL: And this is another issue which I mentioned to David briefly, putting on my other hat [as commissioner of the Dept. of Revenue] on the tax side. I’d want to make sure that the forgiveness of the loan...the way it’s structured is a forgiveness of the loan, and I want to make sure we’re not making taxable income for these people. Because they’ve got a loan outstanding, and we’re going to forgive at the end of five years half of that loan which, normally, would...potentially, could be income.
JJ: Yes. C.O.D. income.
CVR: The loan is only for the part that you think you’re going to forgive.
DP: Correct, but it still might be since the loan was placed, they may....
AL: Because, normally...normally, you would, when you were doing deals, before you would do a deal, was be the buyer—the seller come to a negotiator here’s the value so once the buyer takes over, there’s no adjustments later on. Here, we’re saying, “Well, you owe the money, but we’ll forgive it at the end of five years.” Right? If I understand what you’re saying. So I just want to make sure that we don’t end up with a problem for the buyer of the property five years from now. That might be kind of a surprise.
CVR: Might be beyond their ability to pay.
AL: Yeah, and it may not be our issue. I may be a federal government issue. I want to make sure the IRS doesn’t come in and say...
JJ: Or you might find that the tax issue is for the original owner, because the original owner actually has incurred the property taxes and the interest thereon, and if now they’re going to transfer the title.... I’m getting out of my bailiwick trying to do the accounting, but I think, I think it’s the original owner who has the issue. But we should make sure that, that we know if there’s COD income and where the COD income is going to go.
TG: I think this can be structured to avoid the problems from the perspective of the buyer. The seller, I think, has got a problem.
JJ: Yeah, but that’s OK.
TG: That’s OK with us.
AL: He hasn’t been paying his taxes.
JJ: Well, I mean the seller is going to make an informed decision as to whether it’s in their interest to be [unintelligible] their property or not.
AL: That’s all I wanted to make sure that...
CVR: I have another question. You have several designated neighborhoods. I see other candidates. What was the reasoning behind applying it only to these neighborhoods?
DP: The reasoning behind applying it to these neighborhoods first, is to see how it works. The second is that these are the neighborhoods that have been targeted for the special consideration and resources. And then third, the overwhelming majority of the candidates that are that were both vacant, abandoned and in tax title are in these neighborhoods. And these are the neighborhoods more than any other in the city that it is our hope that people move into and revitalize. These are the neighborhoods that we need to stabilize the most when comparing, if I would, Sixteen Acres to Old Hill.
AL: But if you had an abandoned piece of property in any area of the city, why wouldn’t you want to do this?
DP: But these are also the tax title properties.
AL: But isn’t there tax title properties in all neighborhoods?
DP: But they’re not coterminous, the two categories...the vacant and tax title. Again, we can go back and make it apply to the entire city, but if we did that, there would be no special incentive to move into the neighborhoods which we are most concerned about...stabilizing.
TG: You say that what you’re offering parties are the 50% waiver of interest if you stay in the property for five years or more. Is there some requirement in here that the buyer inhabit the house or have you thought about that?
DP: No. It would also be if someone was fi—we would assume if someone...might come in and fix it up and enter into the same agreement You could come in as a th—you could come in with your buyer and your contractor....
TG: So if I were to renovate a house and then have Alan buy the house, could he get the benefit of the deferral?
DP: He...if, if you came in and identified that you were going to sell it to an owner occupied [sic] and you run through the entire process, we would assume we would be able to work with people on that.
TG: And is the deferral or at least the staging of payment of the taxes itself that are due, taxes themselves that are due?
DP: It’s the interest, not the taxes.
TG: The taxes...
DP: The taxes would be...you...right now, under the general law, you’re required to pay your taxes in four payments only (four months).
TG: Yeah.
DP: Under this, you’d have up to five years to repay your taxes.
TG: Who would be responsible for that, the buyer?
DP: The buyer would, yes. The buyer would or, again, if they had decided...
AL: Yeah.
CVR: How can an ordinance change the general laws?
DP: It does because Chapter 60, Section 62A authorizes it through...
CVR: I see.
DP: We are doing here...this builds upon the ordinance that was passed for residences in hardship and for commercial reinvestment. It is the same approach and the same type of an ordinance as we’ve previously..
AL: Well, let me follow up on Tom’s question. I’m a developer. There’s an abandoned piece of property. I have no intention to live in that property, but I want to develop it so I can sell it to Tom or Jake or Charlie, anybody, OK? And so, how do I get it, since there’s an interim party here who takes title, how do you take him out of it and put the ultimate resident of the property in here? Because it’s kind of a succeeding interest, it’s not the immediate interest. I wasn’t clear on how we deal with that.
DP: That would be an excellent circumstance to run into. We hope to have that sort of interest
AL: Well, let’s assume we do.
DP: Let’s assume we do. In that instance what we assume we would do is both....the mortgage would already be on the property. That would just move with the property; we could basically make it assignable. We could, we could insert that six months or a year that the developer has to fix the property in. We can make those amendments if you, if you wish.
