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Economic Presentation Wilkes Barre, PA 2017 Fire Act 111 Interest - - PowerPoint PPT Presentation
Economic Presentation Wilkes Barre, PA 2017 Fire Act 111 Interest - - PowerPoint PPT Presentation
Economic Presentation Wilkes Barre, PA 2017 Fire Act 111 Interest Arbitration Vijay Kapoor April 3, 2017 vkapoor@kapoorco.com Experience with Third Class Cities Serve as part of the Act 47 Recovery team in Reading, PA and New Castle, PA
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Presentation Overview
§ The City of Wilkes Barre faces severe and immediate financial
difficulties and stands at the precipice of entering Act 47
§ The City is currently in the Early Intervention Program (EIP). Analysis
completed as part of the EIP projects that the City will run a nearly $5.7m operating deficit in 2018 increasing to $7m in 2019 thus exhausting any General Fund reserves in 2018
§ The City has significant cash flow problems which requires it to take out
annual bridge loans and hold payment of larger bills to meet immediate cash obligations. It faces a real likelihood of running out of cash to meet
- bligations
- While the 2015 audit shows a General Fund balance of
$10,681,151, only $557,576 or 5.2% of that amount is in cash
- r cash equivalents
§ The City also has significant unfunded pension and retiree health care
- bligations totaling $107,630,086 in 2015
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City Financial Condition
4
§ The City of Wilkes Barre is
exhibiting many of the characteristics of cities who have entered Act 47 including:
–Weak economic
demographics
–Severe cash flow
problems
–Stagnant tax revenues –Significant and growing
retiree benefit liabilities
–Projected structural
deficits that compound in later years
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City Demographics
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City Demographics
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§
The City of Wilkes-Barre suffers from having below average key economic demographics including median household income, median home value and individuals living in poverty
§
As noted in 2005 in a report by the Joint Urban Studies Center, “Throughout this study, the economic and demographic statistics provided will serve to highlight the declining condition of Luzerne County: The lower the indicators, the greater the turnaround challenge.” (p. 5)
§
The study further warned: “The Scranton/Wilkes-Barre/Hazleton MSA needs to be proactive to reverse its
- trends. The continuing decline of the
young population, the increase of the
- lder generation, the lack of economic
competitiveness, and the drifting economy are all elements that will eventually take
- ur area from below average to
nonexistent.” (p. 6)
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City Historical Demographics Population
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51,721 67,105 73,833 86,626 86,236 76,826 63,068 58,856 51,551 47,523 43,123 41,498 40,780 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2015
Wilkes Barre Population (1900 - 2015) Wilkes-Barre’s population continues to decline and it currently stands at less than half of its peak population
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City Historical Demographics Median Household Income
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$30,945 $45,897 $53,599 $53,889 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 Wilkes-Barre Luzerne County Pennsylvania United States
Median Household Income (2015)
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City Historical Demographics Median Home Value
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$77,700 $122,700 $166,000 $178,600 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 Wilkes-Barre Luzerne County Pennsylvania United States
Median Home Value (2015)
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City Historical Demographics Individuals Living Below Poverty
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13.5% 15.5% 15.8% 28.9%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%
Pennsylvania United States Luzerne County Wilkes-Barre
Percentage of Individuals Below Poverty Level (2015)
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City Cash Flow Problems
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City Financial Condition
Cash Flow Problems
§ Though it may seem basic, a city requires having cash on hand to
- perate - from making payroll to paying bills. Wilkes-Barre has among
the most severe cash flow problems of any community that I have analyzed:
– The City issues a $3m tax anticipation note (TAN) annually.
However, rather than pay it back as soon as tax proceeds come in (as is typical for TANs), it repays it very late in the year and then immediately obtains another in the next year
– The City withheld payment on its health insurance bills at the end of
2016
– The City’s general fund cash balance at the end of 2015 was
$557,556 or the equivalent of less than a week of expenditures
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City Financial Condition
Cash Flow Problems - General Fund Reserves
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$10,680,151 $557,576 $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 Reported GF Balance Reported GF Balance - Cash
City General Fund Balance as of Dec. 31, 2015
Although the City’s 2015 audit shows a general fund balance of almost $10.7m, only $557,576 or 5.2% of that amount is in cash or cash
- equivalents. This leaves the City in a precarious position if it needs to
access reserve funds to support cash flow or for emergencies such as the Solomon Creek wall
City 2015 audit, p. 21.
