The Springfield Turnaround June 8, 2004

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The Springfield Turnaround June 8, 2004 Powered By Docstoc
					The Springfield
 Turnaround

   June 8, 2004




                               Eric Kriss
                     Executive Office for
              Administration and Finance
                    Agenda

• Background on Springfield’s situation
  – 10-year prospective




                                          2
Union negotiations dominate city management

           Total Annual Municipal Costs - FY2003


100%
                          Other

  80                  Fixed costs


  60

                        Wages                Collective
  40
                       & benefits            bargaining
                                             under 150E
  20


   0
                    Expenditures
                                                          3
          Background on Chapter 150E

• All state and local governments exempt from
  federal labor laws
• Chapter 150E passed in 1973
  – Exclusive representation (employees must pay
    union dues)
  – Establishes evergreen umbrella apart from
    specific contract provisions upon expiration
  – Prohibits unilateral government action
     • Spells out complex negotiating rules


                                                   4
            Chapter 150E negotiation rules
                                    Start
                                            Reasonable period
                Return to                     of negotiation
                Negotiation
                                                                Petition board
                                                              for determination
Fact findings                                                     of impasse
 made public


                                 No unilateral                  Board findings
   Fact                            changes
 findings                     during this process


                                                             Board appoints
                                                                mediator
    Petition for
    fact-finding
                                                    Reasonable period
                              Mediation                of mediation
                               findings
                                                                                  5
City resources mirror state economic fortunes

                                               Springfield Resources
                                         State aid and local taxes FY 93-04
                                                              ($ in millions)



$400          11-year sustainable growth rate = 5.1%

$350

                                                                                $111   $116
                                                                                               $126
$300                                                                    $107
                                                                $103
                                                        $99                                              Local Revenues
$250
                                                $96
                                                                                                         State Aid
                                        $95
                                $94
$200
                        $93
                $90                                                             $266   $264
        $88                                                      $235   $244                   $247
                                                       $214
$150                                           $193
                               $162    $174
               $134    $146
       $128
$100
       FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004




Springfield data from the Division of Local Services                                                                      6
Repeated violations of sustainable growth

  30%         Springfield
  25%         annual cost
  20%         increases
  15%                                        5%
                                             sustainable
  10%                                        growth
   5%
   0%
  -5%   93 94 95   96 97 98 99   0   1   2    3
 -10%
 -15%
                                         layoffs



                                                           7
   Springfield peer group

• Brockton     • Lawrence
• Chicopee     • Lowell
• Fall River   • New Bedford
• Haverhill    • Revere
• Holyoke      • Worcester




                               8
Springfield more volatile than its peers

  30%
  25%
  20%
  15%                                    Average sustainable
  10%                                    growth
   5%
   0%
  -5%   93 94 95   96 97 98 99   0   1     2    3
 -10%
 -15%

               Springfield   Peer Group

                                                           9
No surprise … more volatility in FY05

                                            FY 04-05P Total Expenditures
                  $450                                               $437.3 MM
                  $430
                  $410                  $403.8 MM             8.4%
                  $390
($ in millions)




                  $370
                  $350
                  $330
                  $310
                  $290
                  $270
                  $250
                                         FY 2004                                FY 2005P

                   General Government      Public Safety            Health and Welfare   Public Works
                   Education               Culture and Recreation   Pension              Group Insurance
                   Debt Service            Miscellaneous
                                                                                                           10
… creating a $20m budget gap

                         Projected FY 2005 Budget Expenditures
                  $500
                  $450                                      $437.3 MM
                           $417.2 MM
                                             gap
                  $400                                    Group Insurance
                  $350    Local Tax Levy
                                                       Pension/Debt Service
($ in millions)




                  $300
                          Local Receipts
                  $250
                  $200                                     Education
                  $150
                  $100    Net State Aid

                   $50
                                                        General Government
                    $0
                            Revenues                      Expenditures


                                                                              11
                   Agenda

• Background on Springfield’s situation
• Is this a revenue problem?




