LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE

The Legislative, Finance, and Administration Committee meeting was held on December 14, 2009 at 6:00 p.m. with Chairman McGlumphy presiding. Members present were Mr. Leary, Mr. Salters, Dr. Jones, and Mr. Shevock. Members of Council present were Mr. Hogan, Mr. Ruane, Mr. McGiffin and Council President Williams. Mayor Carey was also present.

AGENDA ADDITIONS/DELETIONS

Mr. Leary moved for approval of the agenda, seconded by Mr. Shevock and unanimously carried.

 

Review and Recommendation - Filling of Critical Positions

During their meeting of February 23, 2009, members recommended approval of the Hiring Freeze for Fiscal Year 2008-2009, but to allow the hiring of critical positions through the review and approval of the Legislative, Finance, and Administration Committee and City Council. It was suggested that there be a “standing” agenda item to consider the filling of critical positions and, if there are no positions to consider, the item could be removed.

Police Officer

Police Chief Jeffrey Horvath explained that with the recent retirement of Sgt. William Kent, a new vacancy was created. He reminded members that the Police Department’s authorized strength is currently 91 officers and that the vacant position would need to be filled in order for the City of Dover to remain compliant with the staffing provisions of the Community Oriented Policing Services (COPS) grant that was approved by Council on September 14, 2009. Filling this position would allow the Police Department to maintain 91 officers on duty and explained its necessity in order for the City to continue to provide security and safety for the citizens of Dover.

Mr. Leary moved to recommend that staff be granted permission to recruit for the position of a Police Officer, as requested by staff. The motion was seconded by Mr. Salters and unanimously carried.

Assignment of Economic Development Division to Public Services (Tabled by Committee on November 23, 2009)

During their meeting of November 23, 2009, members considered a request for approval of a “Proposed Organizational Chart” which shows the City Assessor and City Planner Departments reporting directly to City Council and moves the Economic Development Office to Public Services. Since there was much confusion, the committee tabled the matter to allow for further discussion at the next committee meeting.

Mr. Salters moved to remove the matter from the table, seconded by Mr. Leary and unanimously carried.

Mr. Anthony DePrima, City Manager, reminded members that City Council recently approved code amendments removing the City Manager from administrative oversight of the City Planner and City Assessor. Mr. DePrima recommended that, at this time, the Economic Development Office be retained within the Public Services Department under his administration. He also recommended approval of the “Proposed Organizational Chart” provided to members. Mr. DePrima explained that this change would allow for the continuation of the traditional role of the City Manager and bring his many years of experience to bear. This is also true for the Public Services Manager. Most importantly, he stated that it would ensure that the other departments under the City Manager would be synchronized with the economic development efforts, particularly with the utilities. Lastly, while the Planning and Community Development Department has an excellent record of objectivity; the proposed change would reduce any perceived “conflict of interest” that may arise when the City’s planning staff makes recommendations to the Planning Commission or City Council regarding projects submitted or promoted by the Economic Development Office.

Mr. Salters moved to recommend approval of the “Proposed Organizational Chart” (Attachment #1) which shows the City Assessor and City Planner Departments reporting directly to City Council and moves the Economic Development Office to Public Services. The motion was seconded by Mr. Leary and unanimously carried.

Elimination of Medicare Part B Reimbursement (Tabled by Committee on July 13, 2009)

During their meeting of July 13, 2009, the committee was advised that the Governmental Accounting Standards Board (GASB) passed accounting standards which require governmental entities to recognize the cost of retirement health care during the term of the employee’s employment and not “pay as you go” after the employee retires. Members were provided four (4) alternatives, as completed by the Actuary, to incorporate all other persons not currently in a Union. It was noted that the alternatives could stand alone or be combined. Due to the complexity of this issue, it was suggested that staff only address alternative #1, and that alternatives #2, #3, and #4 be tabled until receipt of the Consultant’s Report.

During the meeting of July 27, 2009, Council approved the following Legislative, Finance and Administration Committee’s recommendations: 1) approval of Alternative #1, which would provide no (Medicare Part B) reimbursement to all future retiree’s to be effective upon approval by Council, noting that this alternative refers specifically and only to new hires. Alternatives #2, #3, & #4 were tabled until receipt of consultants report (Note: the pending report reason was not applicable, as the consultant report was not related to the Medicare B alternative action items); and 2) authorization to solicit a Request for Proposal for a Health Care Consultant to assist the City with options for managing its health care costs.

