Commentary

Innovators in Action: Swampscott, MA Selectman Barry Greenfield on Breaking the State’s Control of Municipal Pensions in Massachusetts

In Massachusetts, the state mandates the types of retirement benefits that municipal governments provide to employees, effectively precluding local governments from having full control of their fiscal destiny. As unfunded pension and retiree healthcare obligations continue to mount in local governments in Massachusetts-as across the country-at least one town is trying to end the state’s grip on local governments and give them the ability to pursue their own tailored, financially sustainable retiree benefit reforms.

The push for local control is being driven by Barry Greenfield, a selectman in Swampscott, Massachusetts and the founder and publisher of EfficientGov.com, a publication aimed at spreading public policy innovations. Greenfield has led the push to build a coalition of Massachusetts cities and towns-all of which have unfunded retiree benefit obligations-to build support for legislation that would give local governments the power to determine retirement benefits, rather than having the state mandate what municipalities provide.

Swampscott offers an illustrative example of the challenge local governments face. The town of 13,700 people has an unfunded liability of approximately $38 million dollars, and current pension costs account for close to 10% of the town’s budget. Worse, the town faces an $80 million unfunded liability in retiree healthcare. Together, retiree pension and healthcare benefits are currently consuming almost 20 percent of the town’s annual budget.

In our latest interview in the Innovators in Action 2013 series, I interview Greenfield on his efforts to give local governments the power to determine public employment retirement benefits in Massachusetts, getting the state out of a key aspect of municipal decisionmaking. Here’s a brief excerpt of the interview:

Leonard Gilroy, Reason Foundation: Can you describe what prompted you to launch your current pension reform initiative?

Barry Greenfield, Town of Swampscott, MA Selectman: My town, Swampscott, is involved in a state-run public employee pension plan-a mandated retirement system that we pay the cost for, but which is overseen by the state. This plan covers public employees and teachers as well. It’s a defined-benefit plan where the retirement benefits for your pension are based on years of service, a multiplier that’s based on what type of employee you are, and what age you retire, in addition to employee contributions and investment return. The town contributes to those retirement benefits primarily through property taxes. A similar state-run system dictates OPEB [other post-employment benefits] like retiree healthcare benefits as well.

What’s happened over the years is that when they first implemented this program-which I believe was in 1911-the number of active employees to retired employees was at least 40-to-1. And that’s what most of these plans were designed on-a high level of active employees with relatively few retired employees. But over time, as the country has aged and people have aged, we in Swampscott are now down to a 1-to-1 ratio.

Most pension experts-and by that I mean academics, as you’ll get different answers from the actuaries involved in the state-run pension system-will tell you that the research has shown that once you get to a 5-to-1 ratio of active to retired employees, you’re really heading for trouble because you just don’t have enough new active employees paying contributions into the system to keep it afloat. There’s a myth that each employee contributes enough to pay for their own pension. Even when you add the projected investment return, the numbers simply don’t add up.

We’re at a 1-to-1 ratio in Swampscott, and it’s only going to get worse, because we have an aging workforce. If you look at the age of our municipal employees, they’ve all been working for 10 to 15 years and there are very few new employees coming into the system. People are working longer because the longer they stay working, the better the pension and OPEB benefits are.

So what I started reading and writing about in other states is what I would describe as the ability of cities to take control of their pension issues and realize that they’re unsustainable, as city and town services are falling by the wayside simply to fund retirement benefits. So what you’re seeing is that property taxes are rising-mine have gone up 50% in six years-but the services in the town have not improved. Almost all of that money has gone to pension or OPEB benefits.

[. . .]

This April, the town will be voting on a home rule petition that says we should have the freedom to decide what retirement benefits are a fit for our financial situation. The reality is that each town is not identical in terms of its fiscal footprint. We’re a small town trying to offer city-like services with few prospects for regionalization. It’s not necessarily saying that we’re going to move away from a defined benefit plan, nor does it say that we’re going to move toward a defined contribution plan. It’s not saying exactly what we’re going to do-all we want is the freedom to pursue options because we’re $38 million underfunded in our pension obligations and close to $80 million underfunded in our OPEB obligations. While those numbers may change a little on a day-to-day basis, they are still significant numbers when you’re talking about a town of only 13,700 people.

So I think that our town has proven that this particular mandate from the state-and I actually believe it’s an unfunded mandate-we need to be able to determine what’s best for us. We’ve proven that the current system doesn’t work for us, so that’s what this issue is all about.

The full interview is well worth a read and is available here. Other articles featured in the Innovators in Action 2013 series are available here.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

Gilroy has a diversified background in policy research and implementation, with particular emphases on competition, government efficiency, transparency, accountability, and government performance. Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey, Utah, Virginia, California and several other states and local governments in efforts to design and implement market-based policy approaches, improve government performance, enhance accountability in government programs, and reduce government spending.

In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey Privatization Task Force, created by Gov. Chris Christie.

Gilroy is the editor of the widely-read Annual Privatization Report, which examines trends and chronicles the experiences of local, state, and federal governments in bringing competition to public services. Gilroy also edits Reason's Innovators in Action interview series, which profiles public sector innovators in their own words, including former U.S. Transportation Secretary Mary Peters, former Florida Gov. Jeb Bush, former Indiana Gov. Mitch Daniels, former New York City Mayor Rudy Guiliani and more.

Gilroy's articles have been featured in such leading publications as The Wall Street Journal, Los Angeles Times, New York Post, The Weekly Standard, Washington Times, Houston Chronicle, Atlanta Journal-Constitution, Arizona Republic, San Francisco Examiner, San Diego Union-Tribune, Philadelphia Inquirer, Sacramento Bee and The Salt Lake Tribune. He has also appeared on CNN, Fox News Channel, Fox Business, CNBC, National Public Radio and other media outlets.

Prior to joining Reason, Gilroy was a senior planner at a Louisiana-based urban planning consulting firm. He also worked as a research assistant at the Virginia Center for Coal and Energy Research at Virginia Tech. Gilroy earned a B.A. and M.A. in Urban and Regional Planning from Virginia Tech.