Second Memo from Mayor Tabori to the Council
Attached is the memo from Mayor Tabori to Council on Cafritz 4-13002.
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Memo from Mayor Tabori to the Town Council on Cafritz
Mayor Tabori presented the Town Council the attached memo at the Special Session on May 13, 2013. The memo was used to explain issues and distinguish the differences between Zoning Conditions that pertain specifically to the Preliminary Plan of Subdivision (PPS) and those that pertain to the Detailed Site Plan (DSP), funding mechanisms are addressed as well as concerns on the letter from the University of Maryland regarding the CSX bridge.
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American Community Survey Data on Education and Income
American Community Survey Data on Education and Income for College Park, Hyattsville, Riverdale Park, and University Park.
Attached is an EXCEL file (97-2003 format)containing select education and income data from the American Community Surveys from 2005-2009 released on December 14, 2010. The tables have been reformatted to make them easier to read. For the full tables and methodological notes see the American Community Survey at www.census.gov/acs/http://www/.
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Prince George's State Delegation Bills on Ethics and Planning Reform
Prince George's County State Delegation Proposed Bills on Ethics Reform and the Planning Board
Below you will find a link to the proposed ethics reform bills submitted by the Prince George's State Delegation. These bills are intended to reduce the risk of corrupt dealings by the County Council, and to a lesser extent the Office of the County Executive, when reviewing and/or voting on the award of County Government contracts, or property developments before the County Council when sitting in their capacity as the District Council. These bills have the potential for profoundly influencing the manner in which citizens may impact land development in their neighborhood, as well as in the County in general. For those of you who are interested, I will post a series of comments over the next few days, and will welcome comments on those posts. Because of potential developments at Prince George's Plaza, the Cafritz Property and other places in our immediate vacinity, these bills are of vital importance to our community. Please give thought to how we might improve them or support them as appropriate.
The bills and related documents may be found on the documents/development page of this website [ www.upmd.org/?documents&wc=category_id&wv=130 ].
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Park and Planning Meeting on New Legislation
IMPORTANT MNCPPC Meeting on May 28
Community Meeting on Zoning Ordinance and Subdivision Regulations
Location: M-NCPPC Parks and Recreation, Administration Building, 1st floor auditorium, 6600 Kenilworth Avenue, Riverdale, MD 20737
Date: Thursday, May 28, 2009
Time: 6:30 p.m. to 8:30 p.m. (Doors open at 6:00 p.m.)
Location: M-NCPPC Parks and Recreation,
Administration Building, 1st Floor Auditorium,
6600 Kenilworth Avenue,
Riverdale, MD 20737
Event Description: Do you have concerns or would you like to learn more about the county's current Zoning Ordinance and Subdivision Regulations? Join the Prince George's County Planning Department as we examine the following issues:
General Plan policy recommendations and implementation issues associated with current regulations
Best implementation practices from across the country
Contact: To RSVP or get more information, contact the Prince George's County Planning Department at 301-952-4584. Or visit Comprehensive Amendments to the Zoning Ordinance and Subdivision Regulations.
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Letter from the State Retirement and Pension System
Letter of May 4, 2009 from the Executive Director of the Maryland State Retirement and Pension System attesting to the soundness of the Fund
Please see the attached letter from the Maryland State Retirement and Pension System. It should allay at least some fears as to the soundness of the pension fund.
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Financial Viability of the Pension Plan
The Security of the Maryland Retirement and Pension System (SRPS) and some Potential Risks
[See the attached file for better formatting of footnotes and other items]
A number of individuals have asked questions about, or suggested that the Maryland Retirement and Pension System (SRPS) is underfunded, and as a consequence the Town risks incurring significant future costs if it enters the plan, thereby putting pressure on the Town to raise taxes. Others have gone further and indicated that because the SRPS is allegedly underfunded, the future benefits of the employees who enter the system will be put at risk. The purpose of this post is to review these claims and concerns.
