New Township Insurance Program Will Save $700,000

With the aid of Township staff, Director Bunch’s insurance firm and RWL, an independent outside insurance consultant, The Township recently completed its reevaluation of our insurance coverage and selected a new carrier. The end result is that the Township will receive much better coverage at a $700,000 savings.

However, before we “toot” our horn too loudly everyone should understand this significant improvement was achieved primarily because we could avail ourselves of insurance from the Texas Municipal League (TML). TML was not an option last year; they would not bid because they did not think the Township had enough loss experience. TML is not a broker. TML is a Texas based insurance pool that operates on a nonprofit basis. It is not funded by the state but by the premiums paid by the municipalities who are its members. It has a history of often returning premiums paid-in when losses are low. They will only provide coverage on a one year term. It is hard for the commercial insurance market to compete with such a pool.  

This effort has a history that goes back to last year when the Board was presented a set of insurance proposals only days before our insurance was to expired. The proposed coverage was on our desk when we arrived. But to be fair, this was not an “automatic renewal” as the existing broker obtained over 26 insurance policy bids to consider. The Board was still upset with two things- 1) the Board was never asked about what sort of coverage they thought was needed and 2) we were faced with making a decision with no time to review the recommendations. Given the deadlines upon us, the Board decided to go forward with the proposed coverage with the understanding that the staff would immediately start a new re-evaluation process. 

The following are examples of the areas where we have achieved expanded coverage. I thank Director Bunch’s Firm and RWL in helping the Township achieve this significant benefit. RWL charged $18,000 for the services; an amount well worth it.
 

• $5,000,000 coverage for lost sales and hotel tax revenues from a covered storm like IKE or Sandy. 

• $3,200,000 coverage for our newly installed all-weather sports fields. 

• Landscaping and Trees - TML will cover debris removal and replacement of landscaping (trees/plants).  However, the damaged landscaping must be within 100 feet of a structure listed on the property schedule, there is a $250 limit for each replacement tree or shrub, and the total limit is $10,000.  TMLRFP to evaluate the cost of additional standing timber and expanded definition tree landscaping coverage.

 

• Flood Insurance-Most homeowner and even many commercial insurance policies do not cover flooding. Ours does

Taxpayers should be please that the Board and its staff worked together to achieve substantial improvements to our Township insurance coverage at a much lower cost. We are now protected much better than in any previous year.

 

Should the Township Reduce Its Retirement Benefits?

The question of whether or not the Township 401K match is too rich  continues to receive a lot of attention, especially in conservative circles. One of our Board Directors is pushing for change once more. This seems to be a going effort on his part since 2012. I consider some of this “debate” to be uninformed and “political pandering” by some on, and off the Board, to their conservative base.  

I was not on the Board when the Waters Group in 2009 did its compensation study and helped the Township design the current system. But I have spent time going through the study and researching on my own what other municipalities provide.  I believe the 2009 study to be a good analysis and resulted in a robust and responsive system for managing our salaries and benefits. As noted below the resulting system has resulted in an improved ability to attract and retain quality people. All of should keep in mind that our ability to maintain a high quality and very rich amenity community is a direct result of the quality of our staff.

The overriding objective of the 2009 work and the proposed new study should be to provide a compensation system which fairly compensates our employees and which allows The Township to attract and retain high quality personal. As I have said repeatedly, it would be unfair to take one part of our compensation system, our retirement system, and drastically change it without considering the impact on our total compensation package and our ability to compete for quality people. Please also keep in mind that the Township does not have the funding issue faced by many retirement systems. As a 401K based system we have no unfunded liabilities.  

 Since the Waters Study was completed in 2009, The Township has made certain we have remained consistent with the governmental wage and benefit benchmarks used in that study. So I ask is the Townships compensation package, including all the benefits it offers, higher than the competitive market? I do not believe this is the case and I think the facts support this argument. I see no reason to waste money on a new compensation study that will only tell us what we already know.  

Prior to the implementation of the 2009 Waters Study, I understand the Township’s turnover rate was between 12-18%. Since that time, our turnover rate has declined significantly. In 2011 it was 7.8%. In 2012, our turnover was 9%. Since we went to the new compensation system, it appears we have also been more successful in recruiting new personal.

