HUNTINGTON -- It was April when the city of Huntington first began looking at a 1 percent occupation tax to shore up its recession-weakened budget.

Three months later, the proposal has turned into a broad re-form package that includes not just an occupation tax, but also the addition of a 1 percent sales tax, repeal of the $3-a-week user fee and elimination or reduction of key portions of the business and occupation tax.

Altogether, the package would generate an additional $3.5 million in revenue for the cash-strapped city.

The proposals that Mayor Kim Wolfe and Huntington City Council members have brought forth have taken numerous twists and turns. And the chances of the current reform package passing appear to be fading now that an income cap on the occupation tax has been removed.

But throughout the debate, one thing has remained consistent: Cries from the public and business leaders that the city should first look at cutting costs, namely employee benefits.

"We're not opposed to taxation, but there's concern about how the current revenues are used and the perception that the benefit plans are out of whack with reality," said Mark Bugher, president and CEO of the Huntington Regional Chamber of Commerce. "We know some of it is tied up in state law, but other parts can be controlled at the local level."

Bugher points to the city budget's growth rate during the past 10 years to emphasize his concerns with how the additional revenue in the proposed reform package would be spent. The budget has grown from $28.9 million to $42.5 million, a 47 percent increase. During that same time period, the city has eliminated 60 full-time jobs, its employee base dropping from 413 to 353.

Yet, more than three-fourths of the additional $13.6 million spending has gone toward police and fire pensions, health insurance and other employee-related insurance costs.

City officials, however, say the 10-year trend doesn't reflect significant strides toward reining in pension and health insurance costs during the past two years.

Retirement benefits

Pension benefits for municipal police officers and firefighters in West Virginia are set by state law. Huntington's troubles with its pension system were planted in the 1980s when the state Legislature gave cities an alternative funding method that was similar to making the minimum monthly payment on a credit card with a high interest rate.

While the alternative funding method temporarily reduced the minimum pension contributions for cities that chose to use it, it also caused their unfunded liabilities to increase.

Huntington, for example, spent about $1.3 million, or 6 percent of its budget, on police and fire pensions in 1993. But by 2009, the city's contribution had ballooned to $8.8 million, or 20 percent of its budget. Under the alternative funding method, the city's annual contribution was scheduled to increase every year until 2018 when it reached $16.1 million.

After three consecutive years of failed attempts, Wolfe's administration crafted a bill that won overwhelming approval from the Legislature last November.

The new legislation, which Huntington has already adopted, gives cities the option of closing their existing retirement plans for officers and firefighters and refinancing those plans over a 40-year period. As a result, annual payments are leveled off.

New hires are now placed in a retirement plan that is similar to benefits offered emergency medical services employees across the state and administered by the state Consolidated Public Retirement Board.

The changes immediately reduced Huntington's pension contribution by $556,000 last year and will steadily cause the city's annual contribution to decrease by another $1 million over the next seven years, according to actuarial projections.

To put it another way, the new funding method means Huntington will spend $28.9 million less over the next seven years than it would have spent under the amortization schedule for the old funding method. City officials acknowledge it's difficult to take that scenario realistically as Huntington undoubtedly would have been forced into bankruptcy before then, they say.

"We closed the door on the single-largest problem facing the city," Finance Director Deron Runyon said.

Retirement costs for other city employees -- administrative employees and about 100 workers who belong to American Federation of State, County and Municipal Employees Local 598 -- are also controlled by the state. Those employees fall under the Public Employees Retirement System, the employee and employer contributions of which are dictated by the Consolidated Public Retirement Board and Legislature.

Employees now are capped at paying 4.5 percent of their salary into PERS, but employers pay 12.5 percent and have been mandated to increase their contributions to 18 percent by 2013. That means Huntington's contribution will rise from $430,000 now to $705,000 in 2013.

Health insurance

Health insurance benefits and costs for Huntington employees historically have been dictated by collective bargaining agreements between the city and its three employee unions.

That changed two years ago when then-Mayor David Felinton announced just before the collective bargaining agreements expired that he would discontinue pay raises in the contracts and implement a new health insurance plan for employees.

