The Fiscal Year 22 budget proposals from the Board of Selectmen and Board of Education have been forwarded to the Board of Finance. On Monday, March 29, the finance board will review them, ask questions of the two boards and administrations and then finalize a unified budget package to present to the Budget Public Hearing on Monday, April 12 as designated in the town charter. These budget proposals will fit within the target numbers requested by the finance board with the intent of presenting an overall budget with no change in the mill rate for another year.
The budget package will contain a one-year transfer of $2 million from the General Fund to the Other Post-Employment Benefits (OPEB) Fund. This transfer will accomplish two things: 1) move existing cash on hand sooner that is earning little in interest in bank accounts and other restricted cash-like instruments into a fund that typically can be anticipated to garner much greater earnings growth (1 percent vs 5–6 percent) and 2) thereby allow us to remove this item from upcoming budgets FY23-26 (four years). Removing this yearly expense from the next four budgets will help to hold the mill rate change lower. In a nutshell it is better to utilize a portion of our municipal reserves for an obligation we have to pay over time anyway rather than funding it through upcoming budgets or taxes.
This exercise will still leave us within the reserve parameters recommended by bond advisors and credit rating agencies. Simply put, it gets Granby a better bang for the buck in dealing with a bill it has to pay over time.
OPEB concerns retiree healthcare. While the contracts of today are less generous than those of past decades, the public sector has a history of providing some level of healthcare for retirees. Over the past couple of decades, time period restrictions, cost sharing and incentives to move retirees onto the state system or Medicare have been gradually negotiated in, but change takes time in a labor-protective state like Connecticut. In the meantime, the Government Accounting Standards Board came out with the requirement that the books of government entities reflect the future obligation that a town like Granby will have to pay and this led to the need to come up with a mechanism to pay that obligation as it comes due. Hence, the OPEB Fund.
Unlike the typical municipal reserves that can only be invested in bank accounts or similar cash-like instruments that currently earn about 1 percent, OPEB funds —like pension trust funds — can be invested in equity and bond markets that over time have performed far better in generating annual average returns of 5 to 7 percent historically. It is that historic earning power that gives the town reasons to use existing reserves rather than carry it as a line item to be expended in each year’s budget. Removing the OPEB line from the base budget going into FY23 will help keep the mill rate change flatter in the next few years. Thus the town is intentionally taking a step to better manage the operating budgets, and therefore the mill rate, in subsequent FY23 through FY26.