Reporting

2013-2014 Benefits Task Force: Defined Benefits vs Defined Contribution

The 2013-2014 Task Force on Healthcare, OPEB, and Pension Benefits recommended retaining a defined benefits program for City employees while also adding a defined contribution program. This position was different from what was recommended by the 2009-2010 Budget Task Force.

In support of their recommendations, the 2013-2014 group explained why they felt that retaining the defined benefit plan would be the best approach. The discussion in the report begins at the bottom of page number 29. They highlight three considerations:

Technical Issues: Closing the Defined Benefits plan does not change what the City owes to current and future retirees. However, closing the plan would increase the annual required contributions, prevent contributions and investment gains from future hires from offsetting current expenses, and force the investment strategy to become more conservative as the investment horizon decreased. Closing the plan would actually increase the near-term costs of the existing pension program.

Moral Issues: Defined Benefits plans put most of the investment risks on the City, while Defined Contribution plans put most of the risk on the employee. Moving to only a Defined Contribution plan would expose employees to risks that they are “not prepared to manage.”

Competitive Issues: “The supposed lower costs of DC plans is often just a result of cutting employer contributions to the DC plan, not greater economic efficiency.” This point seems to speak to the Task Force’s concerns about ensuring the City can compete for talented employees and provides viable replacement income.

The Task Force imagined a hybrid retirement benefit structure that could serve as a compromise between the two extremes.

They proposed keeping the existing Defined Benefits plan open to new employees, but thinking of it as providing a baseline of support.

Employees with modest earnings would receive significant protection from the Defined Benefits plan. More highly paid employees would share in the same baseline Defined Benefits plan, but would also have an opportunity to participate in a Defined Contribution plan for their earnings above a predetermined threshold.

In addition to capping the Defined Benefits plan at an earnings threshold, the Task Force also made suggestions about how to reduce the plan’s costs. Their suggestions include increasing the full retirement age to 65, making the adjustment for early retirement actuarially sound, reducing the accrual rate for all employees to no more than 2%, restricting the exchange of accumulated sick days for pension service, calculating the final average earnings using the average of the past five years instead of two or three of the last five, and adopting anti-spiking provisions.

Nearly all of their suggestions would be subject to collective bargaining with the various employee unions, which the Task Force made sure to note.

Following the spring 2014 budget season, the City created a new group called the Hartford Committee on the Restructuring of City Government, which includes representatives of the unions in addition to elected City leaders and experts in government reorganization. The resolution creating the committee specifically referenced the Benefits Task Force and the Tax Task Force as a way to ensure that their recommendations were considered in the restructuring conversation.

Reporting

2013-2014 Task Force on Healthcare, OPEB, and Pension Benefits

1 Comment

Following the spring 2013 budget season, the Mayor (Pedro Segarra) and the Court of Common Council President (Shawn Wooden) created the City of Hartford Task Force on Healthcare, OPEB, and Pension Benefits to study the City’s employee benefits structure and make recommendations about how to improve it. The final report was issued on May 14, 2014 and can be found here.

The Task Force produced a detailed report that begins with an Executive Summary before elaborating on individual recommendation. In total there are 282 pages of material between the 45 page report and the four additional PDFs containing the appendices (Part I, Part II, Part III, Part IV). There is a significant amount of information, and supporting analysis, in the documents. What follows is a summary of the Executive Summary.

Before getting into recommendations, the Task Force identified causes for recent increases in the cost of the three benefits programs.

  1. The 2008 financial crisis caused a large loss in the pension fund, which had previously been 100% funded. As a result, the Actuarially Required Contribution (ARC) jumped from $9.6 million per year to $47.8 million.
  2. Hartford has funded Other Post Employment Benefits (OPEBs) on a “pay as you go” basis and accumulated an unfunded liability of $273 million.
  3. Healthcare costs are rising nationally. The City “has provided good benefits to employees with comparatively low employee contributions and co-pays.”

In reflecting on their findings about the current state of the benefits programs, the Task Force noted that, “It is not an overstatement to say that the situation has already reached a critical stage, which urgently requires corrective action.”

