Tracing history of deficits

Chelsea may be a decade out of receivership, but financial decisions from the past continue to take their toll, helping to fuel a $2.3 million deficit in the upcoming budget, officials say.

Each year, the city must make millions of dollars in catch-up payments to its retirement accounts, partly because the accounts were not properly funded by previous administrations, some officials say.

This year the bill was $4.7 million, and it will rise to $5 million in the 2007 fiscal year, which begins July 1, according to City Manager Jay Ash.

The catch-up payment and an estimated 10 percent rise in health insurance costs account for the projected deficit, Ash said.

''If the city didn't have to pay for the sins of the past, we would be in fantastic shape financially," said the City Council's president, Paul R. Nowicki. ''In Chelsea in the days of receivership, that wasn't a priority. . . .

''It's kind of sad when you try to balance the budget and are trying to find money for police officers or sidewalks and you see that money getting eaten up," he said. ''It's hard to do."

Ash was hesitant to blame the city's past leaders, saying they did fund the retirement accounts to some degree. But he said that if more funding had been allotted, the city ''would be in better shape."

The focus of the spending plan at the time, he said, was on covering current costs, not future obligations.

''We're in the same situation that many communities are in," Ash said. ''We're making catch-up payments, and they're substantial, and budgets are tight."

Ash's five-year financial forecast predicts that Chelsea will stay in the red for the next four years, or up to the 2010 fiscal year, forcing leaders to rely on reserves to cover costs.

For fiscal 2008, Ash projected the budget deficit will decrease to $1.9 million; in 2009, to $1.5 million; and in 2010, to $1.1 million, with his calculations based on a healthy economy.

Despite next year's projected deficit, the city is expected to have $4.15 million in free cash and $3.4 million in the stabilization fund to help it through the deficit.

Nowicki said the city is already working at its bare-bones minimum, and the need to dip into those reserves is something that could have been prevented.

Ash's predecessor, Guy Santagate, said pension liability fund payments are a ''ticking time bomb," in that they are a future obligation that has to be in the budget even when there is no money for it.

Santagate, who became Chelsea's first city manager when it emerged from state receivership in 1995, said he was surprised by the findings of a pension liability study he commissioned after taking the job. It found that some former mayors operated by level-funding the retirement account, while others didn't even do that.

''We increased the city's contribution, but not by a lot, because we didn't have the money for future pension liability," Santagate said. ''That catch-up continues today.

''That was one of the real hidden problems, and not many people understand it," he said.

Santagate added that even if there had not been any fiscal mismanagement in the city prior to state receivership, the city would still be in debt to the retirement system, albeit not as much as it is now.

In the late 1980s, according to Ash, the state mandated that Chelsea and other communities fully fund their retirement systems, including future obligations, by 2028. Ash projects that the city will owe more than $9 million in retirement catch-up payments that year if they continue to increase by about $400,000 a year.

Ash said that the only thing keeping Chelsea officials from seeking property tax overrides to fix the budget deficits is the projected tax revenue from highly anticipated construction developments that are either underway or in the planning and talking stages.

Last year, Ash announced a goal of bringing 1,200 new residential units, and about $3 million in property taxes, to Chelsea by 2009. As development proposals roll in, Ash said, there may be 1,500 units by the end of fiscal 2010.

This includes 234 units that have been permitted for the Parkway Plaza and a 500-unit development that Ash said is under discussion for the city's urban renewal district.

In addition to holding out hope that the state will continue to increase local aid, Ash said, Chelsea and other communities are coming together to discuss ways to reduce health insurance costs.

A finance task force formed by the Metropolitan Mayors Coalition and led by Mayor Thomas G. Ambrosino of Revere has ''identified a number of initiatives necessary to protect services and reduce the heavy reliance that local communities have on property tax payments," Ash said.

Not counting state school aid, Ash said, Chelsea's greatest local aid was received in 2001, and he projected the city will not receive funding like that again until 2009. While health insurance accounted for 4 percent of the city's total expenditures in 2001, it has grown to 10 percent today, he said.

''Cities and towns have had to rely on property taxes, rather than local aid," Ash said.

The task force is discussing such proposals as cities and the state joining to purchase health insurance to stave off future cost increases, Ash said.

There have also been discussions about asking state officials to consider extending the 2028 deadline to fully fund retirement funds.

Like refinancing a home, Ash said, the extension would mean a larger total payment, but the annual amount would be less.

Despite the projected four-year deficit, the city is lucky to have come out of state receivership in the 1990s, when the economy experienced record growth, allowing city officials to put money into reserves, said Councilor Roy A. Avellaneda.

''The reality is that if it wasn't for the huge increase in health care costs and if we weren't making these catch-up payments from the past, the city would be in much better shape," Avellaneda said. ''But we can't go around blaming, because it has to get done.

''There are other cities and towns playing catch-up as well," he said, ''and it's something we have to deal with."

Katheleen Conti can be reached at kconti@globe.com.