(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
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
“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,”
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
“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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