NEW BEDFORD — City spending would rise about 9% percent under a budget proposed by Mayor Jon Mitchell Wednesday night, as education, employee health care, pensions and inflation continue to drive costs, straining efforts to control spending while providing essential services.
In a 15-minute address to the City Council, Mitchell said he is optimistic about the city’s economic prospects, but he warned that the city has to bear down on budget reform — particularly in managing ever-rising health care costs.
“We have acted responsibly,” Mitchell said, “but we also need to do more and consider reform in the key places in the budget that can deliver savings at a scale that can make a difference.”
While Mitchell noted the city’s unemployment rate of 5% in the first half of the current fiscal year — compared with 17% early in the pandemic — and the fact that wind turbine components are arriving in the port, this is not a budget of heady times and high aspirations. The proposal includes no new programs, no bold initiatives, suggesting a city trying to hold ground against expenses rising largely beyond its control.
The School Department allocation, for instance, is proposed to rise by 10.5%, or $23.1 million, to comply with the state’s Net School Spending requirements. The allocation for employee health insurance is proposed to rise 10% to nearly $52 million. That’s nearly twice the proposed cost of running the New Bedford Police Department.
Indeed, the cost of police, fire, and the work of 28 other city departments make up just under a quarter of total proposed general fund spending of nearly $459 million. The rest is education, which is proposed at nearly half of total general fund allocations, insurance, pensions, debt service, and mandatory assessments, including payments to the Southeastern Regional Transit Authority, and for charter school tuition.
Looking at it another way, as Mitchell said, mandated assessments and fixed costs account for $110 million of proposed general fund spending, and Net School Spending makes up another $238 million.
“These total nearly 80% of the entire budget,” Mitchell said.
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The total proposed budget for the fiscal year starting on July 1 is just over $513 million, comprising $459 million allocated from the general fund and the balance from enterprise funds. General fund revenue includes local taxation and fees, and state and federal aid. Enterprise funds are collected in service charges for the airport, cable access, downtown parking and water.
The current budget, as proposed last spring, was a total of $471.5 million, with $421 million in general fund allocations. The council — which has the authority to cut the budget proposal but not add to it — pared the general fund allocation to $418 million, a reduction of less than 1%. Last year as in previous years, some of the cuts were restored as the year unfolded.
The tax impact of the proposed spending plan — which now goes before city councilors for hearings and votes to be completed by June 30 — will not be clear until the end of the year. In December, the city will submit information to the state on setting the tax rate, including any adjustments to total expenses and property evaluations.
Mitchell emphasized that tough choices have to be made to manage spending on pensions and health insurance.
“The notion that we can successfully restrain overall spending by trimming elsewhere in the budget, but doing nothing on health care and pensions is simply ignoring the elephant in the room,” Mitchell said.
He noted that the city’s retirement system is only 52% funded, better than only six other systems in the state. State law requires full funding by 2035, meaning allocations for pensions will have to rise. This year, the budget proposal includes 6% more for pensions, to $37.9 million.
Mitchell did not make a specific proposal on pension reform, but he did on health insurance.
This year, as last year and other years of his administration, the mayor is proposing that the council provide an option that is not now allowed when the city bargains with public employee unions on health care benefits. The move would allow binding arbitration in labor disputes over health insurance, one area where the mayor said the city could make a significant dent in spending. He noted that health insurance spending has risen nearly $1 million a year since 2012.
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“Most of the mandatory spending is dictated by state policy, but some of it is within our control,” Mitchell told the council during his presentation at City Hall. “As the council has heard from me in the past, without a doubt, health care reform is the area of the budget that would have the most positive impact on municipal finances.”
Adopting three sections of the state law governing insurance coverage for public employees would allow “an independent, neutral arbiter to resolve differences when an impasse arises during negotiations,” Mitchell said.
He said the move would continue to allow the city to negotiate with public employee unions on health insurance benefits.
“There is nothing particularly earth-shattering about these sections of state law,” Mitchell said.
The council has apparently seen it otherwise. As Mitchell’s chief of staff Neil Mello recalled, the mayor has introduced the notion in three previous budget cycles and been rebuffed by the council each time. The move has been opposed in the past by city unions.
Ward 1 Councilor Brad Markey on Wednesday night said that as he recalled, the concern in the past has been the potential impact on the cost of insurance premiums that employees pay, especially as the premiums take a higher percentage from the paychecks of lower-paid workers.
Ward 6 Councilor Ryan Pereira, now in his second budget season since taking office in January 2022, said he supported sending the mayor’s proposal to the Finance Committee last year and would do so again, but he would make no other commitment.
“The mayor is telling us this will save the taxpayers money and not hurt health care for employees. I want to look at that,” he said when reached on Thursday morning.
Councilor at-Large and First Vice President Ian Abreu said Wednesday night that he’s keeping an open mind on changing the procedure for negotiating health insurance coverage.
“I’m interested to see what the numbers are now,” he said, willing to consider “evidence that did not move the needle before.”
Mello said the case for the move has always been persuasive. More so now, he argued in an interview after the mayor’s presentation, as the city is running out of places to cut spending without hampering the services residents expect.
“There is no close second” to health care costs as a potential area for significant cost-cutting, he said. Trimming a few positions here and there in ways that would not impair services would scarcely cut costs.
Interim Chief Financial Officer Michael Gagne noted significant increases in medical bills that patients are submitting — contributing to insurance premium costs — as well as inflation stoking the price of fuels, electricity and big-ticket items such as vehicles.
As one example, he said the city has to replace about two ambulances a year, and the cost of each has risen since 2019 from $250,000 to more than $400,000.
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