Growth of OPEB Participation

Among its 2009 financial recommendations to the City of DeKalb, Executive Partners, Inc. warned that the costs of DeKalb’s retiree health and life insurance plan, known as Other Post Employment Benefits (OPEB), would continue to outpace contributions “to infinity.” EPI recommended the city jettison the program ASAP.

In confronting the continued growth of what was already at the time an unfunded liability of nearly $30 million, the city council discussed the options in joint meetings with its financial advisory committee. One of the things that came out in these discussions was that the city is making contributions for all its retirees, not just those with whom it had a contractual obligation to do so. Even retirees from the DeKalb Public Library can participate.

I had gotten the impression during those discussions that DeKalb had included all retirees in the OPEB for generations.

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I was wrong.

Sources:

May 2009 EPI Report and Comprehensive Annual Financial Reports from the City of DeKalb Downloads page

Public Safety Costs & DeKalb’s Financial Health

In last Thursday’s post I shared some preliminary observations about the latest contract between the City of DeKalb and the firefighters’ union.

Since then I’ve gotten a little feedback on it behind the scenes. The gist of the response is this: What’s the deal? Does yinn have something against well-compensated public employees?

The short answer is that I believe city employees and especially public safety employees deserve every penny we can afford.

The larger deal is that since late 2007 — despite hiring freezes, layoffs, reorganizations and attrition — the City of DeKalb has essentially been reacting continually to financial crises and deficits and in early 2010, city officials said that something drastic had to happen in order to avoid being $5 million in the hole by the end of FY2011.

Then DeKalb ended up with a $6.3 million audited surplus for FY2011.

The question is, does this surplus reflect real recovery and growth? Or will we, in the midst of hiring and giving generous raises a couple years out, be forced yet again to lay off and reorganize due to personnel costs outpacing revenues? Continue reading Public Safety Costs & DeKalb’s Financial Health

DeKalb’s Ratio of Debt Service to General Fund Expenditures

Once again I am pulling from DeKalb’s Debt Management Policy. This time it’s a limit on debt service expenditures as a percentage of General Fund expenditures.

3. Ratio of Annual Debt Service to General Fund Expenditures
The formula for this computation is annual debt service expenditures divided by General Fund expenditures (excluding certain interfund transfers). The City shall not exceed 10% of General Fund expenditures for annual debt service.

And it does not. DeKalb’s percentage of GF debt service runs no more than 5% of total GF annual expenditures (range is roughly $1.4 to $4.4 million) and often less.

However, there are more budgets than just the General Fund budget, and a lot more long-term debt than just bonded debt. TIF debt service typically runs $2 to $3 million annually. We also have capital leases, an Illinois Environmental Protection Agency loan, compensated absences liabilities, Other Post Employment Benefits (OPEB) liabilities, pension liabilities, money Due to Other Governments (school district) and are still paying on the 2003 Early Retirement Incentive termination benefits.

So I would say that ol’ Number 3 is of some value, but incomplete.

Previous debt policy posts:

City of DeKalb’s Self-Imposed Bonded Debt Limit

DeKalb’s Limit on Per Capita Debt

DeKalb’s Limit on Per Capita Debt

dollar signAs implied yesterday, I’ve got my hands on the City of DeKalb’s Debt Management Policy. The City Clerk is looking into getting this document posted at the city’s website, but meantime you can get a copy of it from him or from me. It’s a 12-page PDF.

In continuing our look at DeKalb’s limitations on debt, here is the second.

2. Gross Bonded Debt Per Capita
The formula for this computation is Gross Bonded Debt divided by the current population as determined by the most recent U.S. Census. The City shall not exceed $1,200 for Gross Bonded Debt per capita.

We know from our examinations of the Comprehensive Annual Financial Reports (CAFRs) that in FY2010, City of DeKalb per capita debt was reported as $564.31, and that the figure was probably low because DeKalb’s population estimates have been running too high in the past few.

It is rather startling to find out that the city thinks doubling the per capita debt burden is fine. Is DeKalb using our more prosperous neighbors as benchmarks?

Speaking of doubling per capita debt, may I point out once again that per capita overlapping debt (which is the debt of other units of government paid by DeKalb taxpayers) doubled from FY2007 to FY2010. My readings suggest debt management best practices also call for a prescribed limit on total per capita debt for the sake of the financial health of the citizens.

Sure, DeKalb has limited power over other governmental bodies but remember, we’re merely “striving” and taking these “factors” into account when issuing debt, not following actual rules. Some consideration of the total debt burden would not be an unreasonable demand.

A Closer Look at DeKalb Per Capita Debt

This table was part of Friday’s long post, but deserves some attention of its own.

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You can find the breakdown of the FY2010 overlapping debt in this document, on p. 153.

FY2010 ended June 30, 2010. Let’s look at some of the GO bond issues since that date:

DeKalb County: $16,000,000, 10/14/2010

School District 428: $38,001,359.50, 8/4/2010

City of DeKalb: $9,320,000, 12/01/2010

City of DeKalb: $550,000, 10/5/2010 Continue reading A Closer Look at DeKalb Per Capita Debt

A Look at City of DeKalb Debt

As a Home Rule community, DeKalb has no state-imposed legal limit on its indebtedness.

Non-Home-Rule municipalities (at least those under 500,000 population) do have a limit. It’s 8.625%* of the taxable value of the properties within their boundaries, and they must report compliance with the limit by computing Legal Debt Margins for their Comprehensive Annual Financial Reports (CAFRs).

Out of curiosity, I calculated DeKalb’s debt margin for the last few years to see if the city stays within the limit even though it doesn’t have to. Here’s where it led me. Continue reading A Look at City of DeKalb Debt

Oakridge

Oakridge, a poor town in Oregon with dreams of becoming a major destination for mountain biking, has found itself in big financial trouble.

[A]ll of Oakridge’s 3,205 residents will shoulder the costs of an unexplained $420,000 hole in the city’s budget, a figure that is sure to grow and that by itself represents nearly half of all the property tax revenue this town takes in each year. The city must borrow $500,000 against future tax revenue just to pay its bills for the next six months, after allowing its bank account to be drained, plummeting from nearly $1.4 million in 2009 to less than $200,000 in June of this year.

“That’s $65,000 a month you’re overdrawing your account,” James Affa, a member of the city’s finance committee and a vocal critic of [city administrator Gordon] Zimmerman, said at a recent council meeting. “This is an incredible amount of money.”
[…]
It’s not just a bookkeeping issue when a town of this size and in these economic straits winds up short $420,000 — or more. The city is investigating whether to raise water rates to help close the fiscal gap, to the outrage of residents who have literally screamed at city officials in recent meetings that they can’t afford rate increases when Social Security hasn’t seen a cost-of-living increase in three years.

The shortfall developed on the watch of a city administrator who admits he should have done things differently. He has not resigned, and Oakridge residents have initiated a recall process against the town’s mayor and three city councilors who refuse to fire him. The recall election will be held next month.

No matter the outcome, residents will probably not find out what happened to the money. There are too many gaps and discrepancies in the information even to finish the 2008-9 audit.