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Salem City Hall – 93 Washington Street – Salem, MA 01970-3592 Ph. [PHONE REDACTED] Fax [PHONE REDACTED] CITY OF SALEM, MASSACHUSETTS Kimberley Driscoll Mayor May 26, 2011 Honorable Salem City Council Salem City Hall Salem, MA 01970 Re: Proposed FY2012 Operating Budget Ladies and Gentlemen of the Council: I am pleased to submit for your consideration a $129,083,585 proposed Fiscal Year 2012 budget for the City of Salem. This represents a 1.5% increase over the FY2011 adjusted municipal budget. As you know, balancing the City’s operating budget is no easy task and I appreciate the hard work and cooperation our Department Heads have put forth in the preparation of this year’s budget. In particular, I can’t say enough about the extra effort made by our Finance Department, led by Rich Viscay and ably assisted by Nina Bridgman, who worked overboard to ensure that the budget was ready for submission and in compliance with the high standards we set for ourselves pursuant to Government Finance Officers Association (GFOA) Distinguished Budget guidelines. The purpose of the GFOA is to enhance professional management of governments for public benefit by identifying and developing financial policies and best practices and promoting their use. As you know, we are one of a handful of Massachusetts communities who annually qualifies for both a Certificate of Excellence for our Comprehensive Annual Financial Reporting (CAFR) and a Distinguished Budget Award from the GFOA. While this is not my first budget submittal to the Council, each budget cycle seems to bring its own unique twists and turns. This year we once again struggled with rising fixed costs in health insurance and pensions, made all the more difficult by uncertainties associated with revenues from the power plant. Undoubtedly, the plant’s closure announcement will have an impact on both short and long term revenue streams and we are working diligently with our state legislative delegation on methods to help offset any loss in revenues during the transition and redevelopment of the 62 acre power plant site. Some of the key factors to consider in reviewing this year’s budget include the following: Education – Maintaining our commitment to first class public schools This year, the budget proposes to increase funding to public schools by $2,117,469 or 4.45% including an allotment for the new in-district Salem Community Charter School. Funding of this magnitude was necessary in order to support existing programs within our public schools, along with new expenditures related to the charter school. As you may be aware, the new charter ---PAGE BREAK--- Salem City Hall – 93 Washington Street – Salem, MA 01970-3592 Ph. [PHONE REDACTED] Fax [PHONE REDACTED] school is aimed at reducing the high school drop out rate and increasing graduation rates by providing an alternative option for students who are facing obstacles to completing high school within the traditional methods. There is a need for this type of school in Salem and last year an out of district charter school proposal sought to undertake a similar mission. The School Committee recognized the need for providing an alternative education model to help ensure more students are graduating and initiated a proposal for an in-district charter school to address the need, rather than risk an out of district charter school being approved and taking with it much needed per pupil state education revenues. While there are extra costs for this proposal, we also avoided losing dollars and believe strongly that school administrators are in a much better position to address the needs of Salem students who require an alternative option and greater assistance in order to graduate. Public Safety – Keeping homes and neighborhoods safe The City continues to reap the benefits associated with last year’s move to implement civilian dispatchers in the Police Department. This enabled Chief Tucker to move five additional officers into patrol positions, in particular restoration of a traffic division and the creation of the Special Response Unit, which is able to drill down quickly on crime trends and quality of life nuisances. Work is underway on a noise enforcement program for the upcoming year and a grant in support of a regional dispatch operation is being pursued. These types of initiatives are aimed at improving operational efficiencies, while also being responsive to resident requests for service. As for the Fire Department, we will be maintaining all existing personnel and are hoping to invest in a new Ladder Truck (or at least one that is new to us) and station repairs as part of our CIP funding program. Health Insurance – Proposing reforms aimed at protecting jobs and services As you know, there is legislation pending at the State House that will likely give cities/towns greater flexibility to modify health insurance plans and bring them closer in line to savings associated with the state Group Insurance Commission (GIC) plans. I support this legislative effort and am hopeful a bill will be finalized soon between the House and the Senate. At present, our annual health insurance premiums are expected to increase 7.34% for next fiscal year for a total of $899,645 dollars. We have asked our insurer to provide us with some alternative plan options in an effort to reduce costs and we are in discussions with our collective bargaining unions seeking the authority to modify our current plans. Under the modified “alternative options plan” minor modifications would be made to co-pays on emergency room visits (from $50 to $100), non-routine office visits (from 10/15/20 to 15/20/25), and a new co- pay would be required for MRI/CT scans All other co-pays, including co-pays on prescriptions, would remain the same with the exception of routine office visits which will no longer have any co-pay and be decreased to zero as a result of national health care legislation. The cost of this “alternative options plan” would entail a 4.33% increase or $529,645 dollars in additional costs next year. We are hopeful that