Corrections and Amplifications on City Finances

I had an opportunity to meet with the folks at City Hall to try and make sure my read of the City’s financials were accurate and that I was not “crying wolf” over certain issues.  I think anyone that posts anon, as I do, have a duty to correct or amplify issues raised when identified.  Thus, I’m trying to keep the record straight.

Correction

Sanitation Department – The sanitation department does not “fund” the Museum and Gardens.  The funds that are moved out of the Sanitation Department (page 22 for those of you following along in your personal copy of the City’s Financials (available at http://www.kennesaw-ga.gov/form-center/category/14-financial-reports) go to the General Fund.  The Museum and the Gardens are funded from the General fund and to see that let’s follow the money:

Page 18 – You will notice in the Statement of Revenues under the column “General Fund” that $1,647,672 was Transferred Out (see close to bottom of the page).  On page 22 you can see that The Museum and Gardens received $1,300,211.  So, for the Record, the Sanitation Department is not funding the Museum and Gardens, however, it all goes into the General Fund which then flows out to the two operating entities as well as to the storm water program.

Unfortunately, the Museum and Gardens are still money-losing operations.

Mayor and Council line item – I noted in a previous post the rather large line-item for the Mayor and council.  That item is for salaries, pensions, storage…all costs associated with running the Mayor and City Council office.  This includes about $25,000 for election costs. 

Amplification

Pensions for our Mayor and City Council.  Apparently, many years ago, the City Council voted themselves a pension benefit….how benevolent of them to spend our tax dollars in such a caring way.  You take the job of elected civil servant not to enrich yourself (okay I am naïve), but to make the operation more efficient, at least that is what one would expect.  And far be it from those that come after those that voted for such a benefit to rock-the-boat. 

If we can elect the right servants to the City Council Board we can actually agitate for a change in that benefit.  The City Council could eliminate the pension benefit, freeze the benefit, cap the benefit, or any other host of ideas.  Personally, eliminating the benefit is the best option while freezing it for all current elected servants who are eligible. 

Since there is no cap on the benefit, my previous post regarding a potential half-million dollar pension for the Mayor stands (based upon the assumptions presented).

I believe Cris Welsh is already on board with freezing or eliminating the benefit; Debra Williams would be on board with that and Jim Sebastian would support that.  I’ve spoken with Bruce Jenkins on the subject and I believe he would support it as well.  Would Matt and Jeff support this?  I’ll reach out to them, or they can e-mail me at kennesawcitizen@gmail.com with their thoughts.  I note Jeff’s signage says something about being a good steward….I’ll put him to the test on why he should receive a pension.

Amplification

Other Post Employment Benefits (OPEB) – This is the “kudzu” in the budget which currently supports 7 retirees, but has 193 active participants that one day could be eligible.  This is why the City accrues the benefit as a payable…one never know who will make it to be eligible.  The benefit pays until age 65, then is eliminated after that age.    Here’s how you become eligible:

1.      You meet the rule of 70 (age+years of service = 70), and

2.      Employee must be receiving a pension from the Georgia Muni Association – since the City’s pension fund is in the GMA program, all eligible employees satisfy this requirement.

3.      So, if you start working for the City at age 30, and work until age 50, you meet the rule of 70 (20 years of service plus your age).

4.      Therefore, you can retire at age 50, draw a pension from the City and collect Other Post Employment Benefits for the next 15 years…and maybe go to work somewhere else just to keep some pocket change around.

So, I confirmed the following with the City:

1.      The annual required contribution represents 4% of the revenues of the City of Kennesaw ($642k / $17mm = 4%).  Why is that number significant?  Detroit’s OPEB is around 5% of the City’s revenues.

2.      The current OPEB due is $2,162,589, which grew 41% in a year.

3.      The unfunded Actuarial Accrued Liability for OPEB was $3,784,934 (as of January 1, 2011…so the number is even bigger today), which is 6% of the net assets of the City of Kennesaw.  Net assets can be found on page 15, Statement of Net Assets.  Take $3.7mm and divide by $57.1mm and you’ll see what I mean.

Now, it’s a fact that you get paid less when you work for the City but it gets made up in benefits.  But I want to ask a question of a City Employee:  Would you rather make more money today with a smaller future benefit, or make less today with a benefit that might not be sustainable in the future? 

The City Council needs to take some action on this and “stat”.  And I’m not sure how the City Manager can agitate the Mayor and Council when his contract is held in their hands and the Mayor controls the majority of the votes?  Does Steve, our City Manager, go to Mark, our Mayor and say “You better do something about this growing liability or else!”  How can he get anything done when you threaten the people that determine where your paycheck is coming from?  Someone in the audience get back to me on this Gordian Love Knot.

How can they control this?  It’s simple and it takes some back-bone.  You either lower the benefit; raise the eligibility; eliminate the benefit, or make the employees pay more for the benefit. 

The other "tongue-in-cheek" idea I suggest to City Hall was to only hire people age 60 or more.  Since the benefit runs out at age 65, you'd have very little in the way of benefits to pay.

If you do nothing, you had better prepare for tax increases because it will consume an ever higher proportion of City revenues.  The City will be forced to either raise taxes, cut services, or both.

In closing, I ask what are the elected servants doing to address the financial issues presented?  It does not take much more than high school accounting to understand there are issues with growing benefit plans that consume higher amounts of capital. 

Next up…let’s talk about that $8,400,720 “Voter Approved Use” line item budget.  Why can’t we use that for storm water?  All we need to do if put it up for a vote.

Wake up Kennesaw!