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Town paying nearly $1 million to back fund employee pensions

(2/7) Emmitsburg will have to pay nearly $1 million over the next 25 years to ensure its full-time employees are fully vested in the Maryland State Retirement and Pension plan. It’s quite a bit more than they were expecting.

“The way this report reads, we’re paying $38,921 a year to retroactively vest employees,” said Emmitsburg Commission President Chris Staiger. “That’s $973,000 that the town’s on the hook for.”

He noticed a financial note in the town’s most-recent financial audit that stated the town was going to be paying $38,921 a year for 25 years to fund retirement benefit for employee service prior to the time the town joined the state system July 1, 2006. Staiger said he was surprised at both the length of time for payments and the total amount.

Meeting minutes from the Feb. 20, 2006 town meeting (where the commissioners voted to join the state system) both support and don’t support Staiger. The minutes state, “The payment can be spread out 25 years…” However, the minutes also state the principal payment would be $318,265 and the annual payments would be $28,000. While a recalculation was expected, it was supposed to be “slightly” increased, according to the minutes.

The actual annual payment has turned out to be 39 percent higher, which will cost the town $273,025 more over the 25 years than it originally anticipated.

Staiger said that the discussion had always been that the principal amount would be repaid over 10 years not 25 years.

While Staiger was against joining the state retirement system, he said, “It is what it is. We voted on it and we’re going through with it.”

He just wants to make sure the total amount won’t break the town budget.
“The folks who wanted this and forced this through weren’t worried about the cost,” Staiger said. He identified the “folks” as members of the town administration.
“I’m not going to believe for a minute that the numbers were purposely withheld,” said Emmitsburg Mayor James Hoover.

Hoover did say he was somewhat surprised to find that the payback period to join the retirement system would take 25 years. He is not against finding a way to pay it back quicker.

“While it is something to consider and possibly do, I don’t want to take that kind of money from our fund balance,” Hoover said.

The town’s fund balance is the amount of money left over each year, which is added to an accruing account. In fiscal year 2007, Emmitsburg had an excess of $68,430 at the end of the year, which brought the fund balance up to $645,610, according to most-recent town audit. That amount represents 42 percent of the town’s general fund. The Government Finance Officers Association recommends, at a minimum, that a government maintain an unreserved fund balance of no less than 5-15 percent of its general fund, or of no less than 1-2 months of general fund operating expenditures.

At the 15 percent level, the town would only need to maintain a fund balance of $229,648, which would potentially free up $415,962 for other purposes, such as paying off the remaining amount to the state retirement system.

Hoover is concerned about cutting the fund surplus back that far because he remembers a time when the town had to borrow money from the bank to make payroll. He doesn’t want to be caught short like that again.

“I could see paying off half of it now and then waiting 5-10 years and pay off the rest later,” Hoover said. Though willing to use fund balance, he said he wouldn’t want it to go below 25-30 percent of the general fund.

Staiger feels that’s a step in the right direction. He believes other places in the town budget, including the capital budget, could be trimmed a bit. Such cuts could make up the difference and pay off the retirement system fully, saving the town hundreds of thousands of dollars in interest.

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