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.