Mr. Leary moved to remove the item from the table, seconded by Mr. Salters and unanimously carried.

Mrs. Mitchell, Controller/Treasurer, advised members that it was staff’s intention for the second recommended action to engage a Health Care Consultant that can run cost calculations for Health Care Premiums, not to complete a study. These calculations would be based on alternatives to the City’s health care plans submitted by a Benefit Committee. She stated that it was not staff’s intention that the first action be tied to the second action.

Mrs. Mitchell reminded members that the Governmental Accounting Standards Board (GASB) passed an accounting standard which requires governmental entities to implement GASB45, which requires recognition of medical benefits for retirees like pension benefits. She explained that the concept is to match expenses when earned with revenues in that same year. For example, when an employee is working, they are earning their retirement medical benefits the same as their pension benefits (earning these benefits while working hours). Rather than a “pay as you go” after an employee retires, Mrs. Mitchell stated that the new accounting standards requires entities to recognize the cost of retirement health care during the term of the employee’s employment. Also, a trust fund would be established to pay out the benefits during the employees’ retirement. She explained that the accounting requirements have changed by requiring entities to set aside the monies today for the promises made to their employees.

Mrs. Mitchell stated that this matter was presented to Council, as well as the City’s three (3) unions and all of the unions have agreed to eliminate the Medicare Part B premium reimbursement. An Actuary was contacted to determine the City’s liability based on benefits as of July 1, 2008. Members were again provided a Presentation - GASB 45 Results for 2008/09, previously provided in January 2009 by Mr. Randy Gomez with Alliance Benefit Group (Attachment #2). Referring to pages 9 and 10 of the Presentation, Mrs. Mitchell noted that the City’s total liability is reflected as $64,297,000, of which $4,080,000 was for the Medicare Part B reimbursement. In an attempt to begin to control this cost, staff elected to begin with Medicare Part B and the unions were approached requesting relief. She also explained the income statement impact, noting that the expenses can be amortized and that the amount necessary for the City would be $4,377,000 annually. She advised members that these new GASB 45 requirements had to be accomplished for Fiscal Year 2009 and that they have been included in the Comprehensive Annual Financial Report (CAFR) for the City of Dover.

With reference to the authorization to solicit a Request for Proposal for a Health Care Consultant to assist the City with options for managing its health care costs, Mrs. Mitchell explained that when she contacted the Actuary regarding the Health Care Consultant, it was suggested that the City first obtain a legal opinion, as this matter relates to the City’s Employee Handbook and Contracts. She advised members that the legal opinion has been obtained and it indicated that the City could cap the Medicare and that Council could eliminate the Medicare Part B reimbursement for non-bargaining employees. Before any further action is taken, it was felt that this matter should be brought before Council to determine what action, if any, should be taken.

During the meeting of November 9, 2009, Council approved the Legislative, Finance and Administrative Committee’s recommendation for obtaining a legal opinion, prior to moving forward with hiring the Health Care Consultant in assisting the City with health care options. Mrs. Mitchell reminded members that the City’s OPEB Actuary, Mr. Randy Gomez, has recommended that the City obtain a sound legal opinion regarding what the City can do within the realm of its current personnel handbook and collective bargaining agreements prior to moving forward with hiring additional consultants to review options for controlling retirement health care cost. This approach would enable the City to focus on options that can legally be addressed.

Staff recommended the following actions in order to move forward with hiring a Health Care Consultant:

1.Parity with the Unions. Eliminate the Medicare Part B reimbursement for Non-Bargaining employee’s retired after June 30, 2010;

2.Place a cap on the Medicare Part B reimbursement effective July 1, 2010 for all current and future recipients; currently $96.40 per month.

Mr. McGlumphy noted the receipt of several letters received regarding this issue (Attachment #3).