The Task Force recommended that the City and the Employees work together to accomplish the recommended changes. They felt that the proposed structure of the benefits system must have common interests between the City and the Employees.

Specifically, they felt the benefit system:

  • Must be able to remain in place for the long term yet still be financially sustainable.
  • Must offer benefits that allow total compensation to attract talented employees.
  • Must make employees healthier while also reducing costs.
  • Must maintain a viable replacement income rate after employment with the City ends, and not just shift costs to other government assistance programs.
  • Must not shift all risk to the City, nor to the employees.
  • Must account for the increasing life expectancy of retirees.

The Task Force made detailed recommendations for each of the three benefits programs. Again, these are a summary of the summary, and much more information is available in the full report.

Health Benefits: Open a dialog with the employees about making changes to the plan. Emphasize preventative care. Try to consolidate all employees onto a single plan. Follow up more aggressively on the treatment of chronic conditions.

Other Post Employment Benefits: Create a Trust Fund for these liabilities, transfer existing money into the Trust Fund, and begin paying into the Trust Fund annually. Consider merging the Fire Fighters VEBA into the Trust Fund. Increase the employee contributions to the program and/or delay the age at which the benefits can be claimed.

Pension Benefits: Do not try to replace the defined benefits plan with a defined contribution plan for new employees. Instead, keep the defined benefits plan for the first $XX,000 of income (a negotiated, fixed amount for all employees) and stack a defined contribution plan on top to provide the retirement benefit for income above the threshold. Adjust the existing defined benefits plan to reduce the plan’s overall costs.

Most of the Task Force’s recommendations are subject to collective bargaining with the various employee unions, which they noted in the report.

Reporting

Foley Proposes Auto and Personal Property Tax Break

Connecticut gubernatorial candidate Tom Foley announced his Urban Policy Agenda yesterday.

One of Foley’s proposals is to limit the tax rate on motor vehicles and personal property to 30 mills (point 6 in the document). He notes that mill rates are highest in the state’s cities, and that urban citizens are disproportionately hurt. Under his plan, “the state will make up the lost revenue” to the cities.

Hartford has the highest mill rate in the state, currently at 74.29. Limiting the tax rate to 30 mills would immediately reduce the burden by nearly 60% to residents on their automobiles, and to businesses on their personal property.

Reviewing Hartford’s funding structure, it is estimated that if the proposal had been in place during the fiscal year that ended in June of 2013 that Hartford residents and businesses would have saved nearly $40 million. According to the proposal, the State would have reimbursed the City for the $40 million in lost revenue.

2014-09-25 Foley Mill Rate Cap

Both CTNewsJunkie and CTMirror reported that Foley planned to budget $30 million statewide for the program.

Commentary

Leverage in the City

Hartford residents have a lot of leverage via their municipal government. But what is the best way to describe, and understand, the type of leverage?

Residents of Hartford elect a Mayor and nine members to the Court of Common Council. These ten officials directed about $941 million in spending during FYE 2013. Over that same period, the residents contributed about $72 million in property taxes to the City.

Via their elected representatives, the residents of Hartford directed the spending of about 13x as much money as they contributed. Leverage.

This financial set-up is an opportunity. Hartford is able to work towards goals that would otherwise be financially out of reach.

This financial set-up has risks. Hartford’s ability to pursue those goals depends on the funding, which in turn depends on the financial position and attitude of others.

Most importantly, this financial set-up comes with responsibility.

In order to take advantage of the opportunity that leverage provides, and to minimize the risk that comes along with it, Hartford has the responsibility of creating plan. What is the City trying to accomplish, and what strategies will be used to reach those goals?

That responsibility ultimately falls to the residents, who elect the Mayor and the members of City Council. The residents, via their elected officials, have the power to lead the discussion and shape the conversation.

Reporting

2013-2014 Tax Task Force Recommendations

Following the spring 2013 budget season, the Mayor (Pedro Segarra) and the Court of Common Council President (Shawn Wooden) created the City of Hartford Tax Task Force to study the City’s property tax structure and make recommendations about how to improve it. The final report was issued on January 22, 2014 and can be found here.

