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When leadership counts, where is it?

Post-retirement benefits, sick leave and other payouts costing tax-payers millions
By Shekar Chandrashekar

It is costing the City of Hamilton and its taxpayers millions of dollars to pay out post-retirement benefits and accumulated sick leave when employees retire each year. It will cost many millions more in the near future.

Post-retirement benefits refer to the cost of life insurance and health and dental plans which, under negotiated contracts, the city continues to pay even after an employee retires until he or she reaches the age of 65. Post-retirement benefits cost the Hamilton Police Service $2.4 million in 2012 and $2.3 million in 2011. Cost to the city fire department was $1.3 million in 2012 and $1.2 million in 2011. The city spent another $4 million in 2012 and $4.1 million in 2011, which includes HSR and other departments, but not the Hamilton Public Library and the police and fire payouts mentioned above.

With respect to accumulated sick leave, the police service paid retirees $1.4 million in 2012 and $1.3 million in 2011. The fire department paid retirees $807,000 in 2012 and $890,000 in 2011 for accumulated sick leave. It is important to note that both police and fire employees accumulate their sick bank at a historical rate of pay, that is, when earned. But it is paid out at the rate of pay that the individual is earning at the time of retirement; normally the highest rate in the individual’s career, which makes the payout even more costly.

Even more serious is the liability for future payouts for accumulated sick leave, accrued vacation pay, accrued pensions, Workplace Safety and Insurance Board payouts and retiree benefits. In 2012, the consolidated actuarial valuation of these liabilities was $326 million, and in 2011, the valuation was $313 million.

The time is right to discontinue payouts for post-retirement benefits and accumulated sick leave.

It is a great concern because there is no fund set up to cover these future liabilities. Although there are footnote references each year in the financial statements concerning these unfunded liabilities they do not adequately disclose the dire financial implications to the city.

For an outsider, it is very difficult to measure the accuracy of financial information when this data is not adequately disclosed. The city’s auditing, accounting and administration committee approves the financial statements each year, yet they have either failed to understand or plainly ignored the gravity of this liability and have not brought it to the council floor to discuss it.

Municipalities across Ontario are faced with a similar financial burden, but there are municipalities that are being proactive: For example Toronto, Ottawa and Guelph, which are tackling the issue before the tsunami hits.

There are also municipalities, albeit in the United States, that are going bankrupt, such as the City of Detroit, or having their credit rating drop to a negative figure, such as the City of Chicago.

Has the City of Hamilton considered taking action to relieve the taxpayers’ future burden? Either the external auditors or an individual skilled at communicating financial implications is needed to inform council of the seriousness of the need to fund these commitments.

The deputy fire chief confirmed that the fire department does not charge either of these costs to the current operating budget. If this is the case, isn’t the fire budget understated? Some city councillors are critical of the police budget, but silent on the fire budget. There should be equal concern for both.

If police Chief Glenn De Caire had received sound financial and accounting advice through either internal or external channels, he would have been able to avoid the budget catastrophe. The chief was unable to make use of the healthy financial reserves available to him. Instead, he continued to build up pressure on the current operating budget, which resulted in the calamity which will have implications going into 2014.

The time is right to discontinue payouts for post-retirement benefits and accumulated sick leave. Existing negotiated agreements must be fulfilled, but changes must be accomplished through future negotiations or, if that is unsuccessful, then through appeal to the province.

Taxpayers are represented by two levels of leadership: the Police Services Board and city council. Although the police and fire associations are powerful and intimidating, standing up to those challenges is to be expected of our leadership.

City leadership is a different tale altogether. The chorus sung at city hall is “spend, spend, spend!” Example: Monitoring illegal dumping, from which the city recovered only $7,200 after spending $115,000. Is that a good investment return?

It took a month and a half for the police service to inform me that I have to go through freedom of information requests to obtain costs. It is public information so why does a taxpayer have to go take the route of freedom of information? Actual costs should be disclosed on their website along with budgeted amounts or in their quarterly report to the Police Services Board.

In this turbulent time of economic austerity and high unemployment, taxpayers need to demand a leadership that will keep taxpayers’ interest as top priority. I lament that is in peril.

Shekar Chandrashekar has lived in Hamilton for more than 50 years. For more than 34 years, he worked in local government.

