City auditor flags long-term pension and OPEB costs but praises strong reserves

Tom Scanlon Jr., managing partner of Scanlon Associates, told the Northampton City Committee on Finance on April 30 that the city's audited financial statements show large long-term liabilities for retiree and pension benefits, even as the city maintains strong reserves. "You have a net OPEB liability of a hundred and 17,000,000 and the net pension liability of 61,000,000," Scanlon said during his presentation.

The audit presentation focused on three main areas: the government-wide financial statements and long-term liabilities, governmental fund results and fund balance, and federal grant compliance (the single audit). The nut graf: while the city carries large actuarial liabilities for retiree health (other post-employment benefits, or OPEB) and pensions, Scanlon said Northampton's general-fund reserves remain large enough to meet common municipal benchmarks.

Scanlon explained that the large OPEB figure is driven by actuarial assumptions "—health care costs, experience, discount rate" —and noted the city has established an OPEB trust with about $5.5 million in assets and a 2024 budgeted contribution of $769,000. He described OPEB as "long-term thinking" and warned it will not be funded away quickly: "You're not gonna fund a hundred and 17,000,000 liability overnight." He said the pension liability is being addressed on a funding schedule that, in his recollection, stretches decades.

On liquidity, Scanlon highlighted the city's unassigned general-fund balance of $32,815,759, saying that number represents roughly 28% of a roughly $115 million budget and is "very healthy" compared with common benchmarks. Scanlon noted the city generated about $6.9 million of certified free cash in the year under audit and explained how revenues and carry-forwards feed that figure.

The audit report identified a small number of proposed adjustments and control recommendations. Scanlon described an adjustment tied to the allowance for abatements and exemptions (sometimes called the overlay) that was corrected and accepted by the city. He also recommended clearer procedures to ensure interest earned by specific funds (for example, stabilization or other trust accounts) is posted to the same fund on the general ledger through timely bank transfers.

Scanlon told councilors the city's federal grant management is generally sound. Because Northampton expended more than $750,000 in federal awards during the year, it was subject to a single-audit review; Scanlon said he found no compliance findings of material concern. He also said the city receives about $12 million in federal revenue and that the single-audit work looks for compliance with Uniform Guidance requirements.

Other audit topics discussed included property-tax receivables (about $1.6 million outstanding on the balance sheet), collection-rate benchmarks (Scanlon said collection rates should be roughly 98% to 99% for a city this size), and ambulance billing. Scanlon reported ambulance billing receivables of about $2.3 million with roughly $1.2 million more than 120 days old and recommended the city track the receivable aging on the general ledger and review older accounts regularly.

Council members asked follow-up questions during and after the presentation. Councilor Milton asked whether Scanlon's description of OPEB as "all over the place" was a neutral observation; Scanlon clarified it referred to the sensitivity of actuarial assumptions. Director Nardi told the committee the city had reduced its OPEB appropriations for the current and next fiscal years but continued to make contributions from other available lines when possible.

The audit presentation concluded with Scanlon encouraging departments to contact the firm with specific concerns so audit procedures can be targeted in future years. "If any areas are a concern, we can definitely build it into our audit procedures," he said.

Ending: The Committee on Finance did not take formal action on the audit report at the April 30 meeting; Scanlon said the firm will continue to work with the city throughout the fiscal year and offered to meet with staff about particular risk areas as they arise.