call to order the board of selectmen meeting monday december twenty first two thousand and fifteen my name is sammy baghdadi i'm the chair mark political the vice chair to my right even jim williams m david kale town administrator phyllis marshall assistant town administrator as we go around the table and floyd carmen who is our town treasurer and then we have some financial and actuarial advisors which we will introduce later on in the agenda first item questions from town residents on topics not otherwise covered on the agenda anyone ok next recognition of the late and allan with a dedication of a tree elizabeth get send if you can please come to the  table just by way of brief introduction the belmont historical society has requested our permission to honor and along with the memorial tree and plaque to be located at  renovated delta and front of belmont savings bank with that elizabeth would you like to well i thank you very much for her entertaining this notion that we had we the historian and al has done so much for us that with a historical society but so much for us in the town of belmont as well and her family has done a lot for years and years and years in the town and historical society wanted to come up with a way of honoring her we thought of many things but when this opportunity to have a conversation with you about dedicating one of the trees that you're planting in the den in the delta to her memory we we we like that idea a lot and we're hoping that you also like the idea we're talking about one of the existing trees that's already specified in the plan and what we'd like to do is put a plaque in front of one of those trees i think it would be a wonderful idea and it it would certainly you know be my pleasure to dedicate a tree for it for four and it's at least we can do for all her many years of service to the town and generosity thank you for that was the schedule for once we complete know once we complete the delta will you know when the time you know we'll find the time and we need to get moving on as this determining who will make the plaque for us and what are the look like and we'll we'll talk to you about that we'll make sure whatever  can pass on our agenda we did have a great a we did have a property classification hearing at our morning meeting on december fourteenth with the board of assessors and we had taken  a couple of votes that don't need to be ratified at this point the next item on our agenda is the topic of the evening presentation on pension obligation bonds and presentation on which is other post employment benefits actuarial report we have a number of town financial advisors and actuarial advisors here we also have members of the belmont retirement board present here in the audience i see tom gibson and roy sacco and jim sloman and members from of the warrant committee as well you know i see and a member of southwest ok which which is our financial the financial advisor of the town what what i'd like to do is rather than have this simply be like sure are up for  a college lesson on you know what opec is and what pension obligations are i realize you have a presentation which which i think is great for us and the audience but i really want to focus the discussion in the end on how sound our current practice and policy is we do have a practice some policy that we've been following over you know several years and  question is again how sound of practice and policy is it how risky is it you know how how do we compare with other towns that are similar similarly situated to us the experience of other communities you know restrictions legal and practical that seems to me to be the first part of the discussion and then the second part of the discussion which we probably won't get to tonight is once we have a full understanding of what we're doing now and how sound it is as a policy and practice the next question becomes can we improve upon it how can we make it better what else the public and everyone in this room to understand who's responsible for what because it's something that has not been absolutely clear in the past and we've had town council with regard to the pension fund issue in opinion and i'm just going to read the summary because i think it's important the selectmen in a town have no direct authority to determine how and when to fund that town's pension retirement obligations that authority is conferred by statute on the retirement board for that municipality jim is here boys here i've met with them  i've gone to their meeting several times as well tom and tom there you are in a very competent group so that retirement board is responsible  for the retirement board for that municipality for some towns this is a county retirement board other towns including belmont have established their own retirement boards these are the gentlemen that we were referring to these funding levels are determined using detailed statutory criteria in are subject to the approval of the public employees retirement administration committee the famous pair act and when they're talking about detailed statutory criteria he's referring to the actuarial reports which in this case comes to us from kathy in your in your firm to the extent that these criteria allow for the use of policy judgments that require consideration of the town's ability to meet its obligations local retirement boards typically work in close collaboration with the municipal executive final authority however rests solely with the retirement board so this is very important because the pension liability for belmont is about fifty percent unfunded and that's about seventy two million dollars so obviously they can come to us and say gee give the seventy two million dollars in fiscal two thousand and seventeen because we don't have the reserves to cover that but they can work with sammy mark and i to determine how we're going to fund the retirement fund and and how that schedule is going to look going forward and we've agreed amongst ourselves that we're going to do that with regard to the advisors if you look at the financial statements we know that the pension fund obligations are coming on the balance sheet as of fiscal two thousand and fifteen i believe which of course won't be available to us for for until january of two thousand and sixteen is that right david so it's going to there is going to be a year lag but the seventy two million or whatever the number is it's going to show up on our balance sheet and the the accountants when they issue their opinion they say that they're not responsible for the actuarial work that they can rely on the actuarial firms for the numbers that are provided so that's you know that's how that works the accountants are responsible for the actuarial numbers the actuaries rely on what we tell them and then we take the information and work with the retirement board to set the schedule that's that's the way it works with regard to opeth it's a little different because there is no retirement for oprah and so as far as i know unless i can i always stand to be corrected as far as i know the o we've been following for the last several years i mean is it premature to hear from them on that matter if we haven't heard from the ok working group i'm just questioning you know sort of the i meant was that a given lots of kind of we're not making decisions tonight but i'd like to just point out that even though we might hear from our financial advice in terms of what we're doing right and what we're not doing right through to opeth i think we still need to understand you know if you're working for yes and what that is as well ok i'm not so i did not at all diminishing that ok i mean if i could say a word about that this summer we approve report mark you'll remember that and waive the presentation because we had to get that approved by the board of the the light board i think it was or the board of select accepted accepted so that the light company or the like department could a report so what we did was we said ok it's consistent with what it looked like the year before and so we felt confident going ahead and accepting the report good word choice but the purpose of tonight is discussion you can watch the slide presentation on your computer at home that is a very good point the other thing i want to do is our staff has spent many hours of the last few weeks compiling a package of informational going to complete tonight what i'm going to ask is each of the presenters do their presentation and i'm going to ask the everyone including us we three hold our questions for now till after the presentation is  complete otherwise i suspect we'll never get through it so with that peter you want to make your presentation and will you please start for the audience you know with  experience and your qualifications thank you very much and thank you for the invitation to speak with you about what i think is a very important topic by way of introduction my name is peter frazier i'm a senior vice president at first southwest company been in the public finance business here in massachusetts for the last twenty nine years worked managed the bank of new england municipal advisory group in the eight worked for fleet and fleet securities in the ninety's we were acquired in two thousand and one by first southwest company and i currently serve approximately seventy five massachusetts municipalities cities towns districts and  authorities since joining for southwest in two thousand and one brought to market more than fifteen hundred baht vonda no transactions with a total paramount in excess of eleven billion dollars since one nine hundred eighty nine have had the privilege of working with the town of belmont on more than fifty transactions totaling more than one hundred fifty million dollars and fully registered with in terms of the c c with respect to  first southwest company which may not be a household name to folks in this part of the country it's a securities firm based out of dallas texas with offices across the country our boston office works with about one hundred eighty cities  districts and authorities here in massachusetts and we were coincidentally the last folks to to help with the pension obligation bond back in two thousand and five when the city of brockton issued one hundred million dollars for that purpose in terms of my objective tonight if you'll indulge me is to talk a little bit about pension obligation bonds in terms of what they are and how they work what their potential benefits can be what there are risks associated with it the credit rating agencies perspectives both in terms of generally about as well as specifically what the impact might be on the town of belmont's credit rating talk a little bit about that city of brockton case in terms of how that all worked out and then finally if folks are interested in pursuing this as a as a tool talk a little bit about the authorization and issuance process for pension obligation plans and then and with some illustrations of in terms of how the  numbers work and what kind of savings might be produced as well of as what what adverse outcomes might look like in terms of the so the background here obviously belmont has its own retirement system that was created to provide pension benefits to town employees and retirees the town appropriates funds annually to the system and they're invested and then drawn upon to pay those benefits and every two years by statute the actuary recalculates what the liabilities of the system are as well as comparing that to the system's assets in the event that the assets don't totalled the liabilities which is the norm in massachusetts with respect to retirement systems there is an unfunded accrued actuarial liability that you which is essentially the difference between the assets currently in the system in the present value of the future liabilities in terms of the kind of things that affect that unfunded liability things like what the the benefits packages are the sort of raises that are intice paid over the life of people's careers the length of people's careers the mortality tables how long are people expected to live and therefore be drawing on the assets of their retirement system things like cost of living adjustments and the investment portfolio importantly of the system in terms of the the system has to assume a certain rate of return over time in terms of those invested assets the current assumption is seven point seven five percent so on the unfunded portion of  that portfolio that also grows at seven and a half percent unless it's addressed and so what the pension obligation to bond does is is simply  replaces that internal borrowing schedule if you will at seven point seven five percent with actual debt and at one would hope a lower interest rate  that the community can achieve savings and what what a pension obligation or pension obligation bonds are our taxable general obligation bonds and when we say taxable ordinarily the town can