The Springfield Turnaround June 8, 2004

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The SpringfieldTurnaroundJune 8, 2004
Eric Kriss Executive Office for Administration
and Finance
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Agenda

• Background on Springfields situation
• 10-year prospective

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Union negotiations dominate city management
100
Other
Fixed costs
80
60
Wages benefits
Collective bargaining under 150E
40
20
0
Expenditures
4
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

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Chapter 150E negotiation rules
Start
Reasonable period of negotiation
Return to Negotiation
Petition board for determination of impasse
Fact findings made public
Board findings
No unilateral changes during this process
Fact findings
Board appoints mediator
Petition for fact-finding
Reasonable period of mediation
Mediation findings
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City resources mirror state economic fortunes
11-year sustainable growth rate 5.1
Springfield data from the Division of Local
Services
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Repeated violations of sustainable growth
Springfield annual cost increases
5 sustainable growth
layoffs
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Springfield peer group

• Brockton
• Chicopee
• Fall River
• Haverhill
• Holyoke

• Lawrence
• Lowell
• New Bedford
• Revere
• Worcester

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Springfield more volatile than its peers
Average sustainable growth
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No surprise more volatility in FY05
437.3 MM
403.8 MM
8.4
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creating a 20m budget gap
437.3 MM
417.2 MM
gap
Group Insurance
Local Tax Levy
Pension/Debt Service
Local Receipts
Education
Net State Aid
General Government
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Agenda

• Background on Springfields situation
• Is this a revenue problem?

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Springfields RE tax inflow matched peers
3.3 CAGR
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and citys local aid also kept pace
6.2 CAGR
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while non-Chapter 70 aid beat inflation
3.24 CAGR
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
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Overall, Springfield revenue exceeds peers
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Springfield has the highest overall tax rate
weighted average
All data from the Division of Local Services.
Peer Group includes Brockton, Chicopee, Fall
River, Haverhill, Holyoke, Lawrence, Lowell, New
Bedford, Revere and Worcester.
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Agenda

• Background on Springfields situation
• Is this a revenue problem? NO
• Is this a cost problem?

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10 lower living costs, but 20 higher wages

1.5
Wages
COLA
1.3
1.21
Cost of living
1.20
1.1
1.00
1.00
1.00
0.90
0.9
Springfield
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.

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and cost premium is a long-term trend
15 higher
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Unions contracts are frequently back-loaded
Wages only
Data from July 2000 Collective Bargaining
Agreements with the International Association of
Firefighters and the International Brotherhood of
Police Officers
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creating a permanent differential
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.
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at all levels, including management (in
thousands)
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.
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Agenda

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

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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)

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Agenda

• Background on Springfields 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?

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Agenda

• Background on Springfields 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

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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