7 comments to When leadership counts, where is it?

  • The 2010 retirement costs were the highest in more than five years. The second-largest annual payout during that time came in 2007, when the city spent $6.8 million in terminal leave, a common term for accumulated sick and vacation days. Those payments were caused by the retirements of 32 firefighters and 58 police officers in late 2006, a mass exodus prompted by cuts to retirement health benefits. In 2008 and 2009, the city paid out less than $2 million annually.

  • brian steel

    What complete and utter nonsense. You obviously have no actual knowledge about how these items are funded or who is liable.
    Perhaps you should stop using bill tufts as a source (everyone else has) and go speak with actual experts who can explain the facts to you!
    Reaaly, is this article serious? If sp, shame on you for deliberate attempt to deceive.

  • Malcolm Buchanan

    Disagree with the argument put forward by Shekar Chandrasheker.Mean spirited in both tone and implication. If there is a problem regarding the lack of funding for post retirement benefits and accumulated sick leave then thats a problem for management. There should have been a fund specially set up to deal with future liabilities. Its not the fault of the union representing the City employees.
    The reason that municipalities have gotten themselves into the future liabilities mess is because they have not set up the proper budgets and accounts to deal with these negotiated arrangements. Shame on them.

    The author is echoing the opinions of those who do not have these benefits therefore, if I don’t have them, you can’t have them.

  • Deon

    Transparancy should be the slogan right along with “freedom of information”. Your article hits a few nails on the head but as always I am sure there will be a lot of negative feedback disecting individual comments/arguments instead of looking at the larger message intended by the article. It is about time we put al the civil service workers and their contracts under a magnifying glass the same way the teachers agreements were scrutinized.
    Thank you for fighting to bring transparency to our local financials…

  • Jayne

    Many good points are made in this article which deals with highly complex budgets, decision-making process and methods of accountability and disclosure.

    Everyone should be concerned that these costs are out of control. While so many at the bottom of earnings are increasingly struggling to make ends meet, are being taxed to higher degree than others and expected to have little or no desire for better remuneration those in the Cities employ seem to have no restraint. The city claims it does not wish to increase the burden on tax payers. We know that renters pay a higher amount through costs passed on by landlords – again the poor paying more. The City is showing no understanding of the growing gap between those who have and continue to get and those who are falling behind. Leadership on such inequality is very much needed and not the easy route of blame that lowers our standards of care as a community and promotes poor bashing.

    As for the committees with citizen appointees it is time to ensure they understand their role is speak up and ask questions in the interests of citizens. Too many think their role is to gain popularity and favors by making easy decisions to follow what those with power and authority want. Again leaders are required that have the interest of all citizens in mind.

  • erintheoptimist

    Correct me if I’m wrong, but it seems to me that these post-retirement benefits were negotiated in good faith with the unions involved. That makes them just as much a part of an employee’s compensation package as the pay cheque they receive every two weeks. It’s not okay to claw back someone’s earned benefits, that is, the pay they were entitled to for their work. It’s even less okay to do it after they’ve already retired or when they’re about to retire.

    The employer should be factoring these items into the budget and should have a fund for them. If they wish to reduce these funds, they can start bargaining to reduce them for future retirees. But to claw them back from current retirees is theft, plain and simple.

  • georgetherealist

    to Erintheoptimist re: post-retirement benefits negotiated in good faith
    While it is true that retirement benefits with public workers were negotiated this does not make these benefits fair or just when looked at from the taxpayer’s perspective. Were the taxpayers part of these negotiations? Yes, they were represented by their elected and non elected government officials. But wait.. Don’t they benefit from the same public / taxpayer pension setup? Many pay in, few benefit and leaders in the pension industry are openly admitting it’s not sustainable. Sounds a bit like a Ponzi scheme Why are so few benefiting from such perks as matching taxpayer / employee pension contributions? How can you justify a few taxpayers (public or can we can just say taxpayer) employees getting such payments? Let’s take all the money put in public (taxpayer) pension funds and spread it equally among all the taxpayers. Down through history many ‘agreements’ have been negotiated. Slavery, racial segregation and colonial conquest to name a few. The problem with these negotiations is that the people who are hurt the most by these agreements are not involved in these good faith negotiations.

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