issue tax exempt bonds meaning that the owners of the bonds the folks you pay interest to don't have to pay taxes on the interest that you pay them which allows you to borrow at very low interest rates and coupled with the fact that you are aaa the highest rated credit there is you borrow at very low interest rates taxable rates because there before tax if you will investors demand a slightly higher interest rate on those  but in any case they they would be general obligation bonds of the town and they would fund or refund in the capital markets all or a portion of the unfunded actually accrued liabilities it's important to note that they're not liabilities of the pension system and they're not paid for by the pension system they are paid for instead by that the town as a general obligation in terms of the mechanics of pension obligation bonds essentially when i was mentioning that you know every year you appropriate funds that paid over to the pension fund for it to invest and that payment is really made up of two different payment streams one th normal cost which represents the that years estimate of what's required to put into the system to fund the benefits that are accrued by working town employees into the future and and that stream will go on forever the normal cost will never go away but the other component of that payment stream is that amortization of the unfunded pension liability so if you look on the the little chart there on the right you can see two streams of payments one the u a e yell and the other the normal cost as i say the normal cost will go there for a go from the town to the retirement system forever the u s will stop once the the pension system is fully funded and in the block below after a pension obligation bond what it ends up happening is the town borrows the money provides that bond proceeds to the retirement system continues to make the normal cost now in in this hypothetical example the retirement system would be fully funded the town would then pay debt service payments principal and interest payments on those pension bonds and till they're gone  and again with the hope that the debt service would be less than what those unfunded actuarial payments would be in terms of this next slide this this just shows you  tabular form what that looks like this is extracted from the most recent actuarial report as of january one two thousand and fourteen you can see on the left hand side the fiscal years going out the column two is the important ploy is normal cost and again it's cropped at two thousand and twenty eight but in fact it would go on forever if if we could show more years but you can see that the current amortization of the unfunded liability  approximately six million dollars in two thousand and fifteen grows over time out to two thousand and twenty seven when the the system under this scenario would be fully funded and then the payments would stop and  for is the total plan cost of the sum of columns one and two or two and three and then column five is simply the declining unfunded pension liability sort of if you think of it as the principal on the on the loan declining over time in terms of why some communities are considering pods at the moment it's its fundamental fundamentally this is  arbitrage player the interest rate it's based on the lower the interest rates are the higher the likelihood that you'll have a successful pension obligation bond you know right right now you again that imputed rate is seven point seven five that you're paying right now if you could replace that at today's market rates at around four percent that that provides an opportunity for savings if everything else works out and the other is clearly  folks are doing it because asset growth has not kept pace kept pace with the growth in the liabilities in the fund in terms of the market conditions history what what i'm trying to show you here is the top graph is the s and p five hundred from one thousand nine hundred five to two thousand and fifteen and what that shows you is that the and it's a proxy for sort of the type of investments that the retirement fund would be investing in and typically the values in the stock market go up over time and hence you have that underlying assumption of seven point seven five percent over over the long term but it's important to note that it also goes down on occasion and what what we're showing here too is the city of worcester issued two hundred twenty one million in pension obligation bonds back hundred ninety nine city brockton one hundred million in two thousand and five and you can and i'll get into sort of their performance but you can see that they bought a sort of at relative highs before corrections both in two thousand and one when post nine eleven and post dot com bubble and with the city of brockton you know the financial meltdown of two thousand and eight and subsequent poor performance  hurt them but in any case the bottom chart is the ten year treasury trend over that same period of time and that's that's not what you guys would borrow at but it's a proxy for the direction of interest rates and the fact that we are in fact over the last few years been near or at historic lows in terms of interest rate so if you're thinking you know this is sort of a two sided thing in terms of the interest rate climate you're probably as good as you've ever been in terms of climate to do pension obligation bonds the wildcard is in terms of if you look at the asset side are we at the top in terms of and ready for some sort of correction  this continue to climb higher and and that's the unknowable aspect to it but you can you know in hindsight is twenty twenty you can find the perfect times to have done pension obligation bonds not necessarily brockton which i'll talk about more detail but city of waterbury for instance and connecticut did pension obligation bonds in two thousand and nine they cut out a low market and low interest rates because where you borrow where it in terms of the business cycle is is critical if you're borrowing at the peak and you go into a trough you have a correction it makes it much harder to be successful because the value of those assets go it's go down and then you are sort of working your way back up as the the economy expands again in terms of an overview of the national market for  municipalities as well this is a little bit deceiving you know what it correlates to dips in interest rates generally but some of those big spikes really represent very large issues that were done by for instance state of california illinois in oregon in terms of you know that another way of sort of to conceptualize this is what we're showing here is a rates of growth of assets in that you know about the same size as your retirement system one hundred fifty million growing at the rate of seven point seven five which is your actuarial assumption or growing at the approximate bond rate of about four percent and you can see how the the lines diverged in terms of sort of the way to think of this is if you lock in that that rate which when you go i will go up the bar and you know exactly what you're going to be paying on that bond over the life of the bond it's  fixed rate and instrument if you lock in and your investment return meets or exceeds that seven point seven five percent that's the top pair o then your savings are going to be achieved  better off for having done it but it will you will also create new unfunded liability that you'll have to then amortize and pay so the the payments that you're made you're making the savings essentially that you'd forecast seven five point seven five wouldn't be achieved but it be better for having done it and then finally the worst case is where you go ahead and bond but you don't meet that bond rate as you were rate return and in a case like that your payments are going to be higher than had you not done the bonds at all so that's sort of the worst case in terms of the benefits the pension obligation bonds obviously were required by law in massachusetts and one nine hundred eighty eight legislation was passed that said all retirement systems had to be fully funded and they had to be fully funded by two thousand and twenty eight at least initially subsequent to that there were changes made to the system that of ultimately and do largely because the the assets weren't able to keep pace with liabilities they stretch that out to now you can extend that retirement to as far as twenty forty obviously another benefit is that still substantial savings can be realized if you hit you or actuarial investment return and you can save some as i mentioned if your investment return is at least greater than than the bond rate and then finally you know there's an opportunity but but there's this is a tricky one if you time it right and you're catching the the market at a low in terms of investments and you can catch it in that triumph then you can make it makes it a lot easier to to meet the objectives of the pod and you can do quite well in terms of the risks you know the one of the big risks is reduce flexibility here you've you've issued bonds which are not malleable at all the you can't change the terms on them you can't miss payments you know if you know exactly what you have to pay but you're forced to pay that over time or else you default and that's pretty dramatic in terms of municipal finance and what you what would have to happen to your bond rating and your trading that for the existing somewhat flexible as you know as as i mentioned the schedule has already gone from twenty eight to twenty forty if you wanted it to so you had that flexibility you haven't taken advantage of it but but it's there and for a lot of communities they've needed that in order to avoid making really hard decisions about funding services versus the  the retirement system so you've traded that flexible schedule for a rock hard one from a rating agency standpoint they're looking at it currently as it's a neutral event to negative and i'll get into that in more detail in a moment if the retirement portfolio underperforms as i mentioned before not only did may you have additional unfunded liability that has to be amortized but it may cost you more than having not done it and the  side of that town invests all bonds at once is if you're buying into the market at the top of the market and there's a correction it can make it very difficult to have a successful transaction because it's looked at not at the time you borrow but over the life and in it from a rating agencies perspective you know obviously everyone's aware that belmont is a aaa rated community the highest rating that you can others but those are the major ones and all of them are basically on the same page so being that this is a neutral event in some cases it's a negative one that they do think that severe underfunding is a liabilities that's that's definitely a credit negative however with what they've they've also basically said is they they don't look at that and these unfunded liabilities exactly the same because of the nature of one's flexible on one's rock hard and that the negative comes from the fact that a number of the issuers have pops in the past and and this doesn't really apply to you guys but have used that as a way to defer work or fix immediate budget problems you know we have a big payment that needs to be made to the retirement system this year we really can't afford it i know what we'll do we'll borrow and and pay that back later in order to  in order to sort of fix our immediate or will structure the repayment of the debt in such a way that the next five years will get these benefits but will pay a greater in the out years and so it's these sort of  political gimmicks if you will that they're very much against and i'm not suggesting that that would be your motivation at all but that's one of the reasons if people would would ask why would it be a negative thing it's because it's been used sort of improperly but as you can see all of the rating agencies are sort of in the same place in terms of where they come down on the asian bonds with respect to massachusetts experience i think  i mentioned that the three of wister and break it did a little early retirement incentive for two point two million backer two point one seven five back in two thousand  and brockton did one hundred million in two thousand and five but you can see that there were other communities that went through the process and got special legislation there is no general authority to issue pension obligation bonds in massachusetts you have to go to the state legislature and get a special act just for the town in order to do it and so these are the folks that have done it most of which haven't moved forward for back in two thousand and five and they had a lying unfunded liability of about one hundred forty two million they they went through the process took some year year and a half to get the special act of the legislature