DLS CIty & Town

Lagging the List

Investment Return Assumption

A system’s ARR is a major component in a retirement system’s projected asset growth because of the importance of investment earnings to the system. The ARR is chosen by the retirement system and should represent the long-term rate of return based upon a retirement system’s investment policy.

The current list shows that no system has reported an ARR greater than Plymouth County’s at 7.88%, with the lowest in Leominster at 5.5%. Thirty systems reported an ARR of 7.5% to 7.75%. The group median is 7.35%.

Funding Schedule

Each system must amortize its UAL by a fiscal year of its choosing, but no later than by FY2040 per State law. A system’s UAL is the difference between its projected future pension costs, demographic and economic events and the value of its invested assets. Projecting these costs and values requires an actuarial review that includes many factors.

PERAC’s FY2018 Annual Report, its most current annual report, shows the unfunded liability for the 99 municipal systems is over $16.4 billion (over $57.7 billion when including all systems within PERAC’s oversight).

The following graph illustrates when all 99 systems reportedly will reach full funding. Note that as of 1/1/2020, only three systems, (Leominster, Shrewsbury and Watertown) are expected to be fully funded prior to FY2024 and that FY2035 is the most common date. Marblehead is the last municipal system scheduled for full funding in FY2039.

Change from One Year Ago

When comparing PERAC’s most recent list to its 1/1/2019 list, only 40 of the 99 municipal systems updated their valuation. If a system’s valuation was not updated, there is no change to the information listed. The following analysis, then, reviews the 40 systems reporting new information.

Of these 40 systems, 34 updated their valuations to 1/1/2019, six from 1/1/2018 and 28 from 1/1/2017. The remaining six systems updated their valuations to 1/1/2018, one from 1/1/2017 and five from 1/1/2016. For comparison, this analysis will review these systems by their consistent valuation date.

Valuations as of January 1, 2019

Seen as a group, funded ratios increased and ARRs decreased in most cases, but no ARR was increased. There was no change to funding schedules in most systems, but 10 systems did push their schedules forward and only one back.

Seen individually, Swampscott increased its funded ratio the greatest from 53.5% to 59.6%, and Gardner decreased its ARR the greatest from 7.75% to 7.25%. Dedham extended its funding schedule the longest from 2021 to 2030 and only Gardner reduced its funding schedule from 2034 to 2032.

Valuations as of January 1, 2018

Seen as a group, funded ratios increased and ARRs decreased in most cases, but no ARR was increased. There was no change to funding schedules in most systems, but one system pushed its schedule forward and one system pushed it back.

Seen individually, Leominster increased its funded ration the greatest from 90.1% to 99.7%, and four systems decreased their ARR from 7.75% to 7.25%. Only Quincy extended its funding schedule from 2036 to 2037 and only Leominster reduced its funding schedule from 2021 to 2020.

Final Thoughts

The information reported by systems in PERAC’s 1/1/2020 list reflect improvement and conservative thinking. Words of caution, also, need be said.

Although the overall median of funded ratios for municipal systems increased only slightly over last year, 24 systems reported an increase. The value of assets and their investment earnings are major factors in a funded ratio. An asset portfolio dependent upon the capital markets always carries a risk of value and revenue loss which then negatively affects the system’s funded ratio.

Most systems opted a conservative approach to reduce their ARR. In early 2000, almost every system had an ARR of 8% or greater. Reductions in ARRs by Massachusetts municipal systems have followed a similar nationwide trend by other retirement systems taking into consideration capital market conditions and local option for more conservative assumptions.

As a caution, when the UAL reaches $0, the system is said to be fully funded after which appropriations are only required to cover the Normal Cost, costs that represent a portion of the Actuarial Present Value of pension plan benefits to be paid in a single fiscal year. However, full funding status is not guaranteed. Actuarial and investment losses, changes in plan provisions, and/or assumption changes can increase UAL, or even return a fully funded system to partial funding status.

Please click this link to see PERAC’s complete list of Retirement Boards by Funded Ratio.

Ask DLS: Community Preservation Act - Part 3

This month's Ask DLS features Part 3 of frequently asked questions concerning the Community Preservation Act. Additional questions about the CPA will be featured in future editions of City & Town. For Part 2 of the series, see the February 6, 2020 edition of City & Town. For additional information on the Community Preservation Act, see Informational Guideline Release (IGR) 19-14. Please let us know if you have other areas of interest or send a question to cityandtown@dor.state.ma.us. We would like to hear from you.

What is the effective date of acceptance?

The effective date of acceptance will be:

A.) The next (or later) fiscal year following the election as expressly stated in the vote.

B.) The next fiscal year following the election if the vote does not express an effective date.

C.) The current fiscal year of the election if:

1. Expressly stated in the vote and

2. The tax rate has not been set at the time of the vote.

Are there any reporting requirements after acceptance?

Yes. A city or town must notify the DLS Data Analytics and Resources Bureau (DARB) unit within 30 days of acceptance. See Notification of Acceptance webpage for acceptance form.

Are there other reporting requirements?

Yes. Community preservation communities are required to submit information regarding the CP Fund annually as follows:

A.) Form CP-1, “Community Preservation Surcharge Report,” submitted via the DLS Gateway System under Miscellaneous Forms, Year End Accounting, to the DLS Data Analytics and Resources Bureau (DARB) by September 15. This form must be submitted by the due date to receive distribution from the State Trust Fund.

B.) Form CP-2, “Community Preservation Fund Report,” submitted via the DLS Gateway System under Miscellaneous Forms, Year End Accounting, to the Bureau of Accounts by October 31.

