FINANCE CONTROL BOARD MEETING, AUGUST 30, 2004

 

Present:  Domenic Sarno, Alan LeBovidge, Thomas Trimarco, Mayor Charles V. Ryan, Jake Jacobson, (Philip Puccia, executive director; Bill Metzger, clerk)

 

Public Officials and Citizens:  Nearly all seats taken by elderly people who seem to be retired public employees.  Also Tim Collins, Peter Murphy, Antonette Pepe, Paula Meara, Kateri Walsh, Bob O’Brien, Mary Tzambazakis, Rose Marie Mazza Moriarty, Tony Basile, Ritchie Allen, Cheryl Rivera, Pat Markey, Gary Cassinelli, Marilyn Montagna, Russ Denver, Jeff Guifredda

 

Call to order at 10:00 by Alan LeBovidge.

 

Minutes for last meeting approved unanimously.

 

AL:  The most important thing on the agenda is approval of the 1/12 budget for September, the last such budget we will be able to file.  First, I would like to ask Phil Puccia and Mary T. for a status report, an up-to-date analysis, on the so-called “deficit.”

 

PP:  I’d like to mention 2 other items: First, a housekeeping matter in terms of routine hiring and firing of City staff.  I’d like to recommend that the Mayor be given routine hiring and firing power consistent with the 1/12 budget.  Second, with regard to hiring and firing of department heads and assistant department heads, I propose that the Mayor and I be authorized to agree jointly on these matters and report back to the Board.

 

CVR:  We’re not talking about boards and commissions, just paid staff.

 

TT:  These positions would be within the budget.

 

**AL: proposes a motion to this effect which passes unanimously.

 

PP:  Thanks CVR and Mary T., says he’s only been here two weeks.  Preliminary estimate is that the City’s debt is in the neighborhood of $30million to $40million.  This figure does NOT include deferred maintenance, sick leave and vacation time, pending litigation, and a reserve for bad debt.  An analysis is now in progress to determine the age of receivables (i.e. taxes owed but uncollected) and to determine whether there are other unknown debts.

 

AL:  What are the changes that result in the debt being larger than the original estimate of $22million?

 

PP:  The BlueCrossBlueShield debt, the $670,000 penalty and tax owed to the IRS, but most of it is a result of the difference between the tax levy and money actually collected,  difference of $6 to $8million per year.

 

JJ:  How much of the $30 to $40million is due to one-time events?  Are all built-in as opposed to some being one-time events?

 

MT:  A combination; for instance, the IRS is a one-time event. (We are in negotiations with them now.)  Budgeting collections at 100% has been a built-in problem; more realistic projections will be a built-in solution.

 

PP:  There will be a plan to raise collections.

 

JJ:  Collecting more money is good, but budgeting as if 100% will be collected has to stop.

 

AL:  The BlueCrossBlueShield debt was built into the $22million; how much higher will it go?

 

PP:  $1.5million.  Changes are meant to result in savings in the future.

 

DS:  Realistically, what percentage could we expect to collect?

 

MT:  This year’s budget will not assume 100%.  We will look at actual collections over the past 4 years and use a 75% figure for collections.

 

CVR:  This item is the biggest and therefore the most important.  This (writing a budget which assumes 100% collections) is what has been happening year after year, knowing that these funds wouldn’t be collected.   The DoR never picked this up despite their statutory responsibility to monitor City spending.  This will be the first time this has happened in Springfield.

 

JJ:  The DoR has a statutory authority to see that all communities have balanced books in an accounting sense.  The problem is that the City Council and mayors appropriated the uncollectible portion of property taxes as if it were there to spend.  DoR clearly spelled out these problems.  The City balanced its books using an accounting trick which pretended it had money it didn’t have.

 

DS:  The City Council asked the DoR to come in because of problems with the prior mayoral administration.  We have to move away from [budget] smoke and mirrors.