and within it had certain conditions about how they could structure the repayment so that they weren't doing those things that i was talking about in terms of just trying to force the savings in the early years sort of for political purposes but they they want to head and they issued their hundred million in two thousand and five in an average rate of about five and a half percent with a final maturity of two thousand and twenty eight which at the time was the maximum term you could extend to which is as i say has been subsequently raised and they raised their funding percentage from sixty two percent up to eighty nine percent unfortunately the two thousand and eight market crash and other under performance to reduce their fun funding level back down to fifty eight percent and as of january one of this year which was the last actuarial study they were up to about sixty seven percent so you know the c f o as the fellow by the name of jay condon and he's a very bright guy wharton trained very capable and he estimates he was there at the time has been there since i want to say one from ninety one he is basically figures that they've approximately broken even ten years into it that now their investment return is about equal to that five unhappy percent so he still got twelve years to go and in terms of the term of the bonds and you really don't know how you made out until it's all over all paid back but you know in his his view would be i do it again if i had had the choice so he's confident that over the next twelve years he'll he'll be able to not achieve what was perhaps originally expected but more than break even in terms of next steps as i say if you are thinking about moving forward with something like this the first thing would would probably be to to do a risk analysis there's a sort of an actuarial analysis that can be done referred to as a monte carlo simulation where you can put in all different sorts of permutations of investment returns over time you know you start out making great returns and then tails off where you start out making little and it goes up  anyway you sort of put all those things together and you can come up with a probabilistic model of the likelihood not it's by no means a guarantee but the likelihood of a particular outcome so that might be helpful because if you found out geez that is a ninety percent likelihood that we're going to it's no guarantee but that we're going to achieve what we're trying to do or only a ten percent it may have bearing on whether you'd want to go forward so that that would be one suggestion another would be to have an initial meeting with administration and finance and department of revenue officials to understand sort of where they're at with respect to this sort of philosophically or what they'd expect for conditions if they were to move forward please remember that two thousand and five there are none of the state level officials that were in those positions that are still there so there may be sort of a learning process that that's required  order to to get that in there typically they are often gate keepers in terms of special legislation so if you wanted to do it it might that might be worth a worthwhile exercise if if you go forward obviously you'd need the town meeting to authorize you to request special legislation for this as well as authorizing the bonds themselves assuming that the legislature passes gives that enabling  act you'd probably want to update your actuarial study make sure that you're working with the latest and greatest numbers make sure that they often deal or impair act review and sign off and somewhere in this process you if i looks like you're going to move forward you'd probably want to go out with a request for proposal for underwriters underwriters or the folks that buy the bonds they're working for you essentially in a case like this and you know the  idea is to make it sort of a competitive process so you know what their qualifications are as well as what their how they'd expect to be compensated for instance and then the final step would be to probe price the bonds and invest the proceeds in terms of you know as i mentioned earlier what i was hoping to do is give you some examples of how the numbers play out under different scenarios and this doesn't mean this is going to happen but it's sort of a range of outcomes and then this would be sort of a snapshot of what ultimately that money carlo simulation would do in any case what we're soon going is just for this exercise that you do a six week sixty million dollars pension obligation bond and we structure it essentially over the remaining term of the issue in december of two thousand and sixteen sixty million at market rates today which are absolutely subject to change but would be really low about three point eight nine percent and so that the first column column a is the existing amortization schedule that's been updated from fourteen schedule with actual experience and then we've got column b which is the debt service the principal and interest payments on the projected  the a column c is because we're not funding the entire unfunded pension liability you're still going to be making some unfunded pension payments ok thanks exists today versus column d which is the world after the palm you can see on an annual basis that's pretty powerful stuff and a million and a half on an annual basis in terms of savings and sixteen actuary with the single company a senior vice president an actuary and we are the actuaries for the belmont retirement system so we completed the two thousand and fourteen valuation and you saw those results earlier on in the valuation with the appropriation that was  projected payments to twenty two thousand and twenty seven that was the funding schedule that had been adopted by the void in conjunction with the two thousand and fourteen valuation what we did here is since those numbers are now almost two years old we did update the baseline numbers or cut the column a numbers here or there they are different from what you saw in the valuation results page because we were afflicted the investment performance for two thousand and fourteen which was about a six point seven percent approximately one percent less than the assumption that for two thousand and fifteen we for modeling purposes assumed a zero percent retard a lot of funds or at least at the beginning of december were looking to be about flat for two thousand and fifteen so this column a reflects those two years of investment losses and where the system has an investment loss that either increases the appropriation or the board would extend the funding schedule to absorb that cost and have the impact not felt immediately so for purposes of this modeling without discussing anything with the retired board with the assumption that because the appropriations are already increasing at seven percent per year that the board would push the schedule out to absorb the additional investment loss to absorb the two thousand and fourteen two thousand and fifteen investment losses so that's why the schedule here as it ever does ation payment at twenty twenty eight whereas on the prior schedule it was fully funded by twenty twenty seven then we had to make some more assumptions would we did the pension obligation baad issuance since that sixty million dollars bond issuance funds about eighty percent of the unfunded liability leaving about twenty percent so we had to make some assumptions about what pare act may or may not require with respect to that remaining unfunded liability characteristic lee doesn't like the appropriation to decrease year over year but this is an unusual situation so we assume that we would have some flexibility in working with the board and coming up with payment schedule for that remaining twenty percent of the unfunded liability we may take the same twenty twenty eight funding to be consistent with column a where we pushed it out to absorb the losses but we changed the level dollar images ation payments for the remaining payments and all of that is factored in there that all that drives the savings that you see in the last call there the sixteen plus million dollars in savings because the boy you push that you know the more interest you pay on these bonds so depending on how you structure the payments of the retirement system either before or after the issuance can have a big impact on the savings that you see of the bottom of the in the last col you this next scenario again same sixty million dollar pension obligation bond what we're doing here is saying every year we earn at our actuarial assumption rate of seven point seven five with exception of a zero percent return in two thousand and eighteen and so what you can see is it recalculates the existing schedule the bond schedule stays the same the amount that's needed to fund the the remaining payment if you will goes up and the savings in total goes down from that sixteen or seventeen million to thirteen but you can see what it does in this scenario anyway in terms of increasing that payments in certain years along the way in terms of the scenario three and that that sort of we do better than the bond yield but less than our actuarial assumption with respect to scenario three same sixty million dollar pension obligation bond we're going to get have asset returns of seven point seven five in every year beginning in sixteen with the exception of a negative ten percent return in eighteen and twenty so that would be sort of significant mar market corrections in the stock market and you can see what it does in terms of changing the amortization schedule without the the pop stay the same the the new and as you can see also that the the funding is again extended now to twenty thirty two payments go up and in this case the net payments are actually greater than had you done had you not done the pods and significantly greater in certain years and again the important thing is all of this stuff that you know these are snapshots and all these assumptions are built in so that the world wouldn't necessarily look exactly like that but it gives you some sense of that you know and under certain circumstances it really works well and under others there can be significant increases to liabilities and in some of the years and perhaps even in total in terms of you know just to close  i guess that the point of this from my standpoint is that pods are intrinsically good or bad they're a tool and you know might my concern is simply if because there are  benefits and substantial risks that people really have to fully understand what they are before they'd be willing to to move forward with that and i'm hoping i provided in the packet a number of  publications from various rating agencies industry participants and governmental organizations that kind of give you not only i think i hope a good description of how these things work but there are there is a range of viewpoints in terms that way all right so when i was in banking every time we got a new general manager i was the chief credit officer for the texas and north america i would we would check the real estate security and for those of you who are in the business you know that it's done county by county right for the new general manager would say well why would you do that well the law firms may have made a mistake and so we're not after anybody in the in the deal flow or any of the law firms but we want to make sure of is that if there's if a deal craters that were in fact secured and i did it three times over a period of fifteen years every time we did it we found two or three deals where the papers had been in this file and you know they didn't crater but then we had the confidence going forward that everything was going to be ok so i told sammy that i' been stressed about these two items for quite some time so i appreciate the fact to go over this and i want to say that everything that i'm saying tonight i say respectfully and i'm not trying to pin the tail on the donkey but peter first i want to talk to you because i think in public we have to clear up some of these issues so i did ask a question about it since we now know that the board of selectmen is responsible with the retirement  for determining the schedule with first south west as our financial advisor how often your firm has met with the board of selectmen to discuss this issue and as i understand that there was one time where you did a presentation last year but other than that your work has been primarily around bond issuance is that fair to say for now i would like to go to the end of your presentation and say i too think we should do an r f p and i think we should hire a firm like first southwest we have to go out we have to get bids we have to understand it but i think the three of us need help in making this decision going forward so when we say financial advisor i consider everyone at the table here to be a financial advisor but no one is