Mr. Scott Koenig, Public Services Manager, indicated that he was speaking on his own behalf and not as a representative of other employees. He stated his only interest was with the Medicare Part B reimbursement and its effect on himself, as well as other non-bargaining employees. He noted that on page 42 of the City’s Budget, under critical success factors, there is an explanation for the City’s success being the result of the work of the City’s employees, which is based on employee satisfaction. Mr. Koenig advised members that the union employees of either the Police, IBEW, or IUE did not give the Medicare Part B benefit away but rather negotiated in lieu of something else. He stated that those units collectively voted to give up this benefit for other types of benefits such as salary, vacations, or a combination including promotions or buy-back of retiree health care. He explained that employees of the unions received something in return for the action they took in voting to eliminate the Medicare Part B benefit. The value to this issue is $65,000 annually to accommodate this benefit for current employees and the retired employees who have yet to reach the age when they would be eligible for this benefit.

Mr. Koenig reminded members that action has been taken to eliminate this benefit for new hires; therefore, any new employee who accepts a position with the City understands that this is not a benefit. He further stated that union employees who gave up this benefit, although they may not be happy with their decision, received something for that decision. Referring to page 66 of the Employee Handbook, Mr. Koenig relayed an understanding regarding the value and merit of the legal opinion; however, he explained that there can be different interpretations. He questioned if the legal opinion was obtained based on a review for saving money for the City or by placing a value on the good faith and satisfaction of employees. Although he understands the parity with the unions, he noted that there is not across-the-board parity from contract to contract to the non-bargaining employees. An example is that with the Police contract, employees are provided extra pay for having advanced degrees. This was proposed for the non-bargaining employees under the parity perspective and was voted down by the Council.

Mr. Koenig stated that during his 19½ years with the City, he feels that he has earned a portion of this benefit and, considering that he would be eligible for retirement at 25 years of service, he has earned more than half of the benefit. He stated that due to his age, he would not be eligible to retire should Council eliminate this benefit. He stated that the City has been a good employer and offers a lot for those employees who are willing to, at times, do difficult jobs. Mr. Koenig requested that Council and members of the committee consider the good will that is generated by this benefit. He noted that there is a cost for businesses for providing goodwill and, at times, to do business fairly and ethically. He requested that members reject the proposal to withdraw this benefit for employees hired prior to this date and those who may be retiring in the near future but have not yet received the benefit.

Responding to Mr. Ruane, Mr. Koenig stated that he was not prepared to present an alternative and, although he is aware of the costs involved, his statements are strictly to plead to maintain a benefit and relayed his reluctance in stating its equivalence.

Mr. Les Blakeman, City of Dover Retiree, 209 Thomas Way, stated that his concerns are similar to Mr. Koenig’s. He stated that he had worked for 33 years assuming he would go into retirement with his healthcare paid for, which played an important role in determining when to retire. He stated one of the attractions with retiring from the City of Dover was that the employee’s healthcare would be fully paid. Mr. Blakeman indicated his surprise that there would be any consideration for the elimination of this benefit for those employees who have already retired, since they have no means to bargain. He stated that retirees came to work for the City expecting to receive a benefit that was promised and then, after working 33 years to obtain the benefit, he questioned why there would be discussion of its elimination or for a cap being placed. He advised members that there are several retirees (64) whose pension is less than $10,000 (a total of 119 receiving less than $20,000) and that if a cap is placed on the Part B coverage, their pension may become non-existence. Mr. Blakeman reminded members that this benefit is currently listed in the City’s Handbook, as well as in the 1984 and 1971 handbooks, when he began employment with the City. He stated that this benefit was a promise made by previous Councils who expected all future Councils to abide by this promise. Although he understands that it is an expense, he stated it is one that enticed him to come to the City for employment and remain for 33 years.

Ms. Donna Mills, Dover Police Department, stated that she submitted a letter and reiterated her concerns that, with having 23⁺ years of service with the City, she does not have enough time to save to pay for this part of healthcare. She stated that this is one of the benefits she expected upon her retirement and, although she was offered positions elsewhere, she chose to remain employed with the City because of the benefits. She considers herself a loyal employee and urged members not to take away a benefit she has earned after 23 years with the City of Dover.

Mr. Zachary Carter, Director of Parks and Recreation, stated his concurrence with the statements made by Mr. Koenig. He stated that he has been employed with the City for over 21 years and that, upon employment, the benefits were explained. He advised members of opportunities to gain employment elsewhere over the years; however, he chose to remain with the City because he enjoyed working for the City and providing services to the citizens of the City and also due to the benefit package offered by the City. Now that he is approaching retirement age, he explained the difficulty to “make up” for the loss of the benefit that he thought he would be provided and that he earned through his years of service with the City. Mr. Carter expressed his support for the employees and requested that members take into consideration some of the promises that these employees thought would always be there for them.

