Outsourced Human Resource Services Information Center

Monthly Archives: November 2013

Solution for Municipal Debt Crisis

dollarThe municipal debt crisis that long term unfunded liabilities for retired employee benefits accumulate and become impractical to fund. For years the problem has been pushed under the rug and left for future administrations to address. This failure to react has spiraled to a crisis that has to be addressed now.

A proposed solution for addressing long term liabilities for administrative municipal employees is to take them off the municipal payroll and arrange to contract them through a private firm. This approach has the following benefits:

* A private firm is free of political considerations and can better react to business and economic conditions, thereby creating efficiency in handling employee benefit costs and salaries.

* The private firm is assuming liabilities of employment from the municipality.

* A private human resource firm is specialized in handling employee benefits and administration. This specialization enables them to better skilled and positioned to deal with the problems specific to employee administration, freeing the municipality to do what they do best…serving the public.

* Moving their employees to a private firm allows an opportunity to stop providing long term unfunded benefits.

* While off loading human resource administration and employment to the outsourced human resource company, the municipality still retains operational control over the employee.

This proposed solution gives the municipality a way out while minimizing political fallout.

Curtis G. Tuck, II, Financial Analyst and President, CDS, Inc.

Why Cities and Counties Are Going Broke: Under Funded and Unfunded Liabilities

unfunded-municipality-liabilitiesMunicipalities’ Challenge

Drastic increases in retirement costs and retiree healthcare expenses for employees are a key issue that municipalities are now having to address. Unexpected increases from Defined Benefit Plans have caused companies and organizations to abandon these plans and go solely to a Defined Contribution plan.When Social Security costs are included, municipality payments for retirement benefits are actually over 20%.The average retirement plan for most industries is designed to be between 5% to 6% plus Social Security. Along with more than the double retirement costs (outside of Social Security) of today’s market, the significant cost of funding the post employee health benefits account has now become a tremendous financial burden that threatens the fiscal soundnessof every county and city in the Carolinas. Loss of financial confidence, forced headcount reduction and reduction in services to taxpayers are all likely results of the resulting financial squeeze. Currently, the political and economic climate makes it very difficult for municipalities to increase their tax base revenue to try to keep up with yearly increasing costs of employees that do not directly serve the public.

Curtis G. Tuck, II, Financial Analyst and President, CDS, Inc.