We’re back

I wish we had some cover-up to explain our nearly two-week silence. But it was much more plebeian than that – we needed money. Rental property I needed to refurbish before new tenants moved in; a course Don needed to take to further his career; our regular freelance assignments that allow us to pay our ever-increasing tax bills; and our aging bodies that need at least 4 hours of sleep at night to function the next day, all elbowed aside time we would spend on the blog.

I still don’t feel up-to-speed on all that is going on in town government, but an assignment I’ve been working on recently has left a pit in my stomach when I think about Chapel Hill’s cavalier spending. I’ve been talking with investment company founders, bank presidents and finance professors about the financial crisis. Some of them warn of cities and states on the brink of a municipal crisis due to underfunded pension obligations. Chapel Hill is not immune.

Last fall, as I recall, Mayor Mark Kleinschmidt patted town staff on the back for setting aside $400,000 a year toward the town’s $32 million pension obligation, saying that was more than many towns put aside. But is that sufficient?

Federal law requires that credit card companies print on the bill how long it would take to pay off the balance making only the minimum payment, and how much sooner the balance would be paid with a larger payment. But that is predicated on adding no further charges to the account. Does our $400,000 “payment” take into account the additional “charges” of people retiring from town government at higher salaries who are living longer?

Many companies have replaced pensions with 401Ks for employees because retirees are drawing pensions for several years longer than the pension fund planned for. I don’t know whether the town has switched to a 401K plan for its new hires, and I won’t be able to find out until town offices reopen Tuesday. But even if we are no longer adding people to the town’s pension plan, funding $32 million at $400,000 a year will take 80 years.

Any shortfall has to be made up by raising taxes or cutting services.

But at least we’ll be able to debate that over coffee at the new library coffee shop.

– Nancy Oates

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23 Comments

  1. Bill

     /  July 5, 2010

    Maybe you could start your research at the Town Museum. Oh, never mind, that place is history! LOL

  2. Geoff Green

     /  July 5, 2010

    The town’s website say that employees are provided by the town with a 401(k) contribution equal to 5% of salary.

    http://www.ci.chapel-hill.nc.us/index.aspx?page=216

  3. Bill

     /  July 5, 2010

    Looks like there are Three, count them Three retirement systems. If one is good, then three is even better! And of course, there is no need for the employee to match the 401k contribution of the town. Hardly what one would call a “sustainable” setup.

    Nancy, I think you have hit on something, good job!

    “Local Government Retirement System

    All employees in regular full or part time position are required to contribute to the retirement system. Contributions are taken on a pre-tax basis. The current contribution amount is 6%.

    Supplemental Retirement Plans

    •NC 401(k)-The Town makes a contribution of 5% to the 401(k) for all regular full and part time employees. There is no employee match required. Employees have the option of making contributions on a pre or post tax basis. The plan is administered by Prudential.
    •457 Deferred Compensation Plan-Town of Chapel Hill employees have the option of making contributions to a 457. The Town does not make contributions to this plan. The plan is administered by ICMA.”

  4. Runner

     /  July 5, 2010

    Welcome back.

    As you exhibited by your recent absence, managing your obliations is the most noble of causes. Everyone would like to just do whatever they want all the time, but we all have responsibilities to ourselves and others.

    The real financial crisis facing America is the unsustainable financial commitments of our state, county and local goverments. Please keep our elected officials aware of the consequences of their cavalier spending pactices.

  5. Terri Buckner

     /  July 5, 2010

    I don’t understand the outrage here. Why would the town need to budget more than their annual outlay requirements? I assume the $32M is what they estimate as a total lifetime expense for all currently retired staff. If so, that amount will vary from year to year. Are you saying that they should create a trust account for the full amount estimated to be owed for each retiree’s lifetime rather than treating retirement as an annual recurring expense?

  6. Fred Black

     /  July 5, 2010

    When we first discussed adding a coffee shop to an expanded library, many were positive about this because it would be a source of revenue. Do you not think that’s a good thing?

  7. Runner

     /  July 5, 2010

    Fred,

    I’m bet you that the coffee shop in the library doesn’t clear $500.00 a month.

  8. Fred Black

     /  July 5, 2010

    I don’t think what it clears is the real immediate concern. If a vendor signs a contract, the profit or lack of it will determine their next steps.

  9. Nancy Oates

     /  July 5, 2010

    Personally, I hate reading a library book with stains on it, and I’m assuming those stains are food-related. I’d rather not encourage people to open a library book and settle in with a jelly donut and cup of coffee.