Mr. Chappy Lucas, City of Dover Retiree, felt that there was a group in the retirement community that had not been discussed, that being those retirees that are already drawing this benefit. Most of these retirees no longer have the ability to obtain full-time employment and no more pay raises. These employees spent their career working for the City and when they retired 5, 10, 15, etc. years ago, this was a benefit they knew they would be provided. He advised members that he has served on the Pension Board for several years and realizes that due to the unfunded liability, the chances of any substantial or regular cost of living increases from the pension fund is unlikely. Therefore, he stated that the only way the retirees would receive a cost of living increase is if the City were to fund it and, noting the current economic condition, he felt that such an increase was not probable. Mr. Lucas stated that if staff’s recommendations are implemented, these retirees would actually be realizing a negative cost of living increase. He noted that since this benefit was eliminated for new employees, time will eliminate those that are and will be receiving the benefit; therefore, this problem will eventually go away. With reference to the recommendations submitted by staff, Mr. Lucas requested that members allow for this benefit to remain and that the caps on the Medicare Part B Reimbursement not be instituted.

Mrs. Frances Hettinger, City of Dover Retiree, 63 Sackarackin Avenue, relayed appreciation for the statements that have been made by employees and retirees. She noted that there is $96 per month that is taken from medicare checks and that it is her understanding that this will increase to between $100 and $110 beginning January 2010. She stated that she was advised that those currently receiving the benefit would not have it taken away, although it could be capped, and relayed her concern for this benefit being taken away from those that have not reached the age of 65. Mrs. Hettinger stated that these were hard working employees that were good to the City and that the City was good to these employees and hoped that this benefit would continue to be provided.

Mr. McGlumphy advised members that he requested information from the Finance Office in relation to the Medicare Part B Reimbursement benefit. According to the information provided, he stated that there are four (4) quarterly payments for the medicare reimbursement. There are 84 individuals currently receiving the benefit and that there are approximately another 100-125 people eligible for this benefit in the future. He noted that the total for calendar year 2009 paid for this benefit was $94,761.

For clarification, Mrs. Mitchell stated that the $94,761 represents the “pay as you go” which is the amount paid by the City to reimburse individuals for their Medicare premium. She stated that the $65,000 referred to is the actuary accrued liability that the City would be required to amortize over so many years.

Mr. Leary moved to recommend denial of staff’s recommendation #1: Parity with the Unions - Eliminate the Medicare B reimbursement for Non-Bargaining employee’s retired after June 30, 2010. The motion was seconded by Mr. Salters and carried with Mr. McGlumphy voting no.

Mr. Leary moved to recommend denial of staff’s recommendation #2: Place a cap on the Medicare B reimbursement effective July 1, 2010 for all current and future recipients; currently $96.40 per month. The motion was seconded by Mr. Salters.

Responding to Mr. Ruane and referring to page 8 of the Presentation (see Attachment #2), Mrs. Mitchell stated that the Actuary Presentation was as of a date and time; therefore, as of July 1, 2008, based on the current membership of the plan, the liability for future retirees is $524,000 and for current retirees it is $3,556,000 for Part B, for a total of $4,080,000 over the 30 years required to be amortized.

Also in response to Mr. Ruane, Mrs. Mitchell stated that there has been discussion of lowering the age to 55 for eligibility of Medicare. She is not aware of the impact this could have on the City.

The motion to deny staff’s recommendation #2: Place a cap on the Medicare B reimbursement effective July 1, 2010 for all current and future recipients; currently $96.40 per month was carried with Dr. Jones abstaining and Mr. McGlumphy voting no.

Mr. Leary moved for adjournment, seconded by Mr. Salters and unanimously carried.

Meeting adjourned at 6:58 P.M.

Respectfully submitted,

 

William P. McGlumphy

Chairman

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Attachments

Attachment #1 -   Proposed Organization Chart

Attachment #2 -   Presentation “GASB 45 Results for 2008/09”, which was presented to members in January 2009 by Mr. Gomez with Alliance Benefit Group

Attachment #3 -   Correspondence from employees and retirees regarding the elimination of Medicare Part B