Prior to discussing each of the above points, it is useful to introduce some background information and clarify a few points about the Maryland Retirement and Pension System. First, while the SRPS' Annual Report and website present as if the system was a unitary one, it is not. The pension plan that the Town is considering joining is the Employees Combined Plan for Maryland Municipal Corporations (ECPMMC), which is reported on separately.1 Second, a great deal of confusion exists as to what is meant by the term "underfunded." Public plans differ from private plans in that because of how they are structured, the level of underfunding that they can tolerate without creating unacceptable risks is greater than for private pension plans. Two estimating procedures for determining the lower limit of liability without undue risk have been created, the first of which establishes the lower limit at around 80%2; the second allows for greater variation and relies on the rate of return to determine the lower limit, generally yields more conservative results, and is somewhat easier to calculate.3 Although the second method is more volatile than the former method because it is dependent on a single input indicator, it will be used here because it is easier to compute and understand.
As of July 1, 2008, the Employees Combined System had an actuarial value of approximately 2.9 billion dollars and actuarial accrued liabilities of 3.3 billion dollars, for a funded percent of 88.5 percent.4 Using the formula developed by Gene Mumy (1/(1+i)2, where i = the annualized growth rate of the pension fund), it is possible to assess the liability level necessary to sustain stable contribution levels, an important public policy objective. At the assumed growth rate of 7.75% per annum, the minimal funded liability is 86.1%.5 At an assumed growth rate of 5% per annum, the minimal funded liability should be 90.7%.6 The historical evidence suggests that the Maryland Retirement and Pension Plan fund has an annualized rate of return of around 5.95%, which translates to an 89.1% funding level.7 From this evidence, it is reasonable to conclude that the fund is well run and safe.
Of course, this does not answer the concern that the significant downturn in the market since July 1, 2008, has increased the likelihood that the annual contribution rate assessed to the Town would increase. As of March 31, 2009, the Maryland Retirement and Pension System Fund had lost 28.35% of its value since July 1, 2008.8 Assuming that the market does not recover this loss, and that it becomes necessary to recover it through an increase in the annual contribution rate, what would this increase be? At an assumed annual growth rate of 7.75%, discounted at 3.5%, the increase would be 4.45%, which works out to be an annual average increase in tax liability to each property in University Park of $57.25.9 Because of the cushion that was built into the original long-term budgetary savings that would be realized from joining the plan at the 70% level of back service funding, it is unlikely that these cost increases would have a significant impact on the budget or property tax rates for at least 15 years.
A comparative perspective is useful here. Currently, our 401(k) and our life insurance plan add a 7.27% burden to our annual wage bill. If we were to add a long-term disability insurance plan to the Town benefit package to match what would be received through the state pension plan, the burden rate would go up an additional 0.86 percent with a three year fixed certainty of no rate increase; thereafter the cost could increase based on group claims. This would result in our burden costs going up immediately this year to 8.13%, or 0.55% over the pension plan. Further, if the Town were to increase its contribution rate to the 401(k), as some have suggested, to match surrounding jurisdictions and the national average, this would also result in an immediate increase of between 1-3 percent in annualized liability. Assuming only a 1 percent increase in our 401(k) contribution and the purchase of long-term disability insurance, our immediate increase in liability would jump to 9.13%. In addition, the salary freeze would be lifted, increasing the wage bill by 3% for a total increase of 4.86% of pension related costs in the FY2010 budget. If the state pension plan contribution rate is increased from 7.58% (the FY 2010 rate) by the amount of 4.45% that is projected above to 12.03% in FY 2011 that remains less than what the Town would pay immediately and which may increase or need to be increased in the future, particularly if additional improvements are made in the 401(k) plan.
The analysis presented here suggests that the risks of joining the Maryland plan are relatively low. Applying a widely accepted procedure to analyze liability suggests that the fund is safe and appropriately funded, particularly if appropriate counter-measures are adopted to recover the losses of the past year. When a future cost risk analysis is conducted assuming a worst case scenario that the market does not allow for a recovery of funds, future contribution levels rise above the historical norm, but do not require a rise in our taxes in the immediate future and can be absorbed within our budget.