AL: OK that’s the point. I think...
TG: Exactly right. My...I think this is a great idea. It’s positive, but looking at it from the point of view of someone who might want to go in and acquire some of these homes for renovation, I wonder if the incentive is enough. I think...
DP: It is the maximum allowed by law.
TG: So we have no choice.
TG: On the interest side, too?
DP: On the interest side, too. We’ve pushed it to the full 50% and the full five-year repayment.
AL: You can’t forgive the taxes under the law.
TG: ...but you could...if we’re forgiving 50% of the interest, maybe you can forgive 100% of the interest unless you’re not allowed to.
AL: Yeah.
CVR: See, I didn’t realize earlier what you just said a minute ago and that is that, not only do you have this potential waiver of the 50% of the interest, but you’re also able to spread out a tax liability over a five year period of time rather than a four month’s period of time. And I assume that any agreement or mortgage or lien would capsize this situation almost immediately if the taxes weren’t being paid over that five year period of time. In other words, if you don’t live there five years, you’re going to lose the gift of the 50% of the interest...
AL: But you never got the taxes.
CVR: But if you, if in the ninth month, it’s clear you’re not even paying your taxes even though they’re spread out over five years, that that would end your...
DP: That would end the agreement.
CVR: ...the whole thing at that time, too.
DP: Correct.
AL: And about, where the mortgage would probably have to be a second mortgage or something. I mean no bank is going to loan money and say and be subser--- you know.
CVR: Sure.
DP: We left that section both specific enough that it has to be recorded, but broad enough so that the proper instrument could be chosen.
TG: Right.
AL: I mean, no one would...
CVR: Any other community move forward on this yet to your knowledge?
DP: No, I believe we’re in the forefront. I, I, I’m, I, I have not had any particular notice.
CVR: Because this is a new enabling act I take it.
DP: Since November.
AL: Any other questions?
TR: David, I would just ask could you check and see if Lower Liberty Heights would qualify as a neighborhood that might be eligible for this program?
TG [whispers to AL] The contract between the buyer and the seller is going to be very complicated. [unintelligible]
DP: Any neighborhood in the city would...I would only—my opinion—that we need to be focusing our resources, and the board can chose wherever they wish them to be. But we need to be creating incentives in the neighborhoods where we need it the most to differentiate between there and other parts of the city. If the board wish to extend it to any other neighborhood, we can extend it to any neighborhood. It would just...it would dilute, though, the incentives.
AL: Can I make a suggestion? There’s been enough questions raised on maybe technicalities that I’d like to have maybe redraft, and the next meeting we can talk about it. Because I agree with Tom--we had just a sidebar: how you deal with a developer could be very complicated. You know, just so we can see the whole revision. The idea is a good one, want to follow up on it, but I want to make sure you’ve got all the T’s crossed and the I’s dotted.
DP: Absolutely. I would not have considered this to be the final piece anyways. It’s part of the public deliberative process.
AL: Yeah. No, I think the ideas is going in the right direction.
JJ: I think that we’ve got at least three issues that have come up that have to get drafted in: making sure that cancellation of debt income goes to the seller, not the buyer as a future liability. We need to have a minimum amount of time to begin the renovations or the reconstruction and a minimum amount of time to complete. And then we have to deal with the whole issue of a developer as opposed to a homeowner making the purchase and subsequently selling to a homeowner, how should that be handled?
AL: Yeah.
CVR: Does this currently apply to one, two, and three family homes?
DP: Again, that’s a....
PP: I think it’s a va--, if they’re in the category.
DP: Yeah. If they’re in the category of buying a home, it would, it would...
AL: It’s part rental, part rental, part, you know, part residence, so ... I mean, I have no objection to doing that.
DP: It’s less than four units has been the definition we’ve used the same as in the as in the prior...it’s just...
CVR: Yeah.
DP: It’s a sticky issue and there is, from all the discussions I’ve been part of, no clear, bright line as to whether it’s one, two or three, but what we came down to before was the same the assessor uses, less than four...
AL: But I’m assuming, following up on the Mayor’s comment or question, that the buyer has to live in the unit. So if it’s a three-decker, a three-family unit, the owner of the property would have to live in one of those units, is that correct? So it wouldn’t be 100% rental property.
DP: It would not be 100% rental.
CVR: The other thing is, you’ve indicated that this program applies only for properties in tax title, so maybe between now and the next meeting, you could give us a neighborhood-by neighborhood breakdown of the number of properties in tax title in the various neighborhoods.
DP: Oh yes.
CVR: Sure.
AL: OK. Great. Any other questions on this subject? OK. We’ll take it up next month. Any other items that you want to talk about? [Laughs]
PP: [Laughing] No, sir, we’ve spent sufficient time in front of the board today.
AL: Unrehearsed; this is good. Thank you. Any other new business before we take a vote to go into executive session?
**MOTION PASSED TO GO INTO EXECUTIVE SESSION to discuss collective bargaining, pending litigation, real estate and personnel matters.