On Tuesday, October 27, the Municipal Financial Recovery Advisory Committee had their 3rd meeting which you can find on Chester City’s Facebook page.
One of the issues they seem to have is finding a way to communicate all the stuff they’re coming up with to you guys. Through these blog posts over the years, I’ve done my best to communicate the city’s financial situation to you, but these posts are not widely read, not shared with others, not commented on, not understood, not considered important, or considered so important that some folks call me a hater for sharing the information.
There’s been plenty of warnings on this blog that the city is in bad fiscal shape. Unfortunately, the people charged with running the city would rather you look the other way and not consider the city finances as being a problem. And now we find ourselves in receivership. Even the receiver has come in and found that many people don’t understand how dire the city’s fiscal situation is.
Below, I’m going to summarize the findings that came out in the recent Municipal Financial Recovery Advisory Committee using their words, not mine. I’ll pop in every now and then with a comment in blue parenthesis for clarity sake.
Here’s the situation in a nutshell
‘The police pension fund is due to run out of money in March 2021.
The receiver is charged with making sure the city is paying its full Minimum Municipal Obligation (MMO). That is a difficult thing to do. It’s $10 million. 20% of the city budget. Prior years the city has not been able to make the full payment’ (in three straight years the city made no MMO payment at all). ‘They didn’t make the payments in order to provide vital and necessary services to its residents – police, fire, and public works. The commonwealth court wants a status report from the receiver by the end of October on the city’s fiscal health and how they plan to move forward.’
Here’s more detail on how bad things are
There is a dire status with the police pension fund. At a recent pension board meeting, the receiver issued a directive to the pension board regarding police DROP payments. He put a temporary suspension on these deferred retirement option lump sum payments as a way of addressing the cash flow shortage in the police pension plan until they can come up with a graduated payout of DROP money. If any number of retirees collect on their DROP payments, it would be the equivalent of a run on the bank and deplete the police pension fund before March/April 2020. (Only the receiver could take such a drastic step. He essentially has stopped any police officer from retiring any time soon in hopes of getting a quick payday from DROP).
Details on the 2021 budget process
They are looking hard and trying to understand the city finances while trying to understand how the city can provide vital and necessary services and pay for the pensions. ‘The city is currently working with 1/3 of the workforce on furlough and this is not viable for the winter months in terms of providing services. They admit that crafting a 2021 budget is not an easy thing. Preliminary numbers show a significant gap to achieving a balanced budget. They have some very difficult decisions to make. It’s going to be difficult to pay the retiree and health care obligation as well as pay for city services.’ (The receiver has totally trashed the budget the city prepared to come up with a realistic city budget that pays the important bills).
Efforts to move retirees from the city’s health plan to a Medicare Supplemental plan
‘The city’s health plan is twice as expensive. The medicare supplemental plan has as good or better benefits. The city cannot afford retirees on the city plan long term. The city sent letters to employees to switch to the medicare supplemental plan and they didn’t switch. Unless you move over, some day we’re going to turn your benefits off – says the receiver.
When you consider the overall cost of retiree benefits, pensions, and retiree health care as a percentage of our revenue in the city…if the city paid the full MMO pension payments and retirement health care, that would consume 1 out of every 3 general fund dollars. For every $3 we bring in, if we just paid the minimum in those areas, we’d spend 33% of our general budget there. Our ability to reinvest in police services and public works is not sustainable longterm.
There’s a lot of tough choices we have to make in the coming weeks. We think there’s a path forward for the city of Chester. It’s not going to be easy. It’s going to take a lot of effort on a lot of different fronts including retiree benefits, operations, reinvestment, and help from partners. The city will not be able to do it alone. We’re not going to be able to cut our way out of this. We won’t get out of this with a bunch of money dropping in.’
If you don’t care about any of this, please understand this next paragraph
‘The city currently pays more for retiree’s healthcare than it pays for active employees. Police retirees receive more in pension payments than what it cost in salary for the active department. Police pension total $6.6 million and active police officers receive about $6.1 million a year in salary. Chester is paying for two police departments and can’t continue to sustain it.’
Working on 2021 budget
‘The 3 Rs! Reorganization. Where can we cut back and beef up? Reinvestment into city services. Reduce the pension costs.
There’s a $5 million gap where expenses exceed projected revenues. That’s a 10% budget gap. All efforts are going into how to close the gap for 2021. Our primary focus is on the budget.’ (There will be no more BBINO -Balanced Budget In Name Only from the city’s financial folks. The receiver is proposing an actual balanced budget)
They want you to know what’s going on
They are trying to put together an educational process for people to understand what’s going on. ‘There’s a lot of work to do to educate people and not a lot of time to move forward. Communication is key whether people live in Chester or even care for that matter. Getting the message out that we can’t sustain this is going to be key. A scheduled public meeting is on the horizon. In November, two meetings must be held while also trying to reach the retirees.’ (Yeah, that’s what I try to do, communicate. If my experience trying to communicate this stuff is any indication, the receiver has their work cut out for them).
‘We’re not sure if the retirees realize how dire this situation is. Absent a significant change here, the police pension fund will stop paying pensions early next year. It will run out of money. There is no money to bail this out. We’re going to need everyone’s help.’