actually talking to the board of selectmen about what to do about these twin pillars of debt so i wanted to make that point and i'm going to find your presentation here  i think and correct me if i'm wrong because i always stand to be corrected i think that we have the equivalent of a pension obligation bond with the state what do you think about that idea the structures exactly the same we're required to make an amortization payment in as we saw in the package it's one hundred twenty five million dollars it's just not a public issue you mean the question the distinction i think is one is sort of rock solid and the other is object change based on either your need or you know the laws of the commonwealth where they've stretched the schedule from twenty to twenty eight out i completely agree with that but but you do agree that the structure looks very similar that the difference is that the the debt holder if you will is not it's not a public bond it's it's it's in effect regulated by the state and if something drastic goes wrong you can redo it you can reschedule it somehow is that's what we're saying no well that again and i think kathy would be more eloquent in terms of dealing with the the actuarial aspects of it but you know one is a schedule of payments that is subject to change not only in terms of the assumption of rate of return rate of return but also subject to if you needed relief for some particular reason that's that schedule can change again the distinction from a credit perspective is one is rock solid if you don't pay default but he default you know your credit rating is going to suffer so i think i think they are different animals but i certainly understand what you're you're saying in terms of it's a it's a cash flow you know this amortization schedule that we have is is a firm schedule and we have to come up with the payments every year and that's one of the things i'm worried about and i think others are too because it's escalating at seven percent a year if i were issuing a public bond i would never structure it that way you know because i'd be concerned about whether the town could actually make the payment you know seven percent a year times ten years all of the sudden you've doubled the payments as you well know now with regard to this issue about yours no i know this is my time and it's our discussion and you and we have misunderstandings i don't know where the cameras but we have misunderstandings in the public that when you say taxable that means somehow the town is is is disadvantaged we're tax exempt organization but we're issuing tax exempt or taxable bonds it just means that we pay more that's all that area and i understand that the difference which is kind of a mystery in the bond market the difference between a tax exempt bond and a taxable bond is somewhere between twenty five and fifty basis points do you agree with that it depends on you know to your your point a bond is actually a number of individual the two structures one of the points that you made is that people b s are not issued by pension systems nor a pension system is liable for the bonds but that's true of our current obligation as well the one that we have with the state the retirement system is not a liable and they're not responsible it's the town that's responsible for so there's no difference between the two structures that's correct i just wanted to get that i feel like you're ok now with regard to  t i would like to do if i were king i'm not i'm not even the chairman or the vice chairman but if i were king what i would like to do is restructure obligation and i would like to do it for a couple of reasons one is if i put it let's just do it with ten years because i think you can do it easily and i'm just going to put five seven nine and eleven twelve thirteen fourteen and what that equals under the current structure is one hundred thirty eight or twenty five which is a hundred twenty five million it doesn't matter it's just an example i think it's one hundred twenty five million now that money comes out of the town's cash flow and  i can tell you what i think about the town's cash flow in a minute but out right now the way this deal is set up with the state we're paying one hundred twenty five million dollars out of our coffers over the next thirteen years now if i do a twenty year bond i'm going to have to go to the public and get permission to do that but the two things that i would do one is i would structure to twenty years which push pushes us out beyond the current two thousand and twenty seven in the second thing is i would fix the payment and what i think that would amount to but i don't want to argue money you know necessarily let's don't argue about rates i think it's four million dollars per year and i think over twenty years that equals eighty million and if i subtract eighty from twenty five i get forty five million dollars now all the sudden we're talking some real money here because what we're doing is work standing the liability but you don't have to deal with pear act if you've already paid off your your pension liability so we can put we can put a sixty million dollar bond on the on the town's balance sheet and i'm not suggesting we do it i'm just saying we could and this could be the result this could be the result we saved forty five million now what's interesting about this is that if you go to the electorate and you say we have a problem here because of things that have happened in the past again we're not trying to pin the tail on the donkey we're just saying things that happened in the past we're in a hole but i can restructure the debt and i only have to pay eighty million i save forty five will you trust me to issue a twenty year bond for four million a year let's assume they say yes the next thing that happens once they do that is you don't have to make these payments anymore these payments go away and so what happens is during the thirteen years you save one hundred twenty five million and you pay fifty two so all the sudden your cash flow improves by seventy three million dollars ok way to excuse me gender a couple of questions ok couple of questions what about the remaining you know if you're funding sixty million yes or what about the remaining approximately twenty million that has to be still paid off is that incorporated in your numbers you know first of all my understanding on the last run of seventy two million isn't you know so it's not there's not enough there's not eighty million there's seventy two the other thing is that we did we need a million it's projected to increase because of this is it it's projected to increase because the law says had two thousand and fourteen and fifty two about what will the sixty million was about eighty percent at about that time so this is an analysis in no piece of information do we have on the pension fund that says that the unfunded liability is eighty million dollars it's not in writing anywhere but i don't want to argue that i'm going to teen millions i don't want to argue the point the point i'm making is that if you restructure this debt through a debt exclusion in the in the electorate agrees you will in fact defer the cash flow impact of that thirteen year schedule that we have with the state the reason why you're deferring it to is you've introduced a new budget and now all the sudden you can start thinking about what am i going to do about opap i need to start funding open just let the can you just do an override and add it to the but it's the problem with an override is it's perpetual and this problem is not necessarily perpetual this this is a problem that has built up over time it needs to be addressed i think it needs to be addressed by restructuring but i'm not in charge of the world i understand i just want to present the idea one more question i'm what he's saying is he issued the pension obligation bonds for eighty percent of the liability but they would be paid through a debt exclusion and my point is you know most communities what correct me if i'm bonds to fully fund our ritual geishas this is this is one structure peter's person who mentioned the concept of an under ride thank you for saving me from having to do that so this is an important point i'm not going to structure the deal tonight because i don't think we're capable of doing it tonight but this is a concept you can refinance this obligation with a public up obligation and you can reduce the amount of cash that's going out of your system i don't mean the retirement system i mean the operating budget over the next thirteen years the second point i want to make is that my new friend gave me the performance of the funds that he works with in belmont for ten years ranks number four right right behind the dobro groups for pensions at eight point two are at eight point two seven percent that's for the ten years before the three year and you make twelve percent for three years on it all the sudden you've got something to talk about now i've heard this argument about arbitrage and i don't think this has anything to do with arbitrage i understand that four percent is lower than seven and a half but to me that's not that's not what this is about what we need to do to address this problem which is a real problem is to restructure that debt and get those assets to the retirement board now in the next few minutes and if we have time we can ask the retirement board to comment but i've asked them in the past what if we gave you thirty million dollars what would you do with and they said no problem we can handle that because it would change it would change the way the structure of the liability it would change the way they would approach the assets and i think that they would do a similar job to what they've done before in terms of relative performance so i want to make that point ok and jim let me just comment you know with all due respect it is the town's obligation and the town is using its credit not that i don't trust the retirement board but the town is pledging its credit to the tune of sixty million dollars for the retirement board to invest it and boy if that market turns around tomorrow or we have a downward cycle then not only have we passed the debt exclusion but we would not have achieved that's to go so once that's over it's going to be fully funded and we're going to have the same risk that we're talking about as a reason not to do the pension obligation obligation bond so in me it's kind of for me it's kind of six of one half dozen another either you fully funded thirteen years from now are you fully funded now or as cathy suggested in one of our retirement board meetings which i thought was a good suggestion that you look at it in a couple of different ways and maybe you don't do a pension obligation bond i'm not saying that you said this but you you know this is what i heard let me put it that way that's another way of looking at it you don't have to use this kind of structure to solve the whole thing but you can make that number smaller and that's what we need to do and that those are my comments thank you  and then last but my only comment was when jim said this was a the the pension obligation was fixed at two thousand and twenty seven that's currently fixed a twenty twenty seven but if you go talk with three and talk with perec maybe you could get stretched out a little bit longer so it's not a fixed obligation in a sense that we don't have a little bit of flexibility there's a little downturn in the economy we've got to go work with ou apply to that limit nor would this necessarily because you just have as part of the legislation as other folks have that this does apply to the levy limit i'm not suggesting that that makes it good or bad it's just i think the more salient point regarding the debt capacity is not so legal limit that you may have a tremendous amount of room under it's more sort of with respect to data it has to do with affordability where the funds coming from that are ok that's helpful in terms of you mentioned and i want to understand this next steps here because i think that's important if we are to take notes of what the procedures or in terms of the radiator sees anything i've read is that at best you get a neutral rating perhaps and if worse you might get adverse and at the in your work have you seen some of the towns you represented have been waiting in some way you know in that report they talk about things that could lower your rating and one is substantial growth in deptford and another deterioration of the town's tax base very quickly significant read reduction in general fund balance and free cash and another failure to address long term costs for pension and open i should also point out though that one of the strengths are so that's sort of a warning if you don't do these things that could be a potential bad thing but at the same time they identify as one of your strengths manageable long term liabilities for debt pensions and hope and so