Sunday, April 7, 2013

Local Budget Blues

We are now in budget season. From the Federal government and the fifty states down to the smallest municipality budgets are being proposed and adopted. Unlike the Federal government states and municipalities have to present a balanced budget each year.

The budget process in my home town of Fairfield is probably typical of what is going on all over the country.    

A recent edition of a local newspaper carried Fairfield First Selectman Mike Tetreau’s letter to the town about the proposed budget that features more than a 6% increase. Tetreau pointed out the relevant issues but noted that there will be “substantial changes to the original budget proposal,” and urged all residents to be involved in the process.

In the same paper a letter writer castigated the Fairfield Taxpayer Association for failing to come up with any meaningful ways to cut taxes, and urged that the proposed budget be accepted “unless Fairfield Taxpayer or other well-intentioned individuals can come to the table with palatable cuts.”

I’m not a member of the Taxpayer Association but as a well-intentioned taxpayer, I would like to offer some suggestions. In the first place, I would like to discuss the method of arriving at a budget proposal. I question the argument that it should be up to the Taxpayer Association or well-intentioned individuals to do more than complain about a 6% increase in taxes. At that rate everyone’s taxes will double in the next 12 years.

Budget cuts should be the responsibility of the town government but experience has shown that government’s never cut their budgets from one year to the next. No department chief would ever submit a budget decrease. It is more likely that even if they won’t need more money, they will ask for more so that their boss can get credit for trimming the budget. 

At the same time our elected town representatives on the RTM (Representative Town Meeting) rarely have the time or the expertise to deal with complicated budget issues. After all, they are unpaid volunteers who spend hours and hours away from their own jobs and families to attend interminable meetings. Moreover, as a recent public meeting has shown, they are caught in the middle between angry taxpayers and parents alarmed by potential school budget cuts.

However, a possible solution appeared in another recent news item. It was recently announced that a Stamford Superior Court had just entered a $2.88 million judgment in favor of the Town of Fairfield against Maxam Capital Management of Darien, an investment advisor who had placed town retirement funds with the now infamous Bernard Madoff. This was the last of the town’s Madoff related lawsuits and First Selectman Tetreau announced that all the town’s lost retirement funds, over $15.4 million, had now been recovered.

Actually, only 80% of that figure was recovered since 20% or $3 million had gone to pay attorney fees and litigation costs. For the moment, we will leave aside the question of why the Town’s officials initially handed over the money to Maxam and paid it 3% each year just to hand the money over to Madoff. Let’s just say that the Town made a good decision to pay 20% to the lawyers in order to recover the 80%.

I suggest that these or other lawyers and accountants also be hired on a contingency basis to review the budget and that we pay them 20% of cost savings that they come up with. The Town’s proposed budget called for a $15 million increase. It’s hard to believe that a team of lawyers and accountants working for a 20% contingency fee wouldn’t be able to make a substantial dent not only in the increase but also in the total budget.

Here is how things turned out in Fairfield. Predictably, in subsequent announcements First Selectman Tetreau indicated that he had found a way to lower the budget increase to 4.8%. Then he and the other Selectmen approved a budget with less than a 4% increase, and sent it to the Representative Town Meeting for approval. Sure enough, the local newspaper headlined that the Selectman had cut the budget even though he had merely trimmed the inflated increase. 

The Town has also apparently taken a significant step in the new policemen’s contract and adjusted the formula for calculating police pensions. If the initial report can be believed, a police officer will now retire on 70% of final pay and not the former 80%. This tweaking of the benefit formula can save millions in the long run.

Yet, there are many other questions. Why are firemen and policemen able to retire on a pension based on final year’s pay when every one else in town retires on Social Security where the benefit formula is based on a worker’s average pay over 30 Years? Why does the town provide pension benefits for salaries over $100000 per year? Employees making more than that should be able to supplement their pensions on their own. Social Security benefits are only based on income up to a cap of around $100000.



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