Task Force Analysis of MOFD Financial Position
MOFD's 2013/14 budget is in the red by $950,000 and this is after a $500,000 federal grant.
On September 4th, a revised Long Range Financial Plan (LRFP) was released showing reserve funds being drawn down to zero by June 2016 and the budget being in the red until 2023 and with the district currently having over $80 million in unfunded liabilities. (Table IV-5a)
On October 2nd MOFD held a public workshop was held asking for input on how to solve this crisis which the Orinda Emergency Services Task Force reported on a year ago. The most aggressive idea, in addition to reducing firefighter's compensation, was reducing the current force from 19 per shift to 17 by removing one of the dedicated ambulance crews.
The Task Force believes that before any plans for expense reduction or income increase are implemented or even discussed, a solid financial model needs to be developed and accepted.
The Task Force has taken the LRFP and made several revisions it believes are necessary to make this a truly useful document.
Table IV-5a is a copy of the MOFD Long Range Financial Plan (LRFP) of 9/4/2013
Table IV-5b makes the following revisions to the LRFP
- Increase the projected property tax growth rate from 4% to 5%. This is based on the fact that local property values are approximately twice the assessed value of the property. Each property that sells doubles in assessed value. If only 3% of homes sold each year and had a 100% assessed value increase, while the other 97% of the homes increased at the statutory 2% increase, the total increase would be 5%.
- Increase the growth rate of all expenses to the historic consumer price index increase of 2.6%. Currently the MOFD plan assume 1-2%.
- Use the appropriate value for retiree medical benefit (OPEB) unfunded liability. Four years ago it was $24 million. Those costs have since increased 30% so the current unfunded liability is probably $31 million. This value was calculated using a 4.25% discount rate. Being generous and using the Pension Plan's assumed earning rate of 7.25% reduces this value to $21 million. Twice the value contained in the LRFP.
- Increase spending on unfunded liabilities (pension and retiree medical benefits) such that they will be paid out in 15-20 years. This will require $6.7 million paid in 2014/15 for the pension bond, the pension underfunding, and the OPEB underfunding. This value is assumed to increase every year as revenues increase.
The net effect of these changes is:
- Unfunded liabilities increase from $81 million to $89 million
- The annual budget remains in the red for the entire 15 year planning period as opposed to turning around within eight years per the LRFP.
- At the end of the 15 year planning period the reserve fund balance is $23 million in the red compared to the LRFP's optimistic estimate that it would be back in the black.
- The unfunded debt balance in 2028 is down to about $26 million while in the revised plan it is $33mm despite an additional $40 million allocated to debt over 15 years. MOFD underestimates the cost of paying down its liabilities.
Table IV-5c makes one revision to Table IV-5b
- It models the one revision discussed at the October 2nd "staffing workshop", the deletion of one or the District's two full-time ambulances; three shifts of two firefighters.
The net effect of this change is:
- Annual costs are reduced by about $1.5 million
- The elimination of the reserve funds is delayed two years from 2016 to 2018
- The reserve fund balance is almost, but not quite, restored by 2028
- The budget remains in the red until 2025.
- MOFD retirement plans remain $33 million underfunded in 2025.
Conclusion: MOFD's realization that it needs to significantly reduce costs, and that the only place to cut significant costs is by focusing on staff costs, is long overdue but welcome news. However, it needs to create a Long Range Financial Plan with reasonable values and use it to measure the effectiveness of projected cost cutting measures. The Task Force model indicates that the elimination of one ambulance (replace the one full time ambulance with cross-staffed ambulances which can respond the 80 percent of emergencies which are medical in nature) is a good initial thought. But it is far too little to reduce costs to the degree they need to be reduced. MOFD should consider replacing both full time ambulances with a cross-staffed ambulance at each station, aggressively help Lafayette share a combined Station 46 with MOFD (or become part of MOFD), and cut average firefighter compensation through tier-two pricing.