The Tax Force identified key objectives that they used to guide their effort. They believed that the City needed to grow the Grand List, but that the high mill rate was an impediment to investment. They also noted that taxpayers’ ability to pay should be considered in the property tax structure.

Their ultimate goals for the revised property tax were to support and attract small business, encourage the development of large commercial properties, and attract new residents.

A few specific challenges were highlighted by the Task Force, including the fact that 51% of property value in the City is tax exempt. For some of the tax exempt institutions, the group found it difficult to separate the value that accrued to the region from the value that accrued to City.

They concluded that a 30 year recession in commercial property value was more damaging to the City’s financials than spending increases. Finally, they observed that small commercial properties had been disproportionately impacted by the current property tax structure.

Numerous recommendations were organized into three categories. The Task Force identified changes that would need to be made via the state legislature, changes that could be made by the Mayor and Council within the City budget process, and actions to be explored in cooperation with established regional organizations.

The most noteworthy recommendation was a phase out of the differential assessment ratio. The Tax Force proposed that the residential assessment ratio be gradually increased over the course of 30 years until all property owners were taxed at the state standard 70% assessment ratio.

At the time of their report, the residential assessment ratio was about 29%. The recommendation was to increase the ratio by 1 percentage point per year for 20 years, and then 2 percentage points per year until it reached 70%. This would move the ratio up to 49% after 20 years and then the remaining amount in about 10 years to reach 70%.

Other recommendation included allowing monthly tax payments by certain types of property owners, enforcing existing laws, looking further back in order to collect delinquent taxes, resisting conversion of additional properties to tax-exempt, requiring an economic benefit analysis and a community benefit agreements for a tax fixing deal, and reducing the City’s expenses.

Reporting

Population Changes in Hartford

1 Comment

Hartford Population

Hartford Population vs State & County

Hartford Population Chart

Data Sources

City of Hartford data is from the CT.gov website in the Secretary of the State section. The cells shaded pink, essentially 1880 and earlier, had figures that were in slight conflict with the numbers on Wikipedia, though the approximate magnitudes were the same.

County data since 1900 is from the census.gov website, which matched the figures available on Wikipedia. Data from before 1900 has not been confirmed on either a State or Federal site, and comes directly from Wikipedia.

State data is from the CT.gov website in the Secretary of State section. The numbers were confirmed with the census.gov between 1900 and 1990, and also matched the Wikipedia numbers for the full date range.

CT Secretary of the State
Population by Town from 1756 – 1820
Population by Town from 1830 – 1890
Population by Town from 1900 – 1960
Population by Town from 1970 – 2010

Federal Census
County and State Population from 1900 to 1990
City of Hartford Quick Facts Page

Wikipedia
City of Hartford
Hartford County
State of Connecticut

Reporting

2009-2010 Budget Task Force Recommendations

2 Comments

Late in 2009 the Mayor (Eddie Perez) and Council President (Pedro Segarra) authorized a Task Force to look for ways to “reduce spending and/or increase revenue.” The final report was issued on March 26, 2010, and made five recommendations.

Health Care Benefits

  • Hire an independent benefits consultant to study the current system in detail and look for savings opportunities.
  • Evaluate the benefits of a Health Savings Account (HSA) plan.
  • Increase the employee contribution for health benefits.

Pensions

  • Consider a defined contribution plan for all new employees.

Procurement

  • Fill the vacant Purchasing Agent position.
  • Automate the procurement process, so that it works with MUNIs.
  • Modify the procurement procedure to allow more negotiation with the lowest responsive bidder and to implement a Price/Cost Analysis Review.
  • Create an incentive program to change the “spend it or lose it” mindset of departments.
  • Review the impacts of the Living Wage Ordinance on all City contracts.
  • Review the impacts of “green” requirements on City expenses.

Shared Services

  • Combine the internal services of buildings and grounds maintenance, and printing and duplicating, so that the City and the schools utilize the same groups.
  • Explore opportunities to co-locate schools and library branches.
  • Advertise City groups (like MHIS) to provide the same services to smaller municipalities.
  • Look at a broad range of services that could be provided more cheaply at a regional level (911, snow plowing).

