METHUEN — The city has until tomorrow to fund $496,000 in pension payments that city councilors are delaying, or else the Methuen Contributory Retirement Board will sue, a member said yesterday.
"It's what their obligation is," said Michael Hennessy, an employee representative to the retirement board.
To help take the sting off a property tax increase, city councilors voted 5-4 Monday night to approve a motion by Councilor Joseph Leone to reduce the amount of money raised through taxes by $496,000.
Leone's logic was that the city could wait until the fiscal year ends on June 30 to pay $496,000 in pension costs and find other places to cut the budget in the meantime to come up with the pension money.
"He was ill-advised to have done that," Hennessy said.
City Solicitor Peter McQuillan even said at the meeting that the city would open itself up to a lawsuit.
"The prospect of winning the lawsuit, I'm sorry to say, will be minimal," McQuillan said.
The retirement board's lawyer will file the lawsuit if the money isn't paid, and the suit will demand the $496,000 plus interest and attorneys fees, Hennessy said.
"If the retirees think that little of the taxpayers, I say go ahead and file it," Leone said.
Both Leone and Hennessy said Monday's move won't affect retirees now. The $496,000 payment would go toward helping the city meet its mandated obligation of fully funding the retirement system by 2030.
"He can bluster and posture all he wants. We don't have the money to pay that fee right now. Have him take his case directly to the taxpayers and see what he gets for a reaction," Leone said.
"On a retirement board, we have a fiduciary responsibility to make sure that money is there," Hennessy said.
The lawsuit will name the city, Mayor William Manzi and the City Council as defendants, Hennessy said.
"We'll evaluate it and talk to our legal counsel," said Manzi, who had recommended that the city pay the pension cost.
Councilors held a special meeting about taxes Monday night that attracted roughly 100 people. They ended up voting 6-3 to reduce the tax levy by $746,000 and increase residential taxes on average by $87 and commercial taxes by $181.
That's cheaper than the increase councilors voted in favor of on Dec. 7, which would have caused average tax increases of $88 for residents and $609 for businesses.
Manzi argued for tax increase
The state Department of Revenue rejected the rates that were approved Dec. 7, saying they would place too much burden on businesses. That left city officials with two options: decrease the tax burden on businesses by increasing it on residents or reduce the amount of tax revenue raised. A majority of councilors opted for the latter.
Manzi had argued for the residential tax increase. He asked councilors to approve a shift in the ratio between businesses and residential properties. That adjustment would have increased the amount that residents pay by $128, on average, over what they paid last year, while the increase for businesses would have dropped from $609 to $287.
In order to bring the residential tax increase back to $88, the city needed to reduce the tax levy by $746,000, according to Manzi.
By working with councilors and the School Committee, Manzi came up with a $200,000 cut in school transportation costs because the bus company, Trombly, agreed to reduce its fee. The city also received $50,000 from the federal government as a reimbursement for money the city spent during last year's ice storm, and Leone proposed the $496,000 pension payment delay.
Leone noted that the city will still be obligated to pay the money, but it won't have to pay it until the fiscal year ends on June 30 — giving officials six months to figure out where else to cut to come up with the $496,000.
"That's all I'm doing, is buying some time," Leone said at the meeting.
"The people won the battle, but they didn't win the war," said Councilor Larry Giordano, who opposed the move.
Call for meal and hotel taxes
Councilor John Cronin Jr. may have found at least one way to attack financial problems. Speaking on the "Politically Active" radio show on WCCM yesterday, the councilor said he will ask councilors to form a committee to investigate the feasibility of implementing meal and room taxes in the city.
Leone lost his re-election bid to Pat Uliano, who will be sworn in with the other elected leaders next Monday.
"I think Joe Leone handed us a very big task," Uliano said. "I believe we can get this done and I embrace the opportunity to take that task on."
Uliano said councilors need to work with Manzi when he renegotiates labor contracts with city employees.
Jim Hajjar, a newly elected councilor who unseated West District Councilor Deborah Quinn in this past fall's election, said he wants the council to create a finance subcommittee to immediately start analyzing the budget.
"We're going to work with the municipal leaders, we're going to work with the department heads and we're going to work with the mayor," Hajjar said.
Cut in state aid expected
Officials are bracing for a state aid cut for the fiscal year that starts July 1, and the city will also be hit with a $900,000 pension increase that same year.
The state has mandated that cities and towns fully fund their workers' pensions by 2030, meaning that if all employees cashed out, there would be enough money in the system to pay them. Communities have begun payment plans with the hope of achieving this goal.
To ease the strain, legislation has been filed on Beacon Hill to extend the full-funding deadline to 2040.
"I agree with pushing it back," said state Sen. Steven Baddour, D-Methuen. "I need to talk to some more experts as to the impact of 10 years versus five years versus two years."
Baddour said lawmakers are already working on the legislation, and the deadline extension could be included in the next state budget.
"There's a concurrent problem that we have and that is that we have many unfunded liabilities for retiree health care costs," said state Rep. Linda Dean Campbell, D-Methuen. "Funding the pension is problematic, but equally problematic is funding retiree health care costs. There is support to move it (the deadline) back to 2040, but they have to concurrently solve this problem regarding retiree health care costs."
Rep. Barbara L'Italien, an Andover Democrat who represents a portion of Methuen, was unable to comment because she was out of town at a funeral, an aide said.
