OLEAN — Retirement contributions and uncertain aid have complicated the 2021-22 city budget, officials detailed Tuesday.
The Common Council’s finance committee, meeting with department heads on the upcoming budget requests, heard from Mayor Bill Aiello and some department heads on the $25.68 million proposed budget — with the largest increases out of the city’s control.
City Auditor Fred Saradin noted the increases are due to higher payments into the Police and Fire Retirement System and the state Employees’ Retirement System.
“Much to our chagrin, we’ve received a notice from the retirement system that pension costs are increasing by 15% for the (ERS) and about 25% for the police and fire,” Saradin said. “It’s a huge hit — as soon as I saw it, I ran into Bill’s office.
“It’s non-negotiable — and we’re between a rock and a hard place,” he added.
The ERS contribution is expected to jump from $325,000 in the current budget to $377,000, and the FPRS contribution is expected to jump from $1.08 million to $1.39 million.
The retirement systems invest contributions for virtually all state employees in a combination of public and private securities — from government bonds to mutual funds and stocks in companies.
Saradin noted that the date used to calculate the contributions is March 31.
Looking back at 2020, “the market tanked at about that time,” Saradin said.
The Dow Jones Industrial Average dropped from above 27,000 on March 4 to 18,591 on March 23 due to COVID-19-related shutdowns. On March 31, that index was under 23,000.
On Tuesday, the index closed at 31,391.52.
Saradin said that he and officials from other municipalities have asked the Office of the State Comptroller — which oversees the funds — to calculate off of a different date, but the state seems unwilling to do so, Saradin added.
The figures are not final, he noted, but the city needs to plan based on those figures not changing.
“You will get another estimate down the road, but unfortunately it will be well after the budget passes,” Saradin said.
Aiello noted the hike is not the first dramatic increase — similar increases were seen under then-Mayor Linda Witte due to the value of the retirement funds dropping during the Great Recession more than a decade ago.
“These are things we have to deal with, and that’s where the big increase is coming from in this budget,” Aiello said. “Every community is screaming about this.”
ALSO AFFECTING the budget is the state Aid and Incentives to Municipalities program, which is currently looking at a 10% cut in Gov. Andrew Cuomo’s budget proposal.
The program, part of a revenue sharing system arranged years ago by the state, has paid out the same $2.24 million amount for years. However, an estimated $223,000 shortfall is currently expected.
However, the situation remains fluid, Aiello said, noting discussions of more aid and help from the federal government.
Saradin said the AIM payment is expected in the middle of this month, and talks of reductions range from 2.5% to 20%, but officials are budgeting for a 10% reduction.
“I’m hoping in two weeks or 10 days we’ll have some good news,” he said.
To cover the retirement and AIM shortfalls, Saradin said the city will need to use $500,000 from the general fund. The fund currently has more than $3 million in assets due to a policy to keep an amount equal to or greater than 15% of the city’s annual budget on hand in case of emergencies or unexpected expenses.
That fund is expected to grow by more than $300,000 at the end of the budget year May 31 due to spending freezes, covering much of the shortfall.
Aiello noted that if the city had not kept to a policy of having in savings the equivalent of at least 15% of the budget, deficit financing like that seen in the mid-2000s could have been necessary to cover the decreased assistance and higher retirement payouts.
Under the proposed budget, the general fund — which covers most day-to-day activities and capital projects under the city’s purview — would see about $956,000 more in expenditures compared to the current budget, an increase of 5.7%.
Water spending — funded primarily by water rates charged to customers — would increase $80,284, or 2.13%. Sewer spending would decrease $130,478, or 3.09%.
The committee will meet again virtually at 5:30 p.m. today to meet with the heads of the police, fire and public works departments. For a link to the proceedings, visit www.cityofolean.org.