                                          12
Springfield’s RE tax inflow matched peers …

                            City of Springfield                  Tax Levy
                                 Tax Levy                     FY 93-04 CAGRs
                                 FY 93-04
                  $150.00                                               3.70%
                                                              3.60%
                                                                                 3.50%
                                                  3.30%
                  $125.00       3.3% CAGR

                  $100.00
($ in millions)




                   $75.00


                   $50.00


                   $25.00


                    $0.00
                       FY 9 3

                       FY 9 4

                       FY 9 5

                       FY 9 6

                       FY 9 7

                       FY 9 8

                       FY 9 9

                       FY 0 0

                       FY 0 1

                       FY 0 2

                       FY 0 3
                           04




                                                     FY 93-04              FY 96-04
                         19

                         19

                         19

                         19

                         19

                         19

                         19

                         20

                         20

                         20

                         20

                         20
                     FY




                                                          Springfield    Peer Group



                                                                                         13
… and city’s local aid also kept pace

                                   Net State Aid                                                 Net State Aid
                                    Fiscal 93-04                                              Fiscal 93-04 CAGR
                                   ($ in millions)



$280                                                                                                       6.8%
                                                                      $266 $264
$260                                                                                          6.2%
                                                               $244                 $247
$240                                                    $235

$220                                             $214

$200      6.2% CAGR                       $193

$180                               $174
                            $162
$160
                     $146
$140          $134
       $128
$120

$100
        FY     FY     FY     FY     FY     FY     FY     FY     FY     FY     FY     FY
       1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   Springfield     Peers


                                                                                                                   14
… while non-Chapter 70 aid beat inflation

                       Net State Aid increase since FY93

                 $45            3.24% CAGR
                 $40                                 $38.6
                 $35
                 $30        $27.2
 $ in millions




                 $25
                 $20
                 $15
                 $10
                  $5
                  $0
                                       Springfield




Since July 1993, the state and local government inflation rate is 2.63% and
the consumer price index inflation rate for the Boston area is 2.98%     15
Overall, Springfield revenue exceeds peers

            FY04 Total Revenue Per Capita
$3,000

$2,500

$2,000

$1,500

$1,000

 $500

   $0
           Springfield                        Peer Group
                 Tax levy   State Aid & Other Receipts


                                                           16
Springfield has the highest overall tax rate

                                                 Blended Tax Rate                                                 FY 04 Blended Tax Rates
                                                     FY 93-04
                                                                                                          Springfield     Brockton    Chicopee
                                                                                                          Fall River      Haverhill   Holyoke
                                                           Springfield             Peers                  Lawrence        Lowell      New Bedford
                                                                                                          Revere          Worcester
                              $27.50

                              $25.00
(Tax Rate/$1,000 Valuation)




                                                                                                $25.00   $23.07
                              $22.50

                                                                                                $20.00
                              $20.00
                                                                                                $15.00
                              $17.50
                                                                               weighted         $10.00
                              $15.00
                                                                               average
                                                                                                 $5.00
                              $12.50
                                                                                                 $0.00
                              $10.00
                                       93   94   95   96    97   98   99   0   1    2   3   4                           Blended Tax Rate


All data from the Division of Local Services. Peer Group includes Brockton, Chicopee, Fall River, Haverhill, Holyoke,
Lawrence, Lowell, New Bedford, Revere and Worcester.                                                           17
                   Agenda

• Background on Springfield’s situation
• Is this a revenue problem? NO
• Is this a cost problem?




                                          18
 10% lower living costs, but 20% higher wages


           1.5
                          Wages                         COLA
           1.3          1.21                         1.20                          Cost of
                                                                                   living
           1.1
                                       1.00                  1.00                          1.00
                         Springfield



                                                                                  0.90
           0.9
                                       Peer



           0.7


           0.5
Source: Municipal Yardstick by Municipal LLC FY04 Peer Group includes Attleboro, Boston, Brockton, Chelsea,
Chicopee, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, New Bedford, Pittsfield, Revere,
Southbridge, Taunton, Westfield and Worcester.