Innovation Fund

  • Create a program to implement ideas submitted by employees about how to reduce costs and/or increase revenues.

The group also recommended that the City keep informed on the State Legislature’s Blue Ribbon Commission on Municipal Opportunities and Regional Efficiencies (MORE).

In the report’s conclusion, the Task Force writes that, “if we deal only with ‘quick fixes’, we will never accomplish the long-term changes that can result in improved financial stability for the City.”

Commentary

Message Board Jujitsu

Note: The list below is adapted from other sources, which are provided at the bottom.

It is important to have a variety of opinions in every discussion. Diverse opinions provide perspective. They make us think. They help us grow. Without a variety of opinions there is nothing to discuss. But strongly held opinions, when forcefully argued by any means possible, usually undermine a debate.

Many discussions take place online in this day and age. Online discussions have a different character than face-to-face conversations. One of the downsides of online discussions is that they more easily stray off topic.

I frequently encounter comments online that disrupt the productive debate of ideas. Some of these comments are intentional attempts to avoid the issues or manipulate; others are made in good faith but have the same effect.

Disruptive comments bother me. My sense is that they also bother other people. Here is a strategy to deal with them … flag them as examples of a way that issues are dodged, or a discussion is disrupted.

When involved in a discussion and someone uses one of these strategies, point it out. Link to this article and lightheartedly say something like, “Nice example of a Shout Down (#6)!” Once enough people in the group understand and recognize these techniques, they will lose much of their disruptive power.

1. Name Calling and Ridicule. Associate opponents with unpopular labels such as ‘kooks’, ‘right-wing’, ‘liberal’, ‘left-wing’, ‘terrorists’, ‘conspiracy buffs’, ‘radicals’, ‘militia’, ‘racists’, ‘religious fanatics’, ‘sexual deviates’, and so forth. This makes others shrink from support out of fear of gaining the same label.

2. Emotionalize, Antagonize, and Goad. Chide and taunt your opponents and draw them into emotional responses which will tend to make them look foolish and overly motivated, and generally render their arguments somewhat less coherent. Not only will you avoid discussing the issues in the first instance, but even if their emotional response addresses the issue, you can further avoid the issues by then focusing on how ‘sensitive they are to criticism.’

3. Suggest Extreme, Counter-Productive Solutions. Ideas that are wholly disproportionate to what is being discussed distract from the conversation and discredit the attempt to spread the facts and work towards a resolution.

4. Become Incredulous and Indignant – “How dare you?!” Focus on side issues that can be used to show the topic as being critical of some otherwise sacrosanct group or theme.

5. Polarize. Segregate the participants into groups by raising emotional or partisan issues. This prevents the conversation from moving forward through cooperation and collaboration. Push any and all hot buttons available.

6. Shout Down Comments. Coordinate with a couple of others to “shout down” opponents’ comments. This is especially effective when the posters launch an avalanche of comments in quick succession … the original comment gets lost, or attacked so much that it is largely lost.

7. Quantity Over Quality. Make a rapid succession of replies to a criticism so that the opponent’s comment is lost in the conversation thread. This obscures conflicting, and potentially valid, points so that your position cannot be evaluated in any detail.

8. Use a Straw Man. Find or create an element of your opponent’s argument which you can easily knock down to make yourself look good and the opponent to look bad. Either make up an issue you may safely imply exists, or select the weakest aspect. Amplify their significance and destroy them in a way which appears to debunk all the charges, real and fabricated alike, while actually avoiding discussion of the real issues.

9. Hit and Run. In any public forum, make a brief attack of your opponent or the opponent position and then scamper off before an answer can be fielded, or simply ignore any answer. This works extremely well in environments where a steady stream of new identities can be called upon without having to explain criticism or reasoning. Simply make an accusation or other attack, never discussing issues, and never answering any subsequent response, for that would dignify the opponent’s viewpoint.

