Pension reform limits hikes in property taxes
Newly enacted legislation to reform the state’s pension plan will keep a lid on the property tax hike that most certainly would have been necessary for Jamestown to keep pace with its mandatory contribution to the state-managed pension fund for its teachers. That was the most salient message to emerge from the Town Council’s broad-ranging, pre-budget meeting with the School Committee.
The Nov. 28 work session was held to discuss the issues affecting the next budget request from the schools. Besides financial topics, the issues on the table were mandatory, five-year budget forecasts, the pending transition to National Core Standards (NCS) for math and reading, and the burdens of implementing the teacher-evaluation procedures mandated by each of the states that signed up for the national Race to the Top program.
The joint meeting was attended by all of the council and committee members, along with school Superintendent Marcia Lukon, school Finance Director Jane Littlefield, and Town Administrator Bruce Keiser. Otherwise, the meeting room was empty, which was particularly apparent during the speculation on taxpayer response to a possible tax increase in support of a higher budget request from the schools.
At this point, it’s impossible to predict if the schools will ask for more money, and how much more their request might be. However, as committee member Julia Held pointed out, the schools have already cut their spending substantially, and they are facing the unknowns of NCS spending and teachers’ union negotiations, which start today.
Currently, the schools’ health insurance fund for retirees is 60 percent funded. With the enactment of state pension reforms, the funding level for the teachers’ pension fund increased from 48 percent to 60 percent, as well.
The pension fund reforms have left behind as the “biggest issue” for school administrators “the adjustment to national core standards,” said committee Chairwoman Cathy Kaiser, adding that “adjusting to the standards will require additional time on the part of administrators, and they will probably need more help to rewrite the curricula.” Lukon said the schools would probably need to hire a fulltime contractor to run the NCS adjustment – or face the prospect of shifting staff to those duties.
Committee member B.J. Whitehouse, who teaches in Little Compton, said his school is currently “going through [NCS adoption] and the demands are extraordinary.”
Nevertheless, the pension reforms have enabled Jamestown to dodge a bullet with a much higher “caliber” than NCS costs. An actuarial analysis by the state treasurer’s office has determined, Keiser said, that Jamestown’s contribution to the state-managed pension fund for retired teachers and municipal employees was $1.03 million during this fiscal year.
Without the reforms, the analysis says, Jamestown would have been forced to kick in an additional $700,000 during the next fiscal year – an obligation that would have strained the town’s revenueraising potential to the limit.
Rhode Island municipalities are prohibited from increasing property tax revenue by more than 4 percent of the revenue raised during the previous fiscal year. During the last three years, Jamestown’s property tax increases have averaged 2.6 percent, with the amount of money brought in during the current fiscal year totaling $18.2 million. Under the 4 percent cap, the maximum amount of money the town could raise from property taxes during fiscal year 2012-13 is $726,546.
Consequently, raising property taxes by the highest allowable percentage “would have consumed every penny of leeway we have [under the state cap],” Keiser said.
The $700,000 decrease in the town’s contribution stems from a controversial extension of the mandatory retirement age for the state’s teachers from 62 to 67 (with different extensions applying to municipal employees). The pension reforms also imposed a 20- year suspension of cost-of-living adjustments for retired teachers whose pension funds are less than 80 percent funded. Kaiser pointed out that the teachers’ union, which strongly opposes the reforms, has asked a court to decide if “a promise is a contract.”
Keiser said that, in his opinion, “a judge would be loath to impose a $7.3 billion liability on the state’s taxpayers [by invalidating the reforms].”
Fortunately for Jamestown, Keiser said, the state-aid picture is much more stable than it has been in previous years – when the loss of the motor vehicle excise tax reimbursements forced the town to compensate with a property tax adjustment. “I don’t see any further [aid] reductions,” Keiser said, pointing out that the foreseeable stability in state aid helps ensure that the property tax rate will remain stable.
If, however, the School Committee requests additional budget support, how would residents respond to a tax increase?
“In my talks with people at the Fire Department and EMS,” said Councilor Bill Murphy, “they say it’s still a struggle to buy a house and live on this island. Others I talk to say the [previous property tax] increases have been fair. We have downsized [municipal staffing], but we’re still in a tough economy.” Councilor Bob Bowen said “there are certainly people who want to see a tax reduction, but others acknowledge that we have an incredibly low tax rate in comparison to places like the East Side of Providence.”
Lukon noted that “there will be less opposition if people understand how every dollar [of a budget increase] will be spent.” And Whitehouse noted that Jamestown schools are performing extremely well with the dollars they have, pointing out, for example, that “we registered some of the highest science scores, and the highest eighth-grade writing scores, in the state.”
While the snapshot of James- town’s school performance is bright, the state is requiring all municipalities to project their town and school budgets over the next five years, which means the schools will have to predict the spending levels necessary to maintain their performance.
Municipalities will have to submit the first of their annual fiveyear forecasts in January. Keiser said the forecasts will “force communities to look at how much red ink is out there.
“Jamestown,” Keiser continued, “can get a good idea of what we foresee in the out years, and we will have a lot of discretionary choices. Our population is not growing. We’re aging out. We probably won’t need to add personnel to the police, public works or recreation departments. I expect that [the municipal side] and the schools will produce reports that show our financial pictures as fairly stable, but we will have to decide how much debt we want to incur. We have a 50 percent increase in our debt service for the farmland purchases during the next fiscal year, but we still see a 30 percent tail off [in debt service] in a few years.”
The impacts of future debt decisions remain to be seen. However, “our property-tax stability [in recent years],” Keiser said, “has been very, very strong.”