Under the new health insurance plan, active employees' premiums are about six times higher than the $12 or $25 a month that they paid for single or family coverage. Those enrolled in single-family plans now pay $73 a month, while family premiums are $153 a month.

Deductibles also increased from $250 per person to $1,500 for a single employee and $3,000 for a family plan. The city offers employees annual health reimbursement accounts of $1,000 for individuals and $2,000 for families to help pay deductibles and other out-of-pocket expenses.

Maximum out-of-pocket expenses rose from $2,250 per individual to $7,500 for single plans and $15,000 for family plans.

The decision sparked a lawsuit in Cabell Circuit Court from the police and fire unions. Former Circuit Judge John Cummings eventually ruled that the city could implement the new health plan for all active employees, but police and fire retirees would continue to receive health benefits under the old plan until both sides could reach a compromise. Other parts of the case are still pending in circuit court.

The changes Felinton made to the insurance plan in June 2008 not only resulted in health cost savings to the city but also increased contributions from employees, Runyon said. During the last year under the old plan, for example, it cost the city $6.68 million, while employees contributed $669,000. In the fiscal year that just ended in June, the city contributed $5.4 million, while employees paid more than $1 million.

The net savings were $1.9 million in fiscal year 2009 and $1.6 million in fiscal year 2010, Runyon said.

"I can't emphasize enough how much this action taken in June of 2008 has helped keep the city from seeking additional fees and taxes over the last two years or from lowering services even further," he said.

The total cost of a family plan dropped from $21,532 to $14,529. A single plan was reduced from $9,727 to $6,052. A single city employee pays $883 a year in premiums, while an employee covered under a family plan pays $1,837.

The average annual worker contributions for single and family coverage are $779 and $3,515 respectively, according to the Kaiser Family Foundation, a private, non-profit organization that conducts an annual health insurance survey of public and private employers. The average annual premiums for employers are $4,824 for single coverage and $13,375 for family coverage.

Tax reform is the answer, officials say

City Councilman Nate Randolph says he understands demands from the public that Huntington officials must look for cost-savings in its budget before it considers tax reform. But hot-button issues like changes to health insurance, increased tax collections and privatization of certain city services are not enough solve the city's long-term financial troubles, he said.

"I'm all for looking for more government efficiencies, but we can't talk about them as though they will stave off the inevitable," Randolph said. "Jeffrey Dahmer has a higher favorable rating than tax reform, but two facts remain. First, the business and occupation tax, which is 40 percent of our budget and is only paid by private business, has been in a state of decline. Second, Huntington does not have enough revenue to operate a city this size."

Randolph backs his argument by pointing to a 2006 study conducted by Marshall University's Lewis College of Business. The study, which took an in-depth look at the city's finances, was funded by the Chamber of Commerce.

The report found that Huntington's revenue per 1,000 residents fell $51,037 short of the average when compared with its nine benchmark cities.

"To extrapolate this term to real figures, the benchmark average suggests that Huntington should have additional revenues of $2,510,918," or an additional $51.03 per person, the report said.

Yet, Huntington's annual expenses for police and fire service were about $4.5 million greater than the average of the benchmark cities, the report said.

"This finding strongly suggests that the solutions to the fiscal operation of the city of Huntington cannot be found in efficiency gains alone for the foreseeable future," the report said.

The report also revealed how Huntington gains a large portion of its revenue -- slapping residents and businesses with numerous fees. The city receives roughly 40 percent of its revenue from fees. The report recommended that the city replace user-specific fees with more general taxes.

Brandi Jacobs-Jones, Huntington's director of administration and finance, said the longer the city goes without a permanent solution to its money problems, the more it will cost to repair its aging infrastructure.

"We've made changes in our pension costs and health insurance benefits" she said. "But costs will continue to go up over the next 10 years. I can easily show at least $30 million worth of infrastructure projects that desperately need to be funded over the next 10 years. That's what is driving our goals.

"There's a recurring theme across the country that citizens don't see a true linkage among revenue raised, the cost of services and services received. Running a city is extremely expensive, and Huntington is no different."

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