VBT audit discussion centers on retiree healthcare liabilities

Plante Moran presented the 2018 annual audit of all governmental funds to the Van Buren Township Board of Trustees at its regular meeting June 18. The audit received the highest rating, an unmodified opinion, and was accepted by the board.
The audit showed about $16 million in revenue in 2018, a $95,000 increase from 2017. There was $2.2 million in public safety revenue and $2.6 million in revenue sharing, an increase in construction revenue and decrease in using landfill funds.
Expenditures were $16.5 million, which is a $2.5 million increase from 2017, with 57% spent for the public safety department. The fund balance was $440,000 less than the previous year at $7.5 million, $4.7 million of that unassigned.
The township changed accounting practices as required by GASB No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other than Pensions.” (OPEB)
Plante Moran reported that in 2016, the pension was 68% funded; in 2017, 73% funded; and in 2018 it was 79% funded.
The OPEB (healthcare for retirees) was funded at 6% in 2016; 11% in 2017, and 13% in 2018.
“It’s a big liability,” said David Helisek of Plante Moran. He said at the close of the audit year on Dec. 31, 2017, the unfunded liability was $20 million.
He said this is the difference between what’s funded and what’s ultimately owed.
“You’re starting to put money aside,” Helisek said. “That’s a focus and should be a focus.”
He said Plante Moran will be happy to assist the township in thinking through alternative ways to manage this liability.
In discussing the liabilities, Supervisor Kevin McNamara said a new state law requires 40% funding and, “We put $1.5 million in a locked-down fund for this.” He said there is $12.5 million in a long-term debt fund that can be tapped.
“You need 40% or a corrective action plan,” Supervisor McNamara said. “The state accepted and considers us at 40%.”
Trustee Reggie Miller said, “We were triggered, yes, we were. The healthcare funding went from 6% to 13%, but it’s still under funded. We need goals to get this up.”
She said VBT was on the list of those being triggered and VBT submitted a corrections plan and that satisfied it for today, but the plan was not specified for the future. “We need to fix it,” she said.
“This is facing a lot of institutions and they are changing their giving of full healthcare,” said Trustee Sherry Frazier.
“We have employees pay 10% of benefits, while state demands 20%. We don’t want to have them pay 20% because we feel we have a great staff,” Trustee Frazier said.
“Some of that is correct,” said Clerk Leon Wright. “OPEB is what we would have to pay if everyone walked out the door tomorrow. We would owe $20 million in health care.” But, he pointed out, the township has a health care program that is saving it $500,000 a year because of the plan versus what the township would get with 20%, which is $394,000.
“I cannot understand to save my life why other townships and cities and schools don’t do the same,” Frazier said.
“It will be a main part of our budget talks,” Supervisor McNamara said. “Right now we are actually in pretty good shape. I would not suggest 100%. It [the cost] varies yearly.”
Helisek said VBT was triggered, but it said this is what we’re doing and they got a waiver.
Helisek said it is not $20 million due tomorrow, but an estimate in the future. He said up to 10 years ago, this liability wasn’t included in the audit statement.
“The state did the right thing, knowing what happened to Detroit, with unfunded pensions and healthcare,” said Clerk Wright. “We have $360,000 in health care costs and as long as we can pay that, we’re doing great.” He said $5 million has been put away to pay this.
He said the discussion gives a false sense that the sky is falling and it’s not falling. The township pays the yearly cost and puts money aside.
Frazier said that there is $19 million owed on the Visteon bonds and you never know how long the landfill will be there.
“Wayne had to cut police and cut health care,” Frazier said. McLouth Steel, GM, Ford Motor Co. had to cut, as well. “I’d like to be more aggressive in putting money aside.”
Miller asked how the township knows how much is owed, and Helisek said it’s an actuarial determination.
Helisek said the township levies 6.6 mills in property tax and 5.7 of that is public safety. This year the township paid $7.5 million for police and fire.
McNamara asked how much of a rainy day fund is recommended for townships.
“You’re at 1 mill,” Helisek said. “You’re limited to taxes and state sales revenue. The township’s ability to raise revenue is not as easy as a city, which can levy 18-20 mills, he said.
He said generally 15% fund balance is recommended, but townships have to be more careful. There were the downturns in 2007, 8, and 9, and the ability to recoup and gain revenue that was lost is limited. There’s a lot of moving parts, he said.
McNamara said VBT has $20 million, $7.5 plus $12 million — “That’s pretty good. We’re pretty fluid,” he said, noting that money can go where it’s needed.
“We were triggered,” Frazier said of the state requiring a corrective action for OPEB. “Trustee Miller said we were triggered. She showed me the letter.”
McNamara said he got a letter that said quite the opposite.
“We weren’t triggered,” McNamara insisted.
“Yes, we were,” Miller said.
Helisek stood quietly and made no comment.
“We were triggered, but let’s talk about the good,” Miller said. “We’re doing good and that can change. We will have a discussion on this during budget time.”
Clerk Wright pointed out the budget and audit was available to the public on the website. He said everyone should feel free to call the treasurer’s office or the clerk’s office with questions.