                                                                                                               19
… and cost premium is a long-term trend

         Fiscal 93-03 General Fund                          Per Capita General Fund
          Expenditures Per Capita
                                                       $3,000
$3,000                                                             2,616
                                                       $2,500              2,266
$2,500

                                                       $2,000
                                                                                   15%



                                       $ in millions
$2,000


$1,500
                                                       $1,500                      higher

$1,000                                                 $1,000

 $500                                                   $500

   $0
                                                          $0
       93

       94

       95

       96

       97

       98

       99

       00

       01

       02

       03




                                                                       FY03
    19

    19

    19

    19

    19

    19

    19

    20

    20

    20

    20




            Springfield   Peer Group                            Springfield   Peers


                                                                                            20
Unions contracts are frequently back-loaded …

                  July 2000 Collective Bargaining Agreements
                                          Wages only
                                                                            5.2%    5.2%
                                                     4.6%    4.7%

                              3.6%    3.7%




       1.6%    1.7%




         FY 2001                FY 2002                FY 2003                FY 2004

                                   Police              Firefighters

Data from July 2000 Collective Bargaining Agreements with the International Association of
Firefighters and the International Brotherhood of Police Officers                            21
    … creating a permanent differential …

          Firefighters - Base Pay - FY03                          Police Officers - Base Pay - FY03

$50,000                                                 $50,000

$40,000                                                 $40,000

$30,000                                                 $30,000

$20,000                                                 $20,000

$10,000                                                 $10,000

    $0                                                      $0
              minimum                maximum                           minimum                maximum

                  Springfield   peer median                                Springfield   peer median



   Source: Municipal Yardstick by Municipal LLC FY04 Peer Group includes Attleboro, Boston,
   Brockton, Chelsea, Chicopee, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster,
   Lowell, New Bedford, Pittsfield, Revere, Southbridge, Taunton, Westfield and Worcester.
                                                                                                       22
… at all levels, including management                                                                (in thousands)


                                                                                Premium vs.
                                                                                 peer group
            Economic development                                                        56%
            Health inspector                                                            59%
            Library director                                                            43%
            MIS director                                                                31%
            Personnel director                                                          35%
            Planning director                                                           28%
            Purchasing agent                                                            63%

 Source: Municipal Yardstick by Municipal LLC FY04 Peer Group includes Attleboro, Boston, Brockton, Chelsea, Chicopee, Fall
 River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, New Bedford, Pittsfield, Revere, Southbridge, Taunton,
 Westfield and Worcester.
                                                                                                                              23
                     Agenda

•   Background on Springfield’s situation
•   Is this a revenue problem? NO
•   Is this a cost problem? YES
•   Why is this happening?




                                            24
Pattern of poor management practices

 • Failure to effectively negotiate under 150E
 • Lack of basic management controls
    – Inadequate IT systems
    – Lagging collection of taxes
 • Under-funded liabilities
    – Deferred maintenance
    – Lack of reserves (eg. no self-insurance trust)
 • Excessive use of debt
    – Like deficit financing (eg. bond premium use)


                                                       25
                   Agenda

•   Background on Springfield’s situation
•   Is this a revenue problem? NO
•   Is this a cost problem? YES
•   Why is this happening? 150E + poor mgmt
•   What was learned in Chelsea?




                                              26
                   Agenda

•   Background on Springfield’s situation
•   Is this a revenue problem? NO
•   Is this a cost problem? YES
•   Why is this happening? 150E + poor mgmt
•   What was learned in Chelsea? Jim Carlin
•   The solution



                                              27
The Springfield Turnaround
• 5-member Control Board, 3-year term, with sweeping powers
• State financial assistance
    – $20 million grant
    – $30 million credit line backed by property tax receivables
    – Revenue anticipation notes qualified under Chapter 44A
• Financial “self-help”
    – Expedited property foreclosure to accelerate tax collection
    – Tax amnesty program to accelerate tax collection
• Management rights
    – Temporary suspension of 150E and civil service to enable restructuring
      and “re-set” collective bargaining agreements without evergreen
    – If necessary, move to receivership and Ch 9 bankruptcy




                                                                         28

				
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