C.) Schedule A-4, “Community Preservation Fund, Chapter 44B,” submitted via the DLS Gateway System under Taxrate, Tax Rate – BOA, to the Bureau of Accounts.

D.) Part 3, Special Revenue Funds, “Schedule A,” submitted via the DLS Gateway System under Schedule A, to the Bureau of Accounts.

E.) Form CP-3, “Community Preservation Initiatives Report,” to the EOEEA by September 15. The Form CP-3 is available from Mass GIS after entering your community’s password provided by DARB. (Note that under G.L. c. 44, §55C(a),(c)(1), a municipal affordable housing trust is required to expend any CP funds it receives exclusively for allowable CP community housing purposes under G.L. c. 44B, § 5(b)(2), account for such funds separately and, at the end of the fiscal year, report the expenditure of such funds to the CPC for inclusion in the Form CP-3.)

Can a city or town amend its acceptance of the CPA?

Yes. The surcharge rate and exemptions may be amended. G.L. c.44B, § 16(a). A surcharge rate or exemption must be in effect for at least one fiscal year before it can be amended. Amendment is by majority vote of the legislative body and by referendum.

If a city or town has accepted the CPA under G.L. c. 44B, § 3(b) (traditional CPA) and wishes to appropriate additional municipal revenue to the CP fund, it must use the amended acceptance process under G.L. c.44B, § 16(a) and adopt the alternative funding provision set forth in G.L. c 44B, § 3(b½) (blended CPA). See Part 1 of this FAQ series published in the January 9, 2020 issue of City & Town for an explanation of “traditional” and “blended” CPA.

An amendment referendum question should be in a form similar to the CPA acceptance referendum question after approval by the legislative body and must include a fair and concise summary prepared by the city solicitor or town counsel printed below the question.

When is the amendment effective date?

The effective date of the amendment is determined in the same manner as the effective date of the original acceptance. See first FAQ above.

Can a city or town revoke its acceptance of the CPA?

Yes, acceptance may be revoked, but the city or town must wait until at least five years after the referendum passes to do so. Revocation is in the same manner as acceptance. If the city or town accepted G.L. c. 44B, §§ 3-7 by majority vote of the legislative body and by referendum, revocation is by majority vote of the legislative body and by referendum. If the acceptance was by petition under G.L. c. 44B, § 3(h) then revocation is by petition. The effective date of the revocation is determined in the same manner as the effective date of original acceptance and amendments. The surcharge continues to be assessed, however, until all obligations incurred and funded by the city or town from the CP fund revenues are paid. G.L. c. 44B, § 16(b).

Both revocation and surcharge amendment questions may be presented at the same election. If both are approved, the CPA is revoked but the amended rate applies to any surcharges that must be assessed to wind down the fund. If the revocation is rejected, but the amendment approved, the amended rate applies to future surcharges.

Stay tuned for next month’s City & Town for Part 4 in our FAQ series on the CPA. For more information, see Informational Guideline Release (IGR) 19-14.

Data Highlight of the Month: Enterprise Fund Retained Earnings

Donnette Benvenuto - DLS Municipal Databank

Category 1 of the Municipal Finance Trend Dashboard contains 15 different Operating Position trends. This month's Data Highlight will focus on Enterprise Fund Retained Earnings, as authorized by MGL c. 44 § 53F½. Enterprise funds provide a for systematic accounting of revenues generated by user fees to provide a service, for example water and sewer services. This chart shows the total amount of Enterprise Fund Free Cash, also known as retained earnings, as a percent of the total enterprise fund.

Our dashboard pulls this data dynamically from the DLS Gateway application, and shows a chart with 5 years of data by municipality, or you can download the 351 report to see all communities back to FY2010. You can find the Municipal Finance Trend Dashboard on the Data Analytics pages.

For more information or help using any of these reports, contact us directly at databank@dor.state.ma.us or (617) 626-2384.

RMV Excise Update March 2020

Joan Valley - ATLAS Business Lead

“RUN 2” Update

The excise tax commitment file link for RUN 2 will be emailed to assessors on March 13, 2020. The file can be accessed and downloaded by clicking on the link within the email or logging in directly to MOVEit here: https://transfer.massdot.state.ma.us.

Information Online – Excise Summary Report

The Excise Summary Report will be available to all assessors and be posted after each RUN on the Excise Tax Commitments Program page of the RMV Business Partner Communications Website; click on Technical Information for the Summary.

The Excise Summary Report includes the following information:

• City/Town Code

• Description (Name of City/Town)

• Begin Bill Number

• Ending Bill Number

• Total Bills

• Excise Tax

• Vehicle Tax

Note: The Technical Information page is a secure area within the site and requires a login to access. If you do not have a login, email ATLAS.municipalities@DOT.state.ma.us.

Recommitments

As of March 12, 2020:

• Recommitments from 2019 may not be submitted through the business portal; assessors must submit recommitments using their department’s manual process.

• Recommitments from 2020 will continue to be accepted through the business portal

Calculating the Excise Tax Bill to the Nearest Penny

The RMV continues to receive questions about calculating the excise tax bill. It’s important to note after consulting with the DOR, the RMV is calculating the excise tax to the nearest penny.

This information was presented to assessors in a webinar on August 29, 2019 (See slides 6 and 7) and discussed again in the webinar on January 23, 2020 (See slide 4).

Business Portal – Have you signed up?

The business portal offers assessors at no cost a quick and reliable way to conduct business with the RMV. Work more efficiently and join the fast-growing list of assessors who are using the portal. Sign up now by sending an email to RMVBusinessPartners@DOT.state.ma.us.

Questions for the RMV

All webinars and associated questions and answers, documents, information, and training support can be found toward the bottom of the page here Business Partner Website.