-- July 12, 2012, Presented by Pat Cooper, Civic Association Secretary & Treasurer and Chairman of the Tax & Finance Committee
To start, on behalf of the Palm Beach Civic Association I would like to thank the members of the Town Council and the Mayor for your hard work especially with respect to putting the Town on a path of achieving sustainable budgets. We know the angst involved and we, like you, are looking to the future in terms of work to be done.
We also commend the Town Manager, staff and all Town employees for their hard work and understanding in why this process was required and embracing the concept of sustainable budgeting.
The 2013 Budget presented by the Town Manager continues to show a fiscally conservative budgeting process and, as noted in his executive summary, he has placed “excess funds” in a reserve for Shore Protection. You and I know that any sighs we hear should not be of relief but rather of continued concern. I want to just mention two items of which you, I know, are aware but some of our citizens may not be.
Like you, the Shore Protection Board and the Civic Association both eagerly await the Woods Hole consulting review of the recommended path and other suggestions as to the best way to protect our Island. While there are no permanent fixes, we cannot just sit back and watch as some have suggested. Despite what some may want to do, anything that involves our shore will be expensive and carry long term commitments that will ensure ongoing expenses from monitoring to re-nourishment. Some have suggested “bonding” as a solution but as you know, not everything can or should be bonded. The funding of reserves is prudent and goals should be set considering both our on-going agreements as well as new efforts - and it will be a significant number. As the Mayor has suggested, we would hope that this reserve is viewed as essential and that in time it is both adequate and forward looking rather than reactive.
The Town Council clearly took a risk in taking the lead on pension reform. The news for other municipalities that have not undertaken a dramatic change is not pretty as set out in the national press. I can cite at least two articles by The New York Times, written in April and May and one recent editorial in The Wall Street Journal, that discuss pension reform, investment returns and pension accounting.
More work is still needed, however, and in this regard, the Town may be behind the curve-albeit for valid reasons.
At an assumed rate of return of 8% for our retirement trust funds, our actual rate of return for several years has been below that number (in the range of 4.5% to 4.8% for the three major trust funds). We are “smoothing” our losses over a period of five years. Many municipalities throughout the country have lowered this assumed rate of return.
The Florida Retirement System, or FRS, lowered its assumed rate to 7.75% in 2010. (As an aside, we have seen that unions are voting against any reduction of this assumed rate of return.) A consequence of lowering the assumed return is an increase in unfunded liability and an increase in contributions to the plan. However, in a discussion with Bill Haynes, administrative advisor to the Town for pensions, any modification of assumptions to the plan, including any assumed rate of return reduction contemplated, could be amortized over a 30 year period thus reducing the immediate cash outflow. New York City followed just such an action in May of this year.
I understand that a review of all of the Trusts assumptions is being contemplated by the Town’s Retirement Board. I would ask that the Town Council support the intellectually robust recommendations that would come out of this review with an understanding that union representatives may not support a reduction in the assumed rate of return.
I have some estimated numbers which Bill Haynes sent to me with respect to the results of any change of the assumed return.
Civic Association Director & Chairman of the Tax & Finance Committee