The basis for achieving the above objective is to fully understand what competitive markets we benchmark ourselves against. That market was determined in 2009 to be the municipal, public sector market. Nothing has occurred since then that change this view. Only about 8-10 % of our organizational positions can be matched against the private sector. We can find no comparable salary and benefit information for all our other positions except by looking at the public sector. The Townships goal is to be position our compensation in the middle of this market. So if our compensation benchmark remains the public sector, why does anyone think a new study will tell us anything different than the 2009 Waters Study?  

Public sector employees have historically been paid lower wages but received higher retirement benefits. This view is supported by Robert Half comparison done in 2012 showing for that for the few comparable positions that can be collated with the Houston private sector; the Township’s starting salaries were 11.7% lower than the private sector.

In terms of our retirement plan, we are currently in line with what municipalities of our size provide. The Texas Municipal Retirement System (TMRS) is another benchmark for us to consider. TMRS represents 849 cities (does not include private systems for Houston, Dallas, Austin, Fort Worth, Galveston, El Paso; for 39 cities it excludes fire fighters that have their own separate plans). TMRS is a highbred cash balance system (accumulated account balances are annuitized at retirement and guaranteed for life) versus a traditional formula based defined benefit system. It also provides for a younger retirement age (20 years of service or age 60 with 5 years of service; average retirement age at 12/31/12 was 58) than a 401K Retirement Plan. Each city may tailor their plan. This plan is 86% funded. These plans all allow employees to retire at an earlier age than the Township’s plan.

 
If municipalities are our competitive market, then TMRS provides a good insight into the retirement benefits offered by this market. Of the 849 cities in TMRS, 36% (309 cities) provide a 2 for 1 match of between 6 and 7%. This group of cities includes all those cities with a population greater than 100, 000.  There is no city of our size or larger that provides a retirement match less than 2 for 1 at 6 or 7%%

I do not dispute that on the surface our retirement match appears to be richer than the private sector. But we also know that private entities, in addition to higher salaries, provide other benefits such as bonuses and profit sharing that we do not provide. None of this has been taken into account by those criticizing the current retirement match

2011 Invesco Defined Contribution Survey Results

                                                                   i.      92.49 of respondents provide a 401 type plan.

                                                                 ii.      37.5%  also offered other type of additional plans, such as Profit sharing and non qualified deferred benefit plans

                                                              iii.      23.2% also offered some form of defined benefit plan

                                                               iv.      49.8 of 401 plan participants contribute 75% of more of the maximum contribution offered; 29.2% contribute 90% or more

                                                                  v.      37.6 % provide a match of 6% or more; for larger plans this increases to 47.5% 

So I ask again, is our total compensation higher? The facts do not seem to support this argument. I see no reason to waste money on a new compensation study that will only tell us what we already know.

 

2014 Reforestation Plans

In their 2012 forest audit report, American Forestry Management recommended we continue our planting program but to do so in a different way. They recommended that we  should continue to plant trees over the next 4-5 years but to focus on planting much smaller trees and create more species diversity that was more drought tolerant. Their thinking was that the forest will regenerate itself but only within the bounds of the species that exist today. AFM believed we could improve the heath and drought tolerance of our urban forest by planting other native species. They cautioned against planting large trees (30 gal) and focus more on seedlings and 5-15 gallon trees, based on the fact that these trees are less costly and can survive with much less watering by man and instead rely on nature.  

Last year I thought this was sound advice and still hold this opinion. What did the Township do in 2013- we ignored the advice and decided to purchase 1,340- 30 gallon trees, 40% of which have died. This cost well over $300,000. To me this was "pandering" to those residents that wanted such trees planted in areas adjacent to their houses. Our action ignored what the "experts" said was best for our forest and the best use of our money. 

Now we are proposing to repeat this experience abeitedly with only 800 trees but still at a cost of $134,000. over 50% of the total proposed cost.  It is proposed that we can lower the mortality rate and the wasted money by watering more often. But the proposal still falls well short of the weekly watering suggested by the Texas Forest Service. Arbor Care, a local arborist firm, recommends:

- One year old-- For a tree that you can wrap your hands around its trunk, it needs at least 30-50 gallons of water every week. In dormant season, water every two weeks
- Two Years old- water every 1-2 weeks all year round
- Mature Trees- water once a month (during a drought, water every 2 weeks).

Are we prepared to ensure this sort of watering plan? I think not.

For all of the above reasons I recommend we eliminate the 30 gallon trees for 2014 and focus only on using the 5 gallon trees