 

CVR:  The $6.2million owed to BlueCrossBlueShield is a situation rolled forward over for five, six or seven years.  This is the day of reckoning, and now it’s a $6.2million problem.

 

AL:  I’m concerned about deferred maintenance.   Are there other items that are significant that we should know about?

 

PP:  There will be more to bring forward over the next few weeks.  The City lacks staff and technology to do these jobs, and  I’ve asked the Mayor and Mary T. to put together a budget and a time table to solve this problem.  It will be presented at next month’s meeting.

 

AL:  Mary, on bond anticipation notes: give us an update.

 

MT:  One for $33,576,000 will come due on September 1 and will be rolled over plus interest.  In June of 2005, we will have to issue a regular bond on June 15 with delivery to the bond market on June 16, 2005.  These are not revenues.  These are capital in nature.

 

AL:  Are you asking for authority?

 

**Authority granted by unanimous vote.

 

CVR:  On the 1/12 budget for September, we have filed with the City Council and the Control Board our last 1/12 budget necessary to carry on the City’s business, a continuation of earlier 1/12 budgets.  I have made three recommendations and would like to add a fourth today:

 

1)  For the Police Department, I would like to add 40 positions including 17 officers, 15 civilians @$25,000 per year,  2 matrons to monitor the female prisoners, and 6 police cadets @ $18,000 per year to replace uniformed officers and put them back on the street.

 

2)  For the Fire Department, I would like to add 7 firefighters. 

 

(For both police and fire, none of these hires will be above the rank of patrolman or firefighter.)

 

3)  Demolition of the Gemini factory which burned on January 1, 2004:  I would like to add $243,000 to the $300,000 which I set aside from Community Development funds.

 

4)  The fourth recommendation is for $60,000 to send out to contract a study of the “injured-on-duty” line in the police and fire budgets.   This money will save us many times that amount in this area, a place where we have been bleeding.  It costs us $1.7million per year.

 

DS:  Urges passage of police, fire and Gemini items, citing the need for public safety and clean and safe streets.

 

AL:  On the $60,000 did you review it?

 

**Motion passes unanimously as amended.

 

PP:  We need a vote to continue the wage freeze.

 

**Motion passes unanimously.

 

CVR:  Do you want to discuss BlueCrossBlueShield?

 

[City Solicitor Pat Markey joins PP at the table.]

 

PM:  The City is self-insured; when someone on the City plan uses a doctor, the doctor then bills BCBS which then bills the City.  The question thus arises about establishing an insurance trust fund which would earn interest and allow the City to monitor its accounts, plan for a rainy day and watch the cash flow.  I recommend setting up a trust fund to be used solely for health insurance.

 

JJ:  This would be a working capital fund.

 

PM:  It would be something that would build over time.

 

CVR:  The change would be that the general fund would pay the trust fund, and the trust fund would pay the insurer.  The City’s retirees were astonished that there was not trust fund in place all along!

 

TT:  The general find will fund the trust fund.

 

PM:  Now for the Sprint case.  Sprint, an LLP, did an end run around the tax code and were traditionally assessed little tax by DoR.  A court case last year reversed this situation, and Springfield expected to gain $4.4million as a result.  However, Sprint has reinvented itself as a Delaware corporation as a tax shield.  The City is appealing this action with the Securities and Exchange Commission, and will tax Sprint at the local level.

 

AL:  The point is that all of a sudden $4.4million has disappeared from the City budget, and someone else has to pay it.  This matter won’t be resolved in 6 months.

 

CVR:  This is where Murphy’s law comes into play.  A lot of money is gone even though everyone did what they should have done.  Our tax levy has to absorb what amounts to a 1 ½% kick in our local tax rate.  We’ll have to wait and see, and we can’t be confident that it will be resolved in our favor.

 

AL:  Other cities and towns are having this problem.  For Springfield, it means that someone else has to pony up.

 

City Assessor Ritchie Allen:  $2.8million was allocated to the overlay, so we have a $1.2 million problem....

 

AL:  But there is a $4.4million problem going forward.