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City Financial Condition
Cash Flow Problems - General Fund Reserves
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Reported GF Balance - Cash, $557,576 , 5% Reported GF Balance - All Other, $10,122,575 , 95%
City General Fund Reserves as of Dec. 31, 2015
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City Financial Condition
Cash Flow Problems
§ Though the EIP baseline projections (discussed later) show a negative
general fund balance at the end of 2018, the City risks running out of cash in the General Fund in the final months of 2018
– The City’s audit reflects accounting adjustments by the City
whereby it takes revenue received in one year and applies it back to the prior year (e.g., EIT revenues received in Jan. 2016 appear as part of 2015 since that is when they were accrued). The problem from an operational perspective is that the City must make debt service and MMO payments in the prior year and thus cannot rely on the revenues received in the next year
- The City’s debt service payments are projected to increase
from $5.3 million in 2017 to $7.4 million in 2018 and its MMO payments are projected (tentatively – we don’t year have the 2017 valuation) to increase from $4.4 million in 2017 to $6.4 million in 2018 – an increase of $4.1 million from just those two areas
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Stagnant Revenues and High Debt
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City Financial Condition
Stagnant Revenues
§ Property taxes and Earned Income Tax together comprise
approximately 45% of the City’s General Fund revenues
§ Unfortunately, those line items are not growing organically
which further exacerbates the City’s financial condition
–As seen previously, the City’s residents have very weak
economic demographics making tax increases a difficult route to pursue
§ If revenues from those taxes continue to be stagnant,
expense growth will quickly surpass revenues leaving the City with few options to address its deteriorating financial condition
–This problem will not get better with time
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City Revenue Sources
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Property Tax, $10,150,000, 20% Earned Income Tax, $12,700,000, 25% Other Taxes, $5,408,600, 10% Licenses, Permits & Fees, $2,063,330, 4% Intergovernmental, $3,454,973, 7% Charges for Services, $5,460,000, 10% Fines, $966,000, 2% PILOTs/Grants, $468,996, 1% Transfers, $1,205,259, 2% Financing, $8,280,000, 16% Other, $1,340,350, 3%
City Revenue Sources (2016 Budget)
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City EIT Taxes
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$11,136,275 $11,138,921 $11,279,621 $12,506,065 $12,596,290 $12,630,752 $12,700,000 $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 2010 2011 2012 2013 2014 2015 2016
CIty Earned Income Tax (2010-2016)
EIT – the City’s largest general fund revenue source – has been stagnant during years where the national economy has improved
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City Property Taxes
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$7,795,366 $7,933,926 $7,832,226 $10,215,748 $10,243,058 $10,142,389 $10,150,000 $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 2010 2011 2012 2013 2014 2015 2016
City Property Tax Revenues (2010-2016)
Accounting for the tax increase in 2013, the City’s property tax revenues have been stagnant
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City Debt Problem
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In order maintain its cash flow and make debt payments, the City has been taking on new debt to pay off older debt (referred to as “scoop and toss”). This is unsustainable over the long term and is akin to getting another credit and transferring the balance from the previous one
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Severe Retiree Benefit Liabilities
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City Pension and OPEB Liabilities
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§
The City faces severe pension and OPEB liabilities
– The City’s Aggregated Pension
Plan has a funded status of 62.1% as of January 1, 2015
– The City provides benefits in
excess of the Third Class City Code
– The City’s combined pension and
OPEB unfunded liabilities are
- ver $100 million as of 2015
§
In January 2017, the Auditor General stated in a compliance audit: “We are extremely concerned about the historical trend information contained in the respective schedules of funding progress included in this report which indicate a continued decline in assets available to satisfy the long term liabilities of the plans.”