10. A Lost Cause. Paint the entire situation as unsolvable. If people talk about taking constructive action, write things to discourage them. Encourage people to be apathetic instead of trying to change things. This causes those following the matter to lose interest more quickly without having to address the issues.

11. Demand Complete, Fool-Proof and Guaranteed Solutions. Pretend that discussing any idea that is less than perfect is a waste of time. Since perfect solutions are nearly impossible, and even more rarely the initial proposal, this avoids discussing the subject entirely.

12. Change the Subject. Usually in connection with one of the other techniques, find a way to side-track the discussion with abrasive or controversial comments in hopes of turning attention to a new, more favorable topic. This works especially well with companions who can ‘argue’ with you over the new topic and polarize the discussion arena in order to avoid discussing more important issues.

13. Question Motives. Twist or amplify any fact which could be taken to imply that the opponent operates out of a hidden personal agenda or other bias. This avoids discussing issues and forces the opponent on the defensive.

14. Invoke Authority. Claim authority for yourself, or associate yourself with authority. Present your argument with enough ‘jargon’ and ‘minutia’ to illustrate you are ‘the one who knows.’ Simply assert you are correct without discussing issues, or demonstrating concretely why, or citing sources.

15. Play Dumb. No matter what evidence or logical argument is offered, avoid discussing issues. Deny that evidence or arguments have any credibility, make any sense, provide any proof, contain or make a point, have logic, or support a conclusion. Mix well for maximum effect.

16. Rehash Old News. Many ideas and proposals face early criticisms that are quickly addressed. Continue reviving the original objections as a way to avoid focusing on the current issues.

17. Ride the Coattails of Old News – a derivative of the Straw Man. Many ideas and proposals face early criticisms that are quickly addressed. When new objections arise, link them to the original criticisms (that have already been resolved) and dismiss them all as rehashing old news without addressing the new issues.

18. Ignore Proof Presented and Demand Impossible Proofs – a variant of Play Dumb. Regardless of what material may be presented by an opponent in public forums, claim the material irrelevant and demand proof that is impossible for the opponent to produce.

19. Create False Evidence. Whenever possible, introduce new facts or clues designed and manufactured to conflict with an opponent’s presentation. This is a useful tool to neutralize sensitive issues or impede resolution.

20. Create a Bigger Distraction. If none of the other strategies seem to be working, then create bigger news stories (or treat lesser stories as more important) to distract the multitudes.

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These strategies come from two primary sources, either directly or with edits.

The first source is H. Michael Sweeney’s article called Twenty-Five Ways to Suppress Truth: The Rules of Disinformation. Sweeney’s piece appears to have been initially written in 1997, before the widespread adoption of the internet, and be geared towards managing public scandals.

The second source, Washington’s Blog, adapted Sweeney’s information and pulled in some other sources in a piece titled How to Spot – and Defeat – Disruption on the Internet. This piece was first posted in 2012, and is clearly more focused on internet discussions. However, it has a national/international events bias that doesn’t apply to the online conversations I frequent.

My goal is to reframe the strategies in a more general context, so that they feel relevant to any type of online conversation. I also have attempted to be less harsh in judging those who employ the strategies. All of us have used them at one point or another – after all, they’re very effective.

Those whose participation in a group is almost entirely defined by these approaches need to understand that they are disrupting the group’s discussion.

Reporting

DoNo Hartford Proposal: First Take – Costs to the City

On Friday, September 5, 2014 the City of Hartford posted a number of documents related to the Downtown North site and Request for Proposal (RFP). Included in the set was the RFP response from DoNo Hartford, LLC, which was the group that the administration recommended as the developer of the site.

The full document is 244 pages, and can be found here. The first 66 pages outline the proposal, while the remainder focuses on the background of the Developer and others who would be involved in the project.

Although all aspects of the proposal are interesting, the issue that is generating the most discussion is the potential cost of the development to the City of Hartford. The RFP response, though not a final agreement, provides enough detail to begin understanding potential costs. An initial read shows that the City takes on costs in a variety of ways.

Land Cost: The City would sell the land to the Developer for $1 per parcel.