1 Fiona Liston and Margaret Tempkin (December 2008), "State Retirement & Pension System of Maryland (as of July 1, 2008): Actuarial Valuation for Maryland Municipal Corporations, including the Correctional Officers' Retirement System and the Law Enforcement Officers' Pension System," Cheiron Corporation: McLean, VA.
2 Stephen D'Arcy, James Dulebohn, and Pyungsuk Oh (1999), "Optimal Funding of State Employee Pension Systems," Journal of Risk and Insurance 66(3): 345-380.
3 Gene L. Mumy (1978), "The Economics of Local Government Pensions and Pension |Funding," The Journal of Political Economy 86(3):517-527.
4 Liston & Tempkin, op. cit., 10
5 Mumy, op. cit, 521; the 7.75% growth rate or "valuation interest rate" is drawn from Liston & Tempkin, op. cit, Appendix B-1 and is the standard adopted by the Maryland SRPS as of July 1, 2008.
6 The 5% annualized growth rate is the estimated long-term growth of the Dow Jones Industrial Average (DJIA) based on the daily closing values from October 1, 1928 to March 1, 2009. This value should not be construed as the value used by the Maryland SRPS.
7 D'Arcy, et al, op. cit., 364.
8 www.sra.state.md.us/investments/Quarterly_Update-31Mar09.pdf Accessed May 1, 2009.
9 This calculation represents a different outcome than originally carried out, which resulted in a contribution increase ranging in size between 0.90 and 1.39%. The new calculations are based on information received from the SRPS on Friday, May 1, 2009 as to the methods that would be used to calculate the new rates in light of the market losses suffered by the SRPS Fund.
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Pension Plan Technical Paper
Pension Plan Technical Notes
In the attached document, residents may find a series of technical notes and backup information that show why I arrived at the 70% back service obligation funding level, which I proposed to Council and the Town on March 23. The document presented here is in a WORD 2003 format.
If you have questions, please submit them here and I will attempt to answer them Sunday night.
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Pension Plan FAQ
The Pension Plan Proposal: The Mayor's Perspective
Proposed Pension Plan
Questions & Answers
Since January of 2008 the Town Council has been exploring the possibility of Town employees participating in the Maryland State Retirement and Pension System (SRPS), a defined-benefit plan for state, local and municipal employees throughout Maryland. A number of questions have been posed to me concerning this plan, and its impact on our budget and taxes. Below are a number of those questions and my answers.
Will my taxes go up?
No, taxes will not rise for 5 years based on the Town’s current projections (see upmd.org). Please keep in mind that the Town does not assess properties, they simply establish a town tax rate. In order to insure that your taxes do not go up, Mayor and Council will have to adjust the rate on an annual basis.
Why should we join?
The plan would help in attracting, hiring and retaining employees and police officers in addition to cost-savings through reduced turnover and the need for retraining. Many of our neighboring towns are currently in the plan or provide retirement plans superior to University Park’s.
Hyattsville, with a median household income of $51,625 (2000 Census), participates in the SRPS and offers a 401(k). Recently Berwyn Heights, with a median household income of $69,000 in 2000, joined the SRPS. In 2000, University Park’s median household income was $96,349. College Park is a union shop with relatively more generous retirement and disability benefits than ours, and Riverdale Park provides a self-funded pension plan equivalent to SRPS.
What retirement benefits do University Park employees currently receive?
Since 1986, our employees have had a 401(k) plan. The 401(k) is portable. It fully vests after 5 years. Should UP participate in SRPS, the current 401(k) would be discontinued and Town contributions thus far would be discounted against entry into the SRPS. We provide a one-time insurance payment of $50,000 in case of death while employed with the Town. We do not provide disability insurance.
What are the benefits of the proposed Maryland Pension Plan to Town employees?
Many faculty members and public school employees are enrolled in the Maryland State Retirement and Pension System, along with state, local and municipal employees. It is similar to the pension funds available to federal employees. SRPS offers a significantly greater retirement income, disability insurance that would replace their salary at 2/3rds of their current level up to the age of retirement, and significantly better on the job death benefits to their family in the event of such a tragedy than our current system.