 

PP:  I want to bring to the attention of the Board the problem with the health insurance caused by the bad past practice of rolling over unpaid June medical bills.  BCBS now wants its money.  The bill went from $4.7million to $6.2 million.

 

TT: Is that because there were more claims?

 

MT:  Part was an increase in claims as well as the penalty we’d have to pay at the end of the contract.

 

TT:  The City was always one month late, and they are saying, “Pay up.”

 

PP:  Advises issuing RFPs since the Board wants someone to look at increasing the efficiency of City operations in police, fire, collection of back taxes and payroll services.  He would also like to have someone take a look at facilities management and asset utilization.

 

AL:  Let’s hear about tax collection.

 

PP:  The City is owed $50million in back taxes, penalties and interest, but we don’t believe we’ll collect all of this.  We’re “aging” these—some are fifty years old; we want to collect as much as we can.

 

AL:  Items which are written off would become a debt.  When you write off an asset, it becomes a debt.

 

MT:  The property could be sold.

 

PP:  We would like authorization to RFP the police, fire and tax collection studies.

 

JJ:  I don’t have a problem with it.  Let’s not hold back progress.  He can draft and advertise RFPs.

 

**Unanimously approved.

 

PP:  Under new business recommends hiring labor counsel Phil Boyle of the Morgan Brown and Joyce firm at a rate of $200 per hour for labor and litigation services during the life of the Control Board.  Mr. Boyle’s most recent negotiation was with the Boston police union on behalf of the City of Boston.  Mr. Boyle would be the lead attorney.

 

DS:  Meaning no disrespect to Mr. Boyle, asks what about looking locally.  I know this price is a good one, but we have outstanding attorneys here.

 

**Motion to hire Mr. Boyle passes on a 4 to 1 vote with DS voting “no.”

 

CVR:  School Committeewoman Pepe is here.  Two items came up at the most recent meeting of the School Committee of which I am ex-officio chairman:  First, they would like to meet with you, Mr. Chairman, the way the City Council did; these relationships are valuable if we are to succeed.  Second is the matter of contracts for portable classrooms for the New Leadership Charter School; Superintendent Burke ways that this is mandated. The School Department has cast this in a lease/purchase agreement at $517,000 per year for three years, a total of $1.5million over three years.  I’d recommend that PP and I be briefed by the Superintendent and the Department CFO so we can understand this issue.

 

AL:  We will do that within a week or week and a half.

 

CVR:  I have a letter form the NAACP asking to meet with you.

 

AL:  We can do that on the same day as the School Committee.  I would like to get their perspective.

 

CVR:  I have a memo from City Councilors Angelo Puppolo and Kateri Walsh with their thoughts on fire alarm regulation.

 

The next issue is a troubling one.  The Police Commission terminated the services of an officer for bad off-duty behavior, but this decision was overturned by an arbitrator, so the officer was reinstated by the Commission on August 14.   Because of uncertainty as to the role in this matter of the Finance Control Board, which has the power to overturn the action of any board or commission within 14 days, the Police Commission has sent us a memo on this matter.  If the Control Board were today to rescind the Police Commission’s decision to reinstate, it could give the Police Commission time to research what might be the best course of action.  If we wait until our next meeting, more than 14 days will have elapsed.

 

**Motion passes unanimously.

 

Letter received relative to Medicare B, a matter of concern to retirees.

 

AL:  We’re not doing anything until we know more and have a cohesive strategy.  You are doing a good job of trying to get all the facts.

 

CVR:  We have had no discussion on this issue due to the press of other business.

 

DS:  Thank you again for coming out, Mr. Chairman.  Acknowledges Councilors Tim Rooke and Angelo Puppolo who are present.

 

AL:  The Control Board is required to submit a preliminary report to Administration and Finance and to the Legislature by September 1.  I will draft such a report and circulate it.  The board will now adjourn and go into executive session to discuss labor and collective bargaining issues.

 

Meeting adjourned at 11:10am.