Aldermen discuss proposed severance reserve fund

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MANCHESTER, NH –The topic of severance payments drew the most discussion during Tuesday night’s Board of Alderman meeting, primarily regarding a proposed change on how they would be funded.

In a proposal recommended by the Committee on Accounts on April 16, a third of future unrestricted general fund operating surplus money would go toward a new severance reserve account.

The new reserve account would pay for unexpected severance liabilities that cannot be funded with money planned within the city’s budget.

Under the proposal, the one-third of the unrestricted general fund operating surplus would go directly back to taxpayers and one-third would go to risk retention reserve accounts, the city’s “rainy day fund” to pay for unexpected city employee health care expenses exceeding the municipal budget.

Currently, half of the operating surplus goes toward the risk retention reserve accounts while half is returned to the voters.

Most of the Aldermen supported the proposal with two notable exceptions.

Ward 5 Alderman Tony Sapienza opposed the move fearing it would hinder efforts at transparency around severance payments.

Sapienza noted that $770,000 had been payed in severance this year.

“I think we need to shine a light on the problem we have,” he said. “I don’t mind paying small severance, but the big ones cost too much money and the taxpayer needs to be made continually aware of that.”

Alderman-at-Large Joe Kelly Levasseur also voiced concerns regarding the proposal on a variety of reasons, although he noted a lack of understanding regarding the proposal.

Levasseur’s first concern came from possible downgraded bond ratings due to reduced payments to the risk retention reserve accounts.

He also voiced concerns over years where they may be unfunded severance liabilities without any general fund surplus as well as requiring 10 out of 12 Aldermen to remove any money from severance reserve account for any other purpose.

Levasseur was also confused over a perceived connection between the proposal and the Winter Weather Reserve Account, although the Winter Weather Reserve Account is paid for through operating surplus funds in winter weather operations budget specifically.

Mayor Joyce Craig spoke about the importance of the measure given the fact that she could not fund unexpected severance commitments in the current municipal budget and Mayor Ted Gatsas could not in the previous fiscal budget, exposing the city to undue risk.

“By not funding severance, this is not a sustainable option for the city,” said Craig.

Levasseur requested the written recommendation of Finance Director Bill Sanders, which the mayor promised she would provide, as Sanders has been an advocate of the proposal in the past.

Ward 12 Alderman Keith Hirschmann also responded to Levasseur’s concerns, noting that the new reserve account would actually strengthen the city’s fiscal health in the eyes of bond rating agencies, as unexpected severance funding shortfalls would now have a dedicated funding source rather than a more piecemeal approach.

Several other aldermen also noted that severance funding does not automatically occur, although Ward 7 Alderman John Cataldo shared Sapienza’s concerns regarding the issue of transparence as well as reduced taxpayer rebates from surpluses.

The recommendation received a second recommendation by a 12-2 voice vote, with Sapienza and Levasseur in opposition.

The proposal now goes before the Bills on Second Reading Committee.