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City Financial Condition City Pension Liability
§ The City has one aggregated pension trust fund that is made up five
component entities:
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Name of Plan Participants Police Pension Plan Any full-time City police officer hired prior to July 8, 1976 Policemen’s Relief Pension Plan Any full-time City police officer hired after July 8, 1976 Non-Uniformed Pension Plan All non-police and non-fire full- time City employees Firemen’s Pension Plan Any full-time City firefighter hired prior to July 8, 1976 Firemen’s Relief Pension Plan Any full-time City firefighter hired after July 8, 1976
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City Financial Condition City Pension Liability
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72.5% 66.7% 62.1% 56% 58% 60% 62% 64% 66% 68% 70% 72% 74%
2011 2013 2015
City Aggregated Pension Trust Fund Funded Ratio 2011-2013
The City Aggregated Pension Trust Fund’s funded ratio (assets divided by liabilities) has decreased from 72.5% in 2011 to 62.1% in 2015 – a decline
- f 14.3%
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City Financial Condition
City Pension Liability
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2011 2013 2015 Actuarial Value of Assets $83,704,642 $80,682,402 $80,985,791 Acturial Accrued Liability (AAL) $115,389,957 $120,995,524 $130,436,535 $40,000,000 $50,000,000 $60,000,000 $70,000,000 $80,000,000 $90,000,000 $100,000,000 $110,000,000 $120,000,000 $130,000,000 $140,000,000
Assets vs. Liabilities of City Aggregated Pension Trust Fund 2011- 2013
Pension Trust Fund assets have declined by $2,718,851 (3.2%) while liabilities have grown by $15,046,578 (13.0%) from 2011 to 2015
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City OPEB Liability
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$43,895,975 $56,073,611 $52,702,004 $58,179,342 $30,000,000 $35,000,000 $40,000,000 $45,000,000 $50,000,000 $55,000,000 $60,000,000
2009 2011 2013 2015
City OPEB Unfunded Actuarial Accrued Liability (2009-2015)
The City’s OPEB Unfunded Actuarial Accrued Liability (UAAL) increased by $14,283,367 or 32.5% from 2009 to 2015
2015 City Audit, p. 66.
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City Unfunded Pension and OPEB Liabilities
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2011 2013 2015 OPEB Unfunded Liability $56,073,611 $52,702,004 $58,179,342 Pension Unfunded Liability $31,685,315 $40,313,122 $49,450,744 $0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000
Unfunded Liability
City Unfunded Pension and OPEB Liabilities (2011-2015)
The City’s combined pension and OPEB Unfunded Actuarial Accrued Liability (UAAL) has increased by $19,871,160 or 22.6% to $107,630,086 from 2011 to 2015
$87,758,926 $93,015,126 $107,630,086
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Projected Structural Deficits
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Projected Structural Deficit
§ As noted earlier, the City’s two major general fund revenue sources are
stagnant and it faces expenditure increases of at least approximately $4.1 million in 2018 from debt service and pension cost increases
§ Based on preliminary baseline projections, the EIP consultant projects
the City to run deficits of approximately $5.7 million deficit in 2018, $7.0 million in 2019, $7.9 million in 2020 and $8.6 million in 2021
– In some respects, this forecast may be too optimistic given that it
does not assume that the City’s MMO will increase in 2018 as a result of the 2017 valuation
– The expected outcome results in the City extinguishing its fund
balance by 2018 and reaching a negative fund balance of $23.7 million in 2021
– As discussed earlier, however, we are very concerned that the City
will actually run out of money to pay its bills in latter half of 2018
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Projected Structural Deficit
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Minimum Manning Case Study
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Minimum Manning
City of Bethlehem Case Study
§ I served as an economic expert for the City of Bethlehem in its 2011
and 2015 rounds of arbitration with its fire union where minimum manning was an issue. The manning provision was eliminated in the 2011 arbitration round and was not put back in during the 2015 round
– Bethlehem provides a useful case study since it shows the
experience of a city both before and after minimum manning
– In Bethlehem, the existence and removal of the manning
requirement did not appear to have any impact on response time or firefighter injuries (as measured by workers’ compensation instances)
– However, the manning requirement, coupled with tighter sick leave
requirements, had an immediate and material impact on overtime costs
– This set of slides was presented at the City of Bethlehem’s fire
interest arbitration with its fire union on June 17, 2015
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Minimum Manning
City of Bethlehem Case Study
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Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 51