i would just say that in the immediate term certainly moody's is not looking at  your existing pension liability is quite aggressive compared to other communities that have stretched it out past twenty thirty or thirty five and a point where i think the plan always been that we would turn our resources towards our opel obligation adverse experience to show how you know first aid your savings and then eliminate the savings but a risk analysis would just take three you know three possible scenarios it would do thousands of possible outcomes at a side probabilities to them so you going to communities that have done this one of the other things that they'd have to wide some guidance on what the structuring of the debt would be because you know peter had to make assumptions that how the debt would be structured we had to make part of the discussions with them ok but that's another one of the big unknowns here we've we've kind of it focusing on investment risk is one of the big god knows but i think one of the other nodes here is how the whole structure how the how the bonds would be structured because you know the the brockton issue was a twenty twenty plus here you need to two thousand and four to twenty twenty so you know the longer that you no longer the time period you're working with the longer you know the more of a robust market cycle that you have you are likely to make your expected return over a longer period of time than you are over a shorter period of time but you also have more years of what you're paying interest so the difference in the interest rates is much more significant over a longer period of time so the you know we started off looking at this kind of within the framework of the the twenty twenty seven funding schedule other time in port currently has and that shortens the time period of what you're looking at that's really helpful and then as i understand the earlier you know i think an effort was learning from some bad experience of pension obligation bonds that were done in other parts of the country that were done specifically to mask the deficit current fiscal year and push things off or politically jeez i'm going to be out of office in a few years i don't care about having more money to be able to spend on services other than my pension appropriation so that the idea was an sure that you know because that legislatures will legislators right eye on them in terms of i wonder whether i mean do we need to do the risk analysis before we met with them because it might be helpful to get that edition with gather information on this issue to meet with them first and you have to do the risk analysis first need their support on the enable education things of that nature the my final question is on the scenario three that you painted where your bond pros your debt service is less than what you might run on those proceeds in the years i'm in which that isn't the case the five million bucks is numbers and he's forecasting same as a forty five million yet as i look at your scenario one which is if the return on our end or on the retirement of the bond proceeds meets the seven point seven five percent you are projecting savings of almost seventeen million which is very different than the forty five million yeah and and i don't i need longer that we've got twenty years and then the savings there in the in years you know i'm i'm going to say one more thing and then i'll be quiet the other thing that's interesting about this is the next thirteen years we're thinking about the high school the police station the d p w you know where is all that money coming from and i mean there is a cash flow concern here so if we can restructure this debt fix it go to the taxpayer and say look you know we have this issue that's going to suck hundred we already know it's going to suck one hundred twenty five million out over the next thirteen years if you let us restructure it this way within and i don't want to get into the open discussion now but i think we should begin to fund opeth and the savings that would come out during that thirteen years from not having to pay one hundred twenty five million would go to fund opap and then when you do you know ok well then what you do is what peter said if you're with me you do it under under under right right to to reach to to refund the savings if you're talking about doing an override and do no no you do a debt exclusion for the p o b you wouldn't do that is an override you do that is a debt exclusion you have to go to the you know the taxpayer and get permission to do that but then you don't have to make the scheduled amortization payments to the state pension or to the retirement fund because you've satisfied you see what i mean i think i well i don't know it was you that was the underwriter because i thought we were talking about if you if you just had a over an operating override and somebody said oh well that goes on forever and the the way to cure that act goes on for your every word we're getting lost here on it right but the point the point i'm making is that if you ran your schedule of schedule three and you showed the pension obligation bond payments for twenty years instead of thirteen zero during that thirteen years you in fact would reduce dramatically the cash outflow during that thirteen years just because you've rescheduled the majority ok jim i just want to raise one point we have an override that's going to kick in in january i know as we go to the taxpayers and request sixty million dollars debt explosion you don't think it's going to be hard to go back to the taxpayers and and request one hundred million to bond the construction of a high school well these these are the decisions that the three of us have to make and what what i'm not really selling a pension obligation bonds what i'm saying is that we know that the retirement board is responsible for their retirement fund they have to come to us and say ok what can you guys afford to pay we have this really aggressive using peter's own language aggressive amortization schedule i'm saying let's take advantage of the market let's put that obligation up twenty years because it took us you know twenty years to create it and then we can fund opap which is a different discussion but it's a similar structure and then and then we can do an under ride and pass the savings back for it or use it for the high school ok my last question ok we've heard risks associated with issuing pension obligation bonds and there's an investment dress there's a risk on how the bond is structured i think kathleen said in flexibility ok and you outlined those things our current we may realize some savings but we have to weigh those against the quantified risks which is the monte carlo simulation ok if we stay the way we are with our current payment stream which we can extend up to twenty forty do you see any risks to the town maybe there's a moody's risk maybe there is and i don't know i'm trying y dollar cost averaging it's either where we saw on the slides that it's both a risk or a benefit depending on when you hit the market and that's that sort of luck in terms of the that's the element of if you've invested all and then the market tanks you know a month later it's going to be much harder to make that a successful transaction if if you buy right at the bottom you're likely to get seventy is due in five years they don't have to put that in the open market you agree with that they can get it in a bond that page one percent a year in that at the end of the third at the end of the fifth year they'll have a thirty million dollars unless there's a credit risk on immolation and you have to you know figure all this stuff out it has to be modeled and right now we're you know we don't have those models to look at and also even though i think sammy is a great leader and a is precedented risk for the town and we need to do something about this and it's the retirement board you guys are over there and it's not their risk it's ours you know i'm willing to consider initial stuff additional stuff i that one of the yeah i'm just trying to get a sense of how solid our current strategy is and your expert opinions i said i think the biggest risk for the current strategy is the investment risk that you're going to have whether you issue approaching obligation bonds or you know if the market if there's a market correction your current funding schedule is going to increase and it's either it's going to have to be most likely adjusted in some better by pushing it out and if you have a correction that's going to eat into the potential savings of a penny of pension obligations so i guess our hope would be that if the markets were to crash like in two thousand and eight all other municipalities are many other would be in the same boat and hopefully but you know it's still in my mind and i know that through it's still twenty fifteen so you know a twenty year bond goes to twenty thirty five so we're within a range of it on a twenty year bond but again i'm not selling that as an option where i feel a desperate need to do i don't want you guys  think i'm desperate but i think we really need some expert advice on this and we need to engage somebody to do that you know peter talks to us every time we issue a bond we need to talk to somebody like peter cathy you know about what to do and  need to pay them for it and you know whatever it cost i think the last time i saw a couple the bond issues it was thirty grand i'm not saying that's the right number i'm just saying running up our fees if you're going to but we're also off our unfunded liability we will accept that check and i don't think that's a matter of debate or discussion so i can speaking for myself and for the board we'll take that check and we'll invest it and we'll and we'll see what happens with the markets in the in the in the liability little concern of the risk analysis is called monte carlo that's because that to me that to me means is you know the connotation of money column means you're up there at the roulette wheel and you're spinning around we have a legal obligation as your counsel has indicated in his in his opinion we are the we have the legal authority for setting the funding schedule   a valuation is considered to be a snapshot in time what's the situation look like in one one sixteen how of the how is the mortality table been how was the investment returns been how has the salary increases to town employees been where can we adjust our actuarial assumptions what is the long term investment outlook look like there are a number of factors that the board considers and arriving at a funding schedule before we would submit it to parent for approval and of course during our meetings and more recently of course we have received input from from the town and from the board we will continue to do that but as far as the decision whether or not to undertake pension obligation bonds or not that is a decision that soley in the hands of the board of selectmen and the other governmental agencies of the time  but in the absence of that directive or that working we have to continue under the statute to continue working on a funding schedule to get this funded unfunded liability off the back of the of the town in the base thank you thank you thank you why don't we move ahead and linda why don't you introduce yourself and tell us a little bit about what you do in your qualifications and we'd be happy to go through you first forty five came around so been working with these folks in the town for a number of years on this my first slide is my qualifications and introduction so i'll get to that but just a real quick really quick run through the agenda we're going to talk with the accounting standards of why we're doing all this we'll talk about the actuarial valuation you know how we get through what information we need we're going to go through a summary of some of the key results that come out of the valu public pension valuations and valuations we have done some actuarial audits of large state pension systems over the past couple years and we have a number most of our work actually done in massachusetts we have are the actuaries for about seven retirement system similar to the town about monster time and system and about half of that work and then the other half is mostly so we may have done this already in some past presentations just kind of going over what gadsby is nominate probably really go quickly through these slides considering the time and i'm sure you guys i know i've presented to a couple of you on this already but the current standards be forty five is really all about the other post employment benefits everything but what cathy riley and siegel does that's the pension benefits these are going to be anything promised to retirees in terms of retir medical dental life insurance those types of benefits gaspy forty five actually establishes standards to measure these liabilities recognize these liabilities the