What is the cost of the current 401(k) plan to the Town?
Between FY 1986-2006, the Town contributed 3% of salary and matched an additional 1%. The match rose to 2% for the years FY 2007 and 2008. Since FY 2009, the Town contributes a baseline of 4% of each employee's salary and matches an additional 3% of the employee's salary if they contribute an additional 3% of their salary. In this fiscal year, this created a potential obligation of $81,000, although our actual liability will be under $60,000.
What prompted Town Hall to look into the Maryland Pension Plan?
In 2007, I and the department heads initiated a review of the cost drivers of Town services. The high level of turnover within the police force drew immediate attention. Since the police department’s inception in 1964, there have been approximately 90 officers. This means an average turnover of two officers per year, or 25% of the force. Police turnover is very expensive, adding 18% or more to personnel costs each year. Officers’ exit interviews indicated our lack of an adequate pension plan was a primary reason for leaving.
This led to a wider review of our retirement plan, specifically the 401(k). During the review, it was noted that in all but two instances, the 401(k) did not provide an adequate supplement to social security to allow individual's to retire at the recommended proportion of 65% of the average of the their last three years of salary even after social security benefits were included. In addition, it was noted that the 401(k)'s performance had deteriorated significantly over the previous 8 to 10 years. Since the initial review, it has deteriorated even further.
It seemed worthwhile to explore the alternative of a defined benefit pension plan, which would either supplant or complement the 401(k) plan. Based on a balancing of potential benefits, cost, and risk, it was recommended to the Town Council that we fund an actuarial study by the Maryland State Pension Board to determine the cost of joining the Maryland State Pension Plan and pay for back service liabilities at the 100, 50, and 33 percent level. In February of 2008, the Town Council authorized an expenditure of up to $7,500 to conduct this study.
What would the cost of the proposed Maryland Pension Plan be to the Town?
There are two cost elements: (a) the cost of the Town's annual contribution, which would be 7.58% of the total wage bill of the eligible and participating employees in the coming fiscal year; and (b) the cost to finance the back contributions for previous service. The latter would range from approximately $100K to $157K per year for 15 years, depending on the level of back service that was funded. The Town’s 401(k) contributions would be discontinued.
Would the proposed plan make it easier to retire on disability and would that cost the Town?
Yes, the new plan would make it easier to retire on disability. No, it would not involve an additional cost to the Town. In contrast, if we were to buy private disability insurance for our workers and one or two individuals were to retire on disability, a significant increase in the disability insurance cost could result.
Are there costs associated with not joining the pension plan?
Yes, due to three potentially significant factors: (a) wages, (b) health and insurance costs, and (c) retirement costs. If individuals must wait until 67 to retire, the most likely outcome of not joining the plan, the Town will operate from a higher wage level through approximately 2015. UP’s wage schedule applies to 21 individuals; currently 9 are at the top of their scale. Older work forces increase health and insurance costs. Finally, our 401(k) contribution levels will be applied to a higher wage level resulting in a higher absolute cost to us.
In addition, there is an intangible cost in that as our current work force retires, we will find it increasingly difficult to hire replacement workers of the same quality as our current work force. The relative compensation provided to new workers is less than what was offered in the past, or in comparison to the surrounding communities, all of whom offer better retirement and disability benefits.
What savings would be realized by joining the Maryland Pension Plan?
Over time, the Town would realize reduced costs of labor, health and insurance costs, and retirement costs.
Does the Maryland Pension Plan produce a better competitive position in the recruiting and hiring of Town personnel versus the 401(k)?
Yes! All three immediate surrounding jurisdictions offer significantly better retirement packages.
What are the costs of waiting?
A higher entry price at any level of back service funding and a likely increase in the borrowing costs. Each year that we wait to join the program adds 25 years of relatively higher priced back service liability. Interest rates are lower than they have been within decades, and probably will begin to climb again by next spring when we would next be able to enter the program.
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A Mayor's Welcome
Welcome to the Mayor's Comment Page
It is a beautiful Monday and I thought I would send this first welcome message out on our enhanced web site. Have a great week.
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