Herbst: Pension ordinance will positively impact credit rating
To the Editor:
Recently, the Trumbull Town Council approved an ordinance that requires Trumbull to fund its pension obligations to the annual required contribution (ARC). This ordinance allows for the Board of Finance and the Trumbull Town Council to override this provision, under exigent circumstances. Long term, this ordinance will positively impact the town’s credit rating. As we undertake needed capital upgrades to our schools and municipal buildings, an improved credit rating will allow us to save millions of dollars for taxpayers over the next several decades while making needed repairs and investments to our schools and our infrastructure.
My colleagues on the other side of the aisle like to use terms like “illegal “and “violation” to justify their opposition. In the most recent election campaign, they said we had not done enough to fix the pension fund and less than three months later, they are now saying we are doing too much. The only consistency my colleagues appear to show is taking every side of every issue. Those that are now the most vocal about this ordinance and pension reform created the problem. Between 2001-2009, borrowing doubled and taxes increased by 54%. Despite this reckless spending and taxation, our pension fund was only funded at 27%. For more than a generation, previous administrations viewed the pension fund as a soft cost, rather than a fixed cost. When you don’t fund your obligations over time, your unfunded liability grows. My predecessor’s finance director referred to this problem as a “ticking time bomb.” Unfunded pension liability is code language for future tax increases.
Through sound budgeting, we have invested an additional 33.5 million into the pension fund, fully funding the ARC for the first time in more than a generation. We have negotiated nine labor agreements that now take new hires out of a traditional pension plan. These efforts have yielded an upgraded credit rating. As a matter of public policy, this ordinance now says that pension obligations are no longer a soft cost but instead are a fixed cost. Just as we fully fund our debt burden for money we borrow, we must also fully fund pension obligations we have incurred. In 2014, the State of Tennessee enacted legislation that requires local governments to fully fund their respective ARC. Fitch, a financial rating agency Trumbull deals with regularly, supported the legislation, stating that full actuarially-based funding of local government pension plans “will, over time, improve pension sustainability and comparability broadly across credits.” It added, “The law could serve as a model for other states pursuing means to ensure the sustainability of public employee pension plans.”
As Trumbull is now within striking distance of a AAA bond rating, I place more confidence in the opinions held by financial rating agencies than local politicians that are focused more on the next election rather than the next generation. This ordinance will help Trumbull achieve a AAA credit rating, which will represent millions of dollars in savings on capital projects in the years to come.
Timothy M. Herbst
First Selectman, Town of Trumbull