Village Board's Preliminary Budget Would Boost Taxes 6.5%

by Judy Silberstein

Taxes will rise 6.5% in the Village of Larchmont, if the Board of Trustees adopts preliminary budget plans hashed out at its work session on Monday, March 31. That’s far below the 13.4 % hike put forth in Treasurer Carmine De Luca’s tentative budget, but somewhat above the 5% level Mayor Ken Bialo had been hoping for, and considerably above last year’s 1.9% rate.

Pension contributions and reserve funds dominated the discussion on Monday night. How much should the Village contribute this year? How much of the reserve should be applied? And what might it mean for residents’ tax bills this year and next?

As predicted, the Board appears set to depart from the assumptions underlying the Treasurer's tentative budget. His budget assumes the Village will send Albany a pension fund contribution equal to the full amount estimated by Comptroller Alan Hevesi on February 7, 2003: 15% of police salaries (PFRS) and 11% of other salaries (ERS). The Board will be using a far lower figure, in response to a recent proposal by the Comptroller allowing contributions to be as low as 4.5%.

According to De Luca, the Board has settled on 5.5%. “I don’t trust the State,” he said. “I wish I could have used more, but to go with a double-digit increase would be rough.”

Hevesi’s February estimate assumed the current requirement to calculate the contributions based on the stock market’s performance on April 1 of the current year – in this case 2003, when stocks were down considerably from their bull market highs. When stocks are down, the pension bill goes up. However, the comptroller is recommending to the State Legislature that municipalities be allowed to use the market performance on April 1 of the previous year – in this case 2002, when the market was at a more robust level. He is coupling this with a requirement that they contribute at least 4.5% this year and in the future, even when the market is so strong that smaller contributions would suffice.

Hevesi’s proposal is more than a suggestion; as sole trustee of the Common Retirement Fund, he has authority to implement the ideas. Nevertheless, he feels the process would be smoothest with the legislature's approval, spokesperson Dan Weiller told the Larchmont Gazette.

In a March 21 letter to local governments, Hevesi wrote, “The plan would take effect immediately upon enactment, which means the payment due in December of this year would be 4.5% of payroll, not the 11% of payroll for ERS or 15% of payroll for PFRS.”

Using the 5.5% pension contribution will allow the Board to lop a significant amount from the Treasurer’s budget.

The Board’s next option for reducing the tax bill would be to apply additional funds from the reserve. De Luca’s budget moves $277,000 from the unexpended balance to next year’s operating budget, a figure close to recent past budgets. The Board is considering putting in an additional $140,000 for a total of $415,000. According to De Luca, this would be almost 50% more than the Board used last year, and would leave between $1.8 to $2.1 in surplus,

By comparison, Town administrator Steve Altieri reported, "We applied $850,000 from the surplus into the general fund as a revenue against expenses this year. That left approximately $2.5 to 3 million in the general fund as surplus."

So, how about next year? Once again, a lot will be riding on the pensions. “More than likely, next year we’ll have to pay the 11% of payroll” said De Luca, “But let’s wait and see. That’s what they’re saying, but who knows.

Under Hevesi’s March recent proposal, the Village will be liable for those budget-busting pension contributions next year, even if the bull market returns to Wall Street. This would create considerable upward pressure on next year’s Village budget, and perhaps for some time to come. “All credible forecasts tell us that poor economic conditions will continue for some time,” wrote Hevesi on March 21.

And what about next year’s reserves? In the past, the Village has budgeted for a larger pension contribution then they ended up having to pay. At the end of the year, the unexpended amount fattened the reserves. This has allowed recent Boards to apply about $200,000 to $275,000 from reserves to operating each year, and then find approximately the same amount returned to the reserves at the end of the year when they didn’t need to spend that money on pensions.

De Luca is not predicting a continuation of this comfortable situation for next year. “This year, I’m likely to make up a good portion of the $277,00 we applied in 2002-2003. Next year is another story,” he said.

The dollars applied from his year’s reserve might not reappear next year. This might leave next year’s Board with a bigger pension bill and a smaller reserve cushion.