Environmental Remediation: The City is responsible for any environmental remediation and/or monitoring necessary for the site.

Transportation Modifications: The City has agreed to contribute $8 million for modifications and improvements to the public right of ways – streets and sidewalks.

Infrastructure Improvement District (IID): The City would work with the Developer to establish a legal entity that would oversee the overall site, and would collect incremental property tax revenue generated by the development.

Property Tax Fixing: Property taxes on the site would be set at 5% of the gross revenue in perpetuity.

Rental Payments for the Ballpark: The City would lease the ballpark from the Developer with an annual lease payment in the vicinity of $5 million. This money pays back the Developer for the construction costs of the facility.

Ballpark Maintenance: The City would be responsible for all costs associated with the ballpark operations, maintenance, and improvements.

The RFP document estimates some, but not all, of the costs that the City will bear. Some of the costs will be more difficult to estimate than others, though there is now a more detailed framework. The RFP document makes no attempt to estimate revenues to the City.

More detail about each of the costs, and the respective page numbers in the RFP document where each cost is discussed, can be found below.

=====================================

Land Cost

Page 41, section 1 states that the ballpark parcel will be sold for $1, and page 44 section 1 states that the five other parcels will be sold for $1 each. This is an opportunity cost to the City – could the property be worth more to another developer?

Environmental Remediation

Page 41, section 4 states that the City will be responsible for all remediation and/or monitoring that may be required on the Ballpark site. Environmental costs will be factored into the Rental Payments. Page 44, section 4 states that the City will be responsible for all remediation and/or monitoring that may be required on the other parcels. The specific manner in which the City will cover those costs is not defined.

Transportation Modifications

Pages 14 and 15 discuss the changes to the City’s streets that would be made as part of the project. Paragraph 5 of page 57 states that the City will contribute $8 million towards related off-site and roadway improvements. The $8 million number is repeated in the table on page 58.

Infrastructure Improvement District (IID)

The first paragraph of page 57 notes that there will be an IID created in order to help finance the project. Paragraph 5 of page 57 states that the IID will “raise capital through a bond issue supported by a municipal tax sharing agreement.” The final paragraph of page 57 notes that the IID-related debt would be on the order of $10 million, as does the table on page 58. The costs to the City are the work to create the district, and then the foregone tax revenue that is shared with the IID.

Pages 62 and 63 provide a high level overview of how the IID would work. The IID is described as a “mini-municipality” within the City. The City and the IID would share the additional property taxes generated as a result of new development in the district. The IID would have the ability to issue debt against its share of the property tax revenue stream.

Property Tax Fixing

Page 43, section 14 states that property taxes on the parcel containing the Ballpark and the adjacent parcel that the Developer has under contract will have their taxes set to 5% of gross revenue in perpetuity. Page 45, section 8 contains similar terms for the remainder of the development site.

Rental Payments for the Ballpark

Page 34, section J introduces the idea that the City will pay rent for the stadium based on the “Guaranteed Maximum Price,” which will be set before construction begins. Page 42, section 12 defines the formula to be used for the rental payments. The City will be charged 8% of the construction costs as the initial annual rent amount. The example provided is that if the construction cost is $40 million, then the rent would be $3.2 million. However, a table on page 58 projects development costs for the ballpark to be just over $47 million.

An additional paragraph in section 12 of page 42 discusses the escalation of the rental payment over time. The paragraph is written in a confusing manner, with what appears to be an error describing the calculation. It is unclear if the rent escalation begins in year 6 of the deal, or if it begins in the first potential extension of the lease in year 26. What is clear is that the rental amount will increase by 5% over the previous period.

Ballpark Maintenance

Page 42, section 8 states that the City will rent the ballpark under a “triple-net” lease, making the City responsible for all operating and maintenance costs of the facility, including “property taxes, insurance, utilities, maintenance, repair and replacement, including roof, mechanical and structural items.” The “Lease” section of page 60, the Preliminary Financing Term Sheet for the Ballpark, states that the lease is to be triple-net as a condition for the construction loan.