expenses for them and it really just an accounting standards that is the predominant reason why we do this valuation every other year we develop an expense called the in your required contribution it sounds kind of funding like but it really is  not it's not really required it's you know not really required contribution it's just the accountants kind of terminology on there in your expense and similarly to pensions that expense or the funding you know that's not really fun the expense calculation is made up of two components the normal cost similar concept like an pensions it's the value of the benefit earned by your current active employees in this current year and then there's always going to be an unfunded liability that's going to be developed based on not fully funding that liability so you will develop an unfunded liability and the gadsby allows us to amortize that unfunded liability over thirty years again gary forty five is all about disclosure disclosing information about the plan about any plan assets that may have been currently set aside for those against those liabilities and the liabilities currently gadsby forty five as written  is going to require in your financial statements the disclosure of something called the net obligation the netto peb obligation is the difference between the arc that in a required contribution that we're going to be calculating and any contributions that the town makes toward the benefits the town does make benefits even absent any assets that have been set aside or absent a trust they do contribute on behalf of their cour diaries a portion of the health insurance premium ok so then that difference between this arc and what they're contributing they're not controlling the full arc there will be a difference every year we're going to accumulate that difference and that's going to be your net zero publication if you aren't funding we tend to have to use lower discount rates that creates higher liabilities therefore hierarchs you're in essence probably going to be developing net zero publication because you're really not fully funding your arc all right again very important point to make is that as we forty five doesn't require funding the liabilities and actually this currently no statute in massachusetts or otherwise that would require the funding of those liabilities so again just reporting just reporting those liabilities different from retirement system as you know chapter thirty two requires the belmar charmers system is that we've discussed that the ceiling fully funded by tw forty this system is expected to be fully funded by two thousand and twenty seven there is no expectation on the open at this point as to when it would be fully funded except under maybe the gaspe forty five reporting type of calculations i mentioned earlier that ghastly forty fathers a new accounting standard that's going to actually replace the statement forty five and you know it's something big when the number doesn't get when things just don't get kind of amended they get replaced as the forty five will be affected effective for the plane the town's fiscal year ending june thirtieth twenty eighteen a new standard is coming on board gadsby seventy five and if you're familiar with what pensions just went through this year in terms of reporting the entire unfunded liability of the retirement system on to the financial statements gaspy seventy five is going to do the exact same thing for still maintains their same position that funding is really a policy decision for the government officials to term and they're not at all mandating any type of funding that's still up to to the towns or you know states and whatever but guess who seventy five is obviously a new accounting standard for for reflection in your financial statements ok so what we do every other year we develop a model we calculate liabilities all these things do you hear and read about we take census data plan provisions the we need to make certain assumptions regarding the economic outlook of the future demographic assumptions for future contingent events like retirement and such and we have some methods that we apply to these liabilities again the purpose of the valuations clearly stated in our reports and any other gaspy forty five are open report you'd read would be that you know the first purpose of that valuation is to provide you provide the town with gas be forty five like we quote me required financial statement disclosures it made might not be appropriate for the purposes because there are some sort of  methodology is that the gaspe makes us follow that might not be if you're trying to do you know cash flow type things or or a true benefit you know for cash it may be a little bit differences have to be careful about using gaspy forty five kind of calculations for other things again so there's some there's some compliance standards you know we don't just sort of go and work in our little office and throw all these numbers together and come up with something we are guided by a lot of principals the government accounting standards board they are the people who are responsible for creating the you know the accounting guidelines for when t and titties to apply to their financial reports so the standards are very clearly written there they're pretty robust they the gaspe produces implementation guides for the actuaries and others to of flow through and and and apply to the work that we do generally accepted accounting principles your auditors that come in and look at this work are going to make sure that all of their financial statement disclosures are done under these accounting principles and they have certain rules they need to follow that we comply with when we provide the information and as actuaries and a member of the american academy of actuaries we by paying  dues and and being members and being involved that does include a responsibility to comply with our code of conduct we have what's called actuarial standards of practice that kind of give us guidelines  on how to do some of these things because there really are a lot of variables that we need to consider that have great impact on these liabilities for calculating so to be able to follow the standards of practice is very important for an actuary  in the profession all right so just some real quick stats on some of the people that we include in valuation town provides us with all their active employees or retirees covered spouses here's the numbers as of our most recent  valuation we're looking at potentially eligible employees and it generally follows the same group of employees probably that are covered under your belt retirement system as well as the mass teachers retirement system remember teachers are not included in the belmont retirement system they are in massachusetts teachers retirement system but for those people are the responsibility of the town in terms of geisha and for their health insurance  insurance and all that so there is kind of a different group of people if you have a kind of looking at the two reports side by side you're probably going to say kathy forgot like four hundred people or something but it really is because we do include the teachers in our in our work plan provisions again to be eligible for these benefits generally pretty much mirrors the retirement system eligibility rules the health plans that are offered by the town for pretty medicare folks they usually are covered under the same plans that the active employees would be covered under and anyone who isn't medicare eligible is a small handful of those folks still around once they turn sixty five and are eligible for medicare and are retired the state law requires those medicare eligible or the retirees to elect that post sixty five like a medicare supplemental plan  retirees contribute between twenty and fifty percent of the health insurance premium one of the plans pre sixty five plans is that twenty percent piece the rest all of your supplemental plans are all split fifty fifty between town and retirees there is the law does say that no man is full entity if you've adopted these provisions of thirty two b can actually charge the rich hiring more than fifty percent so that's the plan provision that  is pretty much in place for every entity in massachusetts a very nominal life insurance policy also provided to retirees and the town was actually reimbursed fifty percent of the monthly medicare part b premium right now that you know fifty percent one hundred five dollars and then when retirees who do move onto a medicare supplemental plan if they don't do it on time and maybe they didn't before this law came into play there would have been as a penalty assessed to them by medicare and that sort of adverse selection they think you're waiting too long to to enroll we're going to penalize too by moving into these less expensive medicare supplemental plans the towns are to actually pick up that lead role and penalty very small group of those people and it's a declining group if you will we need to make some assumptions about the discount rate and the discount rate is pretty much prescribed by gadsby forty five in quotes that's what gets you forty five says it is the estimated long term investment yield on the investments that are expected to be used to finance these benefits well if you had zero assets set aside unlike the retirement system who does pay out the benefits that are when as there do every month if you had no assets set aside earning the seven and three quarters return you must pay out of the pounds general fun and that in you you know usually we call that the paid as you go beth it that's going to be kind of close to the rate of return on cash currently because again as the long term investment yield perspective we're looking somewhere around four  belmont in the middle or partially funded because one they do have a trust they are funding that trust you can then control your net zero zero publication a little bit but you also you know one of the good things about having a trust and starting to pre fund is that you can use a blended discount rate because again you will you know we anticipate that there is going to be more funds available to pay these benefits in the future and that's the blended rate so it's go  years but most importantly it allows the use of a higher discount rate now you're almost in the same par as retirement system they've got you know a large chunk of assets available to pay those benefits you've got an investment policy you are you know you're diversified because you've got enough assets to to start funding some of these benefits that therefore you're allowed to use that higher investment or discount rate and that's going to be more like in the retirement forward you know more where where they are at other some sense we need to make some about health care outside of retirement system in retirement system does not need to think about any of these assumptions inflate in the future all right so we look at kind of any are one we're looking at an eight percent increase in our premiums and following year would be seven percent so on and so forth until we get to an ultimate rate of five percent  these are based on one actually see go prepares a really nice study that we refer to often in the they're going to be looking at health cost and trends on those health costs are  doing so that's one of the things there are studies that are showing that if the old if you know if the ultimate rate was something much larger than five percent that healthcare would actually change take over the gross domestic product of the country so that's why we kind of look at a a reasonable you know short term kind of fluctuations in those rates and we kind of level it off to a little bit lower to other health care assumptions that are pretty important  participation rate is once somebody retires that's not one hundred percent guarantee unlike retirement that they're going to actually get a benefit maybe they don't want the benefit they might have a better benefit from a spouse who works somewhere else so we do kind of look at the the incidence of actually your current retirees who's actually electing coverage so that's important for our future projections and then kind of the next step of that so for the retiree who does elect to be covered will they also cover a spouse so we kind of look at the current population and that those are kind of difficult assumptions to nail down we don't have a whole lot of years of experience yet i mean two thousand and six really wasn't that long ago but we try to kind of monitor that and not make wild to changes to it from time to time but we monitor that pretty much every year and make recommendations if we feel like they need to be adjusted and then the demographic assumptions these are really actually kind of in line with what the belmont retirement system is doing and also mass teachers retirement system it makes sense this is the almost the same group of