  10. Runner

     /  July 5, 2010

    Fred,

    Earlier, you based your coffee shop argument on it’s ability to earn revenue. Now you state that the revenue is unimportant. All you need is someone willing to overpay for the opportunity to sell coffee in your library. Why not add a kareoke bar and a T-shirt shop while you’re at it?

  11. Bill

     /  July 5, 2010

    Those like Fred (and many on the CH Council) who have never run a for-profit business will never understand the finances. ” I want it therefore I should have it, it is cool! The cost? Huh? Just raise taxes and explain that it is part of what makes Chapel Hill so wonderful.”

    All the while crowing about affordable housing. I would laugh but it really is sad.

  12. Frank

     /  July 5, 2010

    “Those like Fred (and many on the CH Council) who have never run a for-profit business will never understand the finances.”

    Local government doesn’t have anything to do with for-profit anything. The government is there to fill in the gaps that free enterprise doesn’t provide. It’s not there to earn a profit.

    Back to Civics 101 for you!

  13. Fred Black

     /  July 5, 2010

    Bill, we run a very successful for profit enterprise unless you know more about our business than we do.

    I’m sorry Runner that you don’t understand that revenue is generated when you allow someone to pay you to lease your space. I didn’t say revenue was unimportant, I said that wasn’t the immediate concern. A contract is what the concern is.

    And Nancy, I have no idea what the rules will be but what do you do with those who take a book home and read it while eating and drinking?

  14. Jon DeHart

     /  July 6, 2010

    On the topic of spending money, we need some more attention on how the Town is spending money on the new Community House for IFC . Then says we are treating them like any other developer…

  15. Jon DeHart

     /  July 6, 2010

    http://www.cnbc.com/id/38106756 , article about our topic…

  16. Frank

     /  July 6, 2010

    I love how a mention of owning rental properties is in the same post as bitching about taxes. Cry me a river. It must be hard to own only a few properties around town.

  17. Runner

     /  July 7, 2010

    Fred,

    Please enlighten me on the library’s anticipated revenue from leasing out the coffee shop space?

  18. Fred Black

     /  July 7, 2010

    Runner, I no longer chair or serve on the Library Board of Trustees. I indicated that in the beginning of this process over 10 years ago when we first discussed an expansion, citizens who participated in the survey indicated that they would like a coffee shop. The original plan was to lease the space to a vendor. The revenue would go to the Town, not the Library, just as book fines go to the Town. Like other public libraries that lease out space for a coffee shop, it has the potential to produce revenue – not a profit – for the Town. The vendor is the one interested in a profit.

    I think you can find out from the CHPL what the current plan is.

  19. WJ

     /  July 9, 2010

    To Frank:

    Why would you ever whine about the rental property that Ms. Oates has?

    I certainly don’t agree with the viewpoint of Ms. Oates on some political items, but she is working to get rental property on the market.
    Do you think so magic rental property fairy just gave her the houses or condos? Do you think some magic rental fairy answers the phone from the tenant when there is a problem? Is she guaranteed that her rental revenue exceeds her mortgage, taxes, insurance, maintenance, etc.? She took a business risk, and hopefully it works out for her in a decent return.

    As a property tax payor, don’t you think she has a right to complain about taxes if she so chooses?

    I don’t know if you are, but you certainly come across as such a petty envious little man with that comment on July 6th.

  20. Nancy Oates

     /  July 9, 2010

    For anyone who has landlord envy: Now is a great time to buy investment property. Housing prices are soft, and interest rates on investment property are only about a quarter to a half point above rates for owner-occupied property, which are at lows we haven’t seen in a long, long time. I’m no Roger Perry, but I do think that real estate is a valuable component to an investment portfolio, albeit one that requires physical work to maintain.

  21. Frank

     /  July 9, 2010

    “As a property tax payor, don’t you think she has a right to complain about taxes if she so chooses? ”

    If one can afford multiple properties in this area, then they have more than enough money to pay the taxes. Complaining about taxes on rental properties is like complaining about the gasoline bills for a Ferrari. If you can afford the Ferrari, you can afford the gas. I know plenty of people who can’t afford to buy ONE property, never mind multiple ones. A wealthy person complaining about taxes falls on deaf ears, as far as I’m concerned.

    Sure, she has the right to complain about it, but that fact doesn’t make it any less tacky to do so.

  22. Bill

     /  July 9, 2010

    Frank- the more property you own, the more taxes you pay. The more taxes you pay, the more interested you are in where those taxes go. Pretty simple, really.

    Yes, Nancy, I have also taken advantage of the soft market, sad that it is so but I intend to profit from it.

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