we can reach agreement with all of our employee groups to migrate to the “alternative options plan” as it would reduce the potential increase for health insurance for fiscal year 2012 from approximately 7.34% to 4.33% and allow us to avoid $370,000 in increased premium costs. More importantly, this would enable the city to keep a very good health insurance plan in place for the full year, as we await final adoption of health insurance reform ---PAGE BREAK--- Salem City Hall – 93 Washington Street – Salem, MA 01970-3592 Ph. [PHONE REDACTED] Fax [PHONE REDACTED] legislation that is likely to incorporate greater flexibility to join the State GIC and/or at least the ability to design plans similar to that benchmark. While I greatly appreciate the flexibility to manage ever increasing health insurance costs and I am looking forward to adoption of legislation in support of same, I am also concerned about the impact making changes mid year might have on our employees and I would prefer to reduce costs for next fiscal year by adjusting (some would say “tweaking”) our current plans. By doing so, we will reap some immediate savings and then have the full year to work toward the best way to mitigate likely health insurance increases in FY2013. We’ll also have the benefit of understanding our rights and obligations under any newly adopted municipal health insurance legislation. If we are unable to reach agreement with our collective bargaining unions in the near term on the “alternative options plan” we may be looking at adjustments mid-year that will likely have to implement higher co-pays and deductibles, closer to the GIC benchmark, in order to reap the same savings. Pension – Meeting our obligations today while planning for the long term Pension costs this year are increasing $372,276 or 4.44%. This annual increase would have been significantly higher had the Retirement Board not voted to extend to 2030, the timeline for full funding of the City’s pension obligations. This was necessary to off set the tremendous losses in the stock market experienced over the last two years, which unfortunately brought our annual returns below their anticipated rate of return. While we are still below the statutory timeline for full funding of the pension system, meeting this deadline will pose a major challenge. Assuming we meet our anticipated bench marks going forward, the annual contributions to the Retirement Board will grow substantially over the course of the next 18 years and put tremendous pressure on municipal operating budgets. Annual pension obligations, coupled with Other Public Employee Benefit (OPEB) costs which are currently estimated at $109.5 million dollars, will cannibalize new growth revenues in much the same way health insurance does now, unless there are changes in the way in which we calculate these benefits. There is currently a pension reform bill pending that will help address this issue long term. It follows action by state officials last year aimed at curbing pension abuses. As you may recall, we have set up a stabilization account to help fund these long term employee benefit costs and this will be an item we will need to watch and plan for going forward. Collective bargaining – Working toward an affordable and mutually beneficial accord All current collective bargaining agreements will expire on or around the end of the present fiscal year (with the exception of the Police Patrol Union which currently is in mediation with the JLMC). We have been and will continue to meet with labor representatives to discuss new contracts going forward, however given our current finances it is unlikely we will be in a position to enhance compensation without some off set in employee benefit costs. We have been able to make strides in this manner with exempt employees and the proposed budget includes adjustments in compensation for exempt employees, while also incorporating a switch to the alternative health insurance plan and an increase in employee health insurance contribution rates. As we work together to deliver quality services in an efficient manner, it is not lost on me the job that municipal employees do day in and day out to make Salem a great place to live, work and visit. I appreciate the extra effort our team of employees goes to on behalf of constituents and ---PAGE BREAK--- Salem City Hall – 93 Washington Street – Salem, MA 01970-3592 Ph. [PHONE REDACTED] Fax [PHONE REDACTED] am hopeful we can reach agreement with all of our collective bargaining units in a timely and mutually beneficial manner. As you know, our focus has been on trying to make good decisions in bad financial times with a goal of achieving long-term cost savings to minimize the burden on property taxpayers and alleviate the impact on direct services. In so doing, we need to be mindful of the uncertainties that exist within our financial forecasting tied to power plant revenues and untimely, but necessary expenses, such as the remediation of McGrath Park, repairs to City Hall, Collins Middle and Saltonstall schools. The proposed budget strives to do both - preserve basic services and ensure that we are operating in as fiscally healthy a manner as possible. I look forward to working with you over the coming weeks to enact the proposed FY 2012 spending plan for municipal operations. Very truly yours, Kimberley Driscoll Mayor ---PAGE BREAK--- Sec 1 - 1 ---PAGE BREAK--- Sec 1 - 2 ---PAGE BREAK--- Sec 1 - 3 ---PAGE BREAK--- Sec 1 - 4 ---PAGE BREAK--- Sec 1 - 5 ---PAGE BREAK--- Sec 1 - 6 ---PAGE BREAK--- Sec 1 - 7 ---PAGE BREAK--- Sec 1 - 8 ---PAGE BREAK--- Sec 1 - 9 ---PAGE BREAK--- Sec 1 - 10 ---PAGE BREAK--- Sec 1 - 11 ---PAGE BREAK--- Sec 1 - 12 ---PAGE BREAK--- Sec 1 - 13 ---PAGE BREAK--- Sec 1 - 14 ---PAGE BREAK--- Sec 1 - 15 ---PAGE BREAK--- Sec 1 - 16 ---PAGE BREAK--- Sec 1 - 17 ---PAGE BREAK--- Sec 1 - 18 ---PAGE BREAK--- Sec 1 - 19 ---PAGE BREAK--- Sec 1 - 20 ---PAGE BREAK--- Sec 1 - 21 ---PAGE BREAK--- Sec 1 - 22 ---PAGE BREAK--- Sec 1 - 23 ---PAGE BREAK--- Sec 1 - 24 ---PAGE BREAK--- Sec 1 - 25 ---PAGE BREAK--- Sec 1 - 26 ---PAGE BREAK--- Sec 1 - 27