people that if siegel established a certain retirement rates for individuals that certain percentage of them of them retire at certain times that we would use the same assumptions they're going to retire and they're going to be eligible for both benefits and so we want to make them the same as siegel does on your general employees and public safety there are different retirement rates for those people because they have different benefits at different ages and then the teachers they are in a totally different retirement system altogether so we really  do establish these deck ruminants work that we call them based on an employee type and mortality has been the subject of many an actuarial round table whether or not to include this mortality improvement and that all that means is that people are living longer by generation and our actual standards of practice require that we reflect this mortality improvement for younger people as they as they move through move through the system so for retirement systems and health care systems these can be pretty impactful because the longer people live the more benefits will be paying out the results we are funding at a little bit blended discount rate four and a half percent we have been doing that since the prior evaluation in two thousand and twelve you will notice we have a pretty significant decrease in our liabilities going from one hundred ninety five million down to one hundred seventy two and in the next slide explain why some of those things happened obviously your assets you are funding annually so the assets will increase so as i mentioned we do have a pretty significant decrease in the unfunded liability our expected benefit payments that is the payments of the true cost of the health to provide health care in the next year so we're kind of status quo but there was been of there have been a lot of changes that have occurred that have brought that number down a little bit from prior evaluations and i think of i have a slide on those again the key to the forty forty five results are really that net open geisha in we aren't fully funding the arc so every year you will see an increase in that and right now as effective june thirtieth two thousand and fifteen we're at about an eighty two million dollars net things as with anything unfunded liabilities or even actual liabilities will increase in your early with if anything even if you had no active employees it will increase probably with interest but we are adding new employee benefits that are earned i should say benefits earned by the current years in the current year but we have a few gains demographic experience that just means you know maybe people  aren't living as long as we might have expected or there are fewer people electing the coverage than we expected almost a ten million dollar gain favor old favorable premium rates that's the one that is generally you're going to see some pretty wide fluctuations in that gain or loss and again unlike retirement systems where there are the majority of the gain loss there is probably going to be our investment return because we don't have a whole lot of assets there's not going to be a lot of theory of variation but in those premium rates at some cut times can be very difficult to predict what next year's renewals are going to be like so that's where you're probably going to see your largest gain or loss it was  i mean it could be that the focus is a least several years ago and think of my retirement the ark has always been paid because of that chapter thirty two requirement to fund the actually determine contribution so there's never been an net pension obligation for pensions i mean technically it's zero because in massachusetts you're required to fund what the actually determining contribution is but here most communities do not fully fund an arc so there is always an accumulation of that difference between the two because i'm pretty sure it is on the balance sheet david starting is had to go last there's of a few other things we did change some demographic assumptions and we have added what we call the cadillac tax whether it's going to be there you know in twenty eighteen or not in the news almost daily has to whether they're trying to eliminate it but we do estimate what we think that cost of going to be which is supposed to be forty percent of the excess of a certain value a certain threshold type plan it's the excess of any of that's kind of the first time implementation of it all right so this year as you can see we had almost forty seven million dollars gain from the prior valuation you know mainly due to a lot of good work on on your renewals i mean most of that was really your rates that were valuing because i mean that's the basis of this valuation is the rates every year we go with the most recent rates that are you know that are available to the retirees as well as the active employees that gets changed every single valuation that we do so in two thousand and twelve when the board is like in basic we reconstituted a reformulated the health plan offerings that basically is the residuals of those decisions made in two thousand and twelve in terms of changing health care plans for retirees that means the rates increase because remember the health care cost trend right where into supporting them to go up so if even flat rates if keeping the rates the same over a period of time that can create again as well all right so this is a start talking about a little bit then mr kale just mentioned that belmont implemented some cost saving changes the health plans in two thousand and twelve that's going to impact kind of where we begin the valuation process we need to come up with the cost the health costs to put into the model and project out those changes are going to make a big impact prior to the state law requiring medicare eligible retirees to go onto a medicare supplemental plan once they hit eligibility there was a section of the statute thirty two b that towns could elect to kind of force retirees onto this plans and they you know they had taken that action prior to that or say you took the action and retirees contribute the maximum allowed by law on those medicare supplemental plans a couple of years ago there was some pension reform and again because the same group of people were talking about pension benefits generally usually i would say are the the impetus for somebody to retire whether they have the required age or service requirements under pension for post april one two thousand and twelve hires people now need to wait a few more years to retire when that happens that sort of a kind of an automatic reduction a cost for open unlike retirement benefits that as you wait usually they go up  years of service no need to wait to sixty for full retirement the sixty five year olds now need to wait to sixty seven so delayed retirement as i mentioned you're generally reduce cost because the same benefit if you're fifty five or you're sixty four if you kill if you choose the h m o plan and you're a family plan you're both going to pretty much have the same coverage same everything which is a little bit different than retirement generally if you delay retirement yes you may have salary increases you may or in more service but if you tire the liabilities are going to be taking all of these cost saving and cost items and we need to apply certain assumptions on those cost and your democrat you know your your group of will be probably starting very late in two thousand and sixteen because we're really going to be doing in july one sixteen valuation we generally tend to do it and closer to the end of the fiscal year belmont established funding policy aside for open the contributions are based on that adopted contribution policy it allows us to again to use that slightly higher discount rate in the current balance in the open trust current as of one floyd to friday it's two point four million dollars so that's where we are at this point unlike a true funding policy the and it's been discussed the saving a number of times that the expectation is that once the belmont retirement system hit its full funding date in either twenty twenty seven twenty twenty eight the assumption would be to reallocate a portion of that appropriation again it was mentioned normal costs will continue forever so whatever is current was currently paid or projected to be paid at the end of the retirement system schedule would move into the open trust and when either of you need to is used to mention one of the other strategies that we're looking at is to basically currently we get reimbursed for medicare part d drug costs right so basically what that you do is lower your rate for for your health insurance because now you're basically using subsidy to lower your rates if we do that that in fact will have another controlling effect on a rope a blood abilit s talked a little bit about the new standard it's going to as retirement as you are now realizing just this year significantly changes the way you report the liabilities it will be effective june thirty twenty eight teens so in three years there is a new definition of expense there is this you know net obligations going away but now it really is going to be that accrued liability minus your market value of assets that would be reported on the employer's balance sheet the gaspe was a was a bit more prescribed in its assumptions and methods that we have to use they were kind of i want to say no not so firm on the blended discount rate and method of methodology to create that discount rate now it's there is a fine way to develop a blended discount rate and it's in essence if you've got so many assets available to pay for the next couple years of benefit payments you can use your long term investment return for that but as soon as those assets are projected to run out you will then need to go down and use a twenty year old high quality this lower discount rates increase liabilities and again the discount rate probably is going to be reduced based on the current amount of assets in there and the current funding policy  this is really just more information about the discount rate what i just said is you know that the aaa or the double a or higher general obligation bonds to to develop those discount rates first for systems that are much more fully funded there may be in maybe that do have a funding policy that would get all of those assets and that it would be predicted that the assets would never run out you would then be looking at your long term investment return rate for systems with zero assets it's pretty easy it's going to be the twenty year taxes and it's for the ones in the middle that do have some asset side to side that will be doing some additional calculations to figure out what that discount rate will  be so we provided some additional what we call a liability forecast our valuation report always includes one of these in there based on your current policy we would be just projecting out the liabilities we can you know we have a whole forecast of the expected benefit payments but then you know from that just like retirement you can kind of play around with how you think you might pay off that unfunded liability so right she's done different scenarios so basically four point one is the current funding schedule that's in the current then four point two basically  you were basically as in the current schedule we've basically you cannot use the higher discount rate until you meet the arc so basically what we're doing in four point two is we're showing that again as a strategy if in fact the unfunded liability for the pensions paid off in twenty four twenty seven those fourteen million dollars gets transferred to the old have appropriation and basically when you start to do that once you completely find your annual contribution you can use a higher discount rate and basically what this illustrates is that when you and you can show that on the first table four point one because you're not funding you contribution totally or you would be under this scenario in twenty twenty eight and then you can use a higher discount rate of seven point five percent and what that shows is by twenty forty five and thirty year schedule basically your twenty eight taking four point one table and basically understand omi we do it with return my resources from what i'm currently using to fund and under pension liability in twenty twenty eight now we can use a discount rate that's at twenty twenty eight you know has a whole lot of cover that i haven't enumerated here but things like having an investment policy having a contribution policy this concept as we create this arc is really under the guise p forty five methodology and again that's kind of going away but i think to illustrate that you know this the unfun the ability could be fully funded at some future date  worthwhile and that's going on the same or the current what we call in call nine opeth trust contributions is the over and