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Minimum Manning
City of Bethlehem Case Study
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Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 49
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Minimum Manning
City of Bethlehem Case Study
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Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 50
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Minimum Manning
City of Bethlehem Case Study
37 In addition to Bethlehem, other cities such as Allentown, also faced significant
- vertime increases after fire minimum manning levels were increased
Allentown City Economic and Comparability Analysis Presentation to Act 111 Panel. November 10, 2011. Slide 52 Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 52
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Minimum Manning
City of Bethlehem Case Study
Year Minimum Manning Requirement Response Time 2009 22 4 minutes 30 seconds 2010 22 4 minutes 39 seconds 2011 22 4 minutes 33 seconds 2012 None 4 minutes 25 seconds 2013 None 4 minutes 27 seconds 2014 None 3 minutes 56 seconds
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Elimination of the minimum manning requirement has not led to increased incident response times
Source: City Fire Department. Type 111 (Structure Fires) Incident Codes. Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 63
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Minimum Manning
City of Bethlehem Case Study
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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fire 113 113 113 114 114 114 114 112 112 112 113 111 50 60 70 80 90 100 110 120 City Fire Employees
City Fire Employees (2004-2015) The City did not significantly reduce the fire department after minimum manning was eliminated
Minimum Manning Requirement Eliminated 10/11/11 Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 58
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Minimum Manning
City of Bethlehem Case Study
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 WC Instances 4 5 4 6 1 2 7 4 5 5 1 2 3 4 5 6 7 8 Instances
City Fire Workers Compensation Instances (2005-2014)
Minimum Manning Requirement Eliminated 10/11/11
City Fire workers compensation instances did not increase significantly above historical levels after manning requirement was eliminated
Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 65
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Minimum Manning
City of Bethlehem Case Study
Year Minimum Manning Requirement Sick Hours Used 2006 18/20 10,446 2007 20 13,563 2008 20 12,804 2009 22 13,143 2010 22 17,118 2011 22* 14,187 2012 None 12,400 2013 None 10,801 2014 None 7,259
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Sick hours increased as manning requirements increased and declined when manning requirements were eliminated and other sick leave controls were implemented
Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 66
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Minimum Manning
City of Bethlehem Case Study
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10,446 13,563 12,804 13,143 17,118 14,187 12,400 10,801 7,259
- 2,000
4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 2006 2007 2008 2009 2010 2011 2012 2013 2014
Fire Sick Hours Used (2006-2014) Since 2011, the last year the City had a minimum manning requirement, fire sick hours used declined by 6,928 hours or 48.8%
Minimum Manning Requirement Eliminated 10/11/11 Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 67
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Minimum Manning
City of Bethlehem Case Study
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$632,348 $860,812 $260,312 $177,201 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
City Fire Overtime Costs (1993-2014)
Minimum Manning Requirement Increased to 22
During the period the City’s manning requirement was increased to 22, overtime surged to abnormally high levels. After the manning requirement was eliminated, fire
- vertime decreased immediately
Minimum Manning Requirement Eliminated 10/11/11 Slide from June 17, 2015, City of Bethlehem Fire presentation, p. 68
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Conclusion
§ The City of Wilkes Barre faces severe and immediate financial
difficulties and stands at the precipice of entering Act 47
§ The City is currently in the Early Intervention Program (EIP). Analysis
completed as part of the EIP projects that the City will run a nearly $5.7m operating deficit in 2018 increasing to $7m in 2019 thus exhausting any General Fund reserves in 2018
§ The City has significant cash flow problems which requires it to take out
annual bridge loans and hold payment of larger bills to meet immediate cash obligations. It faces a real likelihood of running out of cash to meet
- bligations
- While the 2015 audit shows a General Fund balance of
$10,681,151, only $557,576 or 5.2% of that amount is in cash
- r cash equivalents
§ The City also has significant unfunded pension and retiree health care
- bligations totaling $107,630,086 in 2015