beyond what you're already contributing for health insurance that's the current policy i mean we just i think it was more like you know will we'll start with two hundred fifty thousand and keep that level through the pension payment years and then change that over to the full arc and that would that fifteen million plus column three is the full  if you so if you look at column nine it's what is over and beyond call you know plus column three the expected benefit payments that we expect you're going to need about nine and a half million dollars out in two thousand and twenty eight to fund the health insurance the some of those two would be your arc so now the concept of fully funding the arc is has been met which is why we have and we come here with all the communities in fully funded in in funding in funding and  our policy and some terminal rubble i work with some aaa communities who are interested in fully funding the ark they may not be fully funding the ark at a seven and a half percent  but we've been able to increase the discount rate somewhat because of their funding policy i would say there are not a lot of communities that are probably more than twenty percent funded i mean there's one  few state systems who have significant assets as well i don't kathy in your experience do you i don't have too many that are well funded but i have a couple that have policies in place so they to full funding with these call in nine contributions we just can't we can't fully fund the liability for one so yeah so this is as we allows what's called an open amortization it sounds kind of funny but they allow you to amortize the unfunded liability over thirty years today but next year they let you in retires over thirty years again in the following year of thirty years again so you know you know that in your own mortgage you will never pay off that that mortgage if you keep refinancing it at thirty years similarly this concept that's why you won't see is near zero at the bottom that you still see an unfunded liability in column five of two hundred eighty seven million column one you see like reductions in both the accrued liability in the normal cost that's because we're now rerunning liabilities at the seven and a half percent discount rate we projected them out to what they would be a two thousand and twenty eight ok and put them there so that's four point two four point three is an additional current funding policy change that we would not only contribute the two hundred thousand dollars but we would through two thousand and twenty seven contribute an be sufficient to fully fund the unfunded in thirty years the chalkboard this is just the summary of sort of those results what can and cannot fully fun audience that gaspy is the government accounting standards standards board yes ok and the reason these expenses come about is we've made commitments to our employees and it's as if the amounts that you calculate for each year come about as a result of the matching concept is that true i'm not sure i understand the matching concept says that if you incur cost this year you should account for it this year so if you make a if you make a benefit commitment to somebody thirty years from now you commit you know you've committed to a liability of one thirtieth of that commitment that you made in the thirtieth year write the they are the gaspe concept of recognizing a an employee's future retiree benefit during their working lifetime is really that all it's based on what they earn year by year in the matching concept markel back me up on this that's where you record current expenses and current while it's in current period had be forty five create a situation where you know not only disability but also five employers had to recognize this obligation that was a true obligation right they said that on their active in retiree population but no the other point i think it's important to make is that this is kind of a leap of faith but i'm going to say it anyway if there wasn't concern about the credit worthiness of the municipality meaning the obligation they wouldn't there wouldn't be a requirement to fund the obligation fully and so what we're doing is we're we're going from a pay as you go system to a system where the entire obligation is fully funded yes i think that's the goal yeah too so sheet that's basically what's happening and that's what's happening on the pension side so you can't fight city hall and it's based on the matching concept which says that we've made a commitment here's how much it costs this year to do that you have to fund that but you also have to fund this additional amount so that in the future the obligation can be fully fully funded i wanted to ask you about your firm again just to clear the decks are  you so proprietorship or do you have a group of people working with you and the soul of the fire and then i'm not asking this because i don't trust you a but i'm i'm asking this because how do you audit your numbers i have a health care actually i work with report even though i only have one employee i work very closely with the health care act so it's checked twice then yes ok all right good thank you i just wanted to clear that back and then when you said in your presentation that it's up to the towns to figure out how to structure in fundus in belmont it's sammy mark and i were the ones who are responsible for recommending the strategy the warrant committee then reviews it and then town meeting town  it with regard to the auditors it's my understanding that they don't really check your numbers you know in and again i'm not saying that as a criticism or anything i'm just saying that that's how it works they don't check your numbers they rely on your credentials and they read lie on your presentation because that's what they say in the in the end you will report and i think that's a fair way to do it because otherwise you would require everybody to check everybody's numbers it doesn't make any sense but i just wanted to make that point and then when we referred to you or kathy or peter a financial advisor you're not really a financial advisor you don't see yourself i mean i think in your case  case you come before the board of selectmen every year and you do that with the pension fund too don't you kathy they actually were report so you will come and tell us the results but you don't tell us what to do guest and jim i refer to them as to figure out with all of our colleagues but the three of us are the ones who are responsible and then with regard to medicare i've talked to people who think that the entire employee base in opap goes on or any employee who was hired prior to nine hundred eighty six i believe who doesn't contribute the one point four five percent of your paycheck so basically if you you are yours if you have enough quarters and because your prior employment you basically paid into the sub we basically give you the supplement plan you have to go to medicare if your spouse is eligible for medicare you go to medicare so there's a very finite group of people who don't have quarters who never paid into medicare or they were hired by mr palin did not change in that misspelling prior to nine hundred eighty six they basically continue in the active plan so you're saying most most people in the pool are medicare eligible yeah ok so then that that is true th right and then when we get to if we can go back to those funding policies who's got the schedule for this could you go to the first one this this one is the one this one and that one and if i add up the the benefit payments and these payments we still have three hundred sixty eight million but we're short almost a quarter of a billion dollars yes yes and that's because over here the normal cost based on your projections is fifteen million and then the expected benefit payments is fifty six so that that's thirty five million dollars a year that we need to pay our health care expenses you add those two together no no if you're strictly pay as you go you would only contribute column three that every year yes ok and so then if you if you take this is run it four and a half percent right yes so if you take four and a half percent times seventeen at seventeen million you would need about what five percent to get that out of three hundred sixty eight million is that true you're saying five percent of those assets yeah that's almost that's almost it right so this this other again in this is explanatory what is the other quarter of a billion four is that for future benefits going going out budget and it doesn't end at the magical thirty years that it will continue and until you pay off the expected benefit payments will continue to increase and there will be more people replacing yeah  if we do it this way we end up with this this number will be throwing off four and a half percent but then we still have that unfunded liability that has to be paid yes ok so can we go to the next one when we go to the next one then which i think has compound interest and so then this one what happens here and i'm interested in seeing this because what one of the other things i'm worried about is that when we get out into these out years i don't think we're going to have fifteen million you know are that we're going to want to spend fifteen million a year against the opec obligation because if we can just somehow figure out how to put a modest amount against this in the early years we can cut that million down and basically allow almost eliminate the liability is what it amounts to and one of the things i worry about by not funding benefits that we're committed to and we should be providing for is that we're on some of the other schedules we're kicking the can down the road and i think you know there's always the end of the road and i think we're at the engine for a vote you know  i think belmont needs to begin to address these liabilities in such a way that we can eliminate them and restructure them and pay for them without condemning the community to pay fifteen million dollars a year  that you know i mean it made me maybe that's just a statement of mine you know maybe it can't be answered but but it's unclear to me you know when you have an obligation we get to fully recognize we know when three hundred forty eight communities in this state are not funding ok at this point any comments from the audience future ralph jones chair of the o o f study group and i'm here with jeff libby and who's also a member of our committee and i don't know anybody else we are going to prepare an interim report by december thirty first but we have more work to do i guess the only thing i would comment on the seedling and i think it's consistent with what mr cales been saying is that remember that forty nine million dollars savings that appeared because our premiums have been flat for five years as a result of changes we've made in our health plans the difference between pension and opana is that opec is manageable we defined what our obligation is and we can change our obligation in terms of our health costs we can change our obligation in terms of eligibility over time it's not like the pension that set up by the state so i think it's a manageable expense and what we're going to be presenting are some options that the town can use to try to control those costs ok thank you then and then i guess you know from here i think what we've learned is we need some additional information and it's ok and and  you know i thank the three of you i thank our staff mr carmine for all the hard work that went into preparing these presentations and our packet of materials and in attempting to answer some of the  administrators report ok there will be non board of selectmen committee liaison reports there will be none and we will have a executive session but we will not come back on camera after the executive session the spirited gourmet for forty eight common street the loading dock eleven brighton street to hear a motion for approval all in favor of wine and beer retail craft beer cellar fifty one temporary entertainment if you can be individual event eventually event so what this is this is a new and this is probably our first annual entertainment license and i am i correct i believe so ok well other than them other than the  studio cinema other than the studio cinema so he won't have to come to us for every event as long as he only does the vents and he's got his license for if there's an additional life and basically it's outlined his application but if if it's something other than what's listed he'll come back for an that's something you can provide i can you know there's a school committee meeting tonight i don't know what that but will be minimal high school school committee meeting tonight and they can be helpful to at least report out a welcome so if you want we can put it on the agenda as well i think we need to have that ok we are now in executive session and we will not be coming back on life camera thank you