GO Item 6
April 25, 2011
Worksession
MEMORANDUM
April 21, 2011
TO:
FROM:
SUBJECT:
Government Operations and Fiscal Policy
commi~
Robert
H.
Drummer, Senior Legislative Attorney
~J
Worksession:
Expedited Bill 11-11, Personnel- Retirement Plans ­
Contributions
Expedited Bill 11-11, Personnel - Retirement Plans - Contributions, sponsored by the
Council President at the request of the County Executive, was introduced on April 5, 2011. A
public hearing is tentatively scheduled for April 26 at 7:30 p.m. A second worksession is
tentatively scheduled for April 28 at 9:30 am.
Background
Bill 11-11 would increase member contributions by 2% of salary in the Optional and
Integrated defined benefit plans of the Employees' Retirement System (ERS) and decrease
employer contributions by 2% of salary in the defined contribution Guaranteed Retirement
Income Plan (GRIP)I and the Elected Officials' Plan of the Employee's Retirement System and
the Retirement Savings Plan (RSP). This Bill is necessary to implement the Executive's FY12
Recommended Budget.
2
The Executive estimated the FY12 savings from increasing the ERS
member contributions by 2% in the defined benefit plans to be $6,044,180. The Executive
estimated the FY12 savings from reducing the employer's contribution to the defined
contribution RSP and GRIP by 2% to be $4,860,290. See ©9.
The Bill would take effect on July 1, 2011 for all County employees, except elected
officials. The Bill would take effect for elected officials on the first day of their next term of
office. Article III, §35 of the Maryland Constitution prohibits an increase or decrease in
compensation during a term of office for an elected official. The State's Attorney, the Sheriff,
Although the GRIP is a cash balance hybrid plan, we are considering it a defined contribution plan in this
discussion because the employer's contribution as a percentage of salary is fixed.
2
The arbitration awards
in
favor of the International Association of Fire Fighters (IAFF) and the Fraternal Order of
Police (FOP) include no changes to the current retirement plans for fire fighters and police officers. The arbitration
award in favor of Municipal and County Government Employees Organization (MCGEO) contains a similar one­
year 2% reduction of the employer contribution to the RSP and GRIP and a one-year reduction in the employer
contribution to the defined benefit plan with the members not earning service credit for FYI2. The Executive did
not recommend these retirement provisions in his FY12 Recommended Budget. The Council's review of the
collective bargaining agreements with the County employee unions will be considered separately.
I
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the Executive, and the Council members are all elected officials serving a four year term of office
subject to Article III, §35 of the Maryland Constitution.
Issues
3
1.
Should the retirement plan savings from employees in the dermed contribution plans
(RSP
&
GRIP) be similar to savings from employees in the defined benefit plans?
Currently, the defined benefit and the defined contribution plans have approximately the
same number of enrollees.
4
However, the County Government will pay $124 million (from tax
supported and non-tax supported funds) for employee retirement benefits in FYll: $105 million
for the defined benefit plan and $19 million for the defined contribution plans. While defined
benefit plans are more generous to employees and cost the County significantly more than defined
contribution plans, the Bill would require employees in both plan types to forego identical
amounts (2% of salary). In other words, the Bill would save the County approximately 25% of its
annual defined contribution plan cost and only 5% of its annual defined benefit plan cost.
The reason for the dramatic difference in cost of the two plan types is the significant
difference in the benefit earned by an employee at retirement. The Office of Legislative Oversight
prepared the following chart showing an example of the different pension benefits for a firefighter
III retiring after 20 years, a master firefighter retiring after 30 years, and a child welfare case
worker retiring after 30 years. Although the Bill would increase the employee contribution for a
master firefighter in the defined benefit plan, the present value of the pension benefit would
remain $1,291,709.
The present value ofthe retirement account after 30 years for a child welfare
case worker in the defined contribution GRIP plan would drop
16.
7%from
$536,132
to $446,776
due to a
2%
reduction in the employer contribution.
Summary of Income from Retirement Benefits
Examples of Employees Retiring at Top of Salary Grade in July 2011
I
i
I
I
Master
Firefighter
Firefighter
I
III
20
44
$74,272
$37,318
i
Child WeHare Case
wo~
with
an employer contribution of: •
i
6% of salary
8% of salary
30
54
$88,027
$0
i
Years of Service
Age at Retirement
30
54
$87,422
$58,382
$58,382
$0
$57,166
$40,138
I
30
54
$88,027
$0
..
IFinalSalary
: Annual Retirement Benefit (until age
62)
i
Pension
Social Security
Pension
3
$37,318
$0
$37,992
$25,656
--
$0
$17,076
i
--
$0
­
I
I
: Annual Retirement Benefit (age
62
+)
$17,076
--
These issues will be discussed in further detail in the review of the collective bargaining agreements and the OLO
analysis of the proposed changes to employee benefits.
4
The percentage of defined contribution members is growing over time because the defined benefit plan was closed
for non-public safety employees hired after October I, 1994.
2
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Social Security
Retirement Account Balance
Present Value of Retirement Benefit
excluding Social Security
including Social Security
$17,028
$12,336
I
$17,076
$536,132
$536,132
$17,076
$446,776
$446,776
$1,291,709
$1,198,851
$1,470,243
$1,666,325
I
$911,804
I
$822,448
Assumptions
-
All dollar amounts represent current year dollars.
Pension payments and retirement account withdrawals are subject to Federal and State
income tax. All dollar amounts shown are pre-tax dollars.
-
All employees worked full time, were hired into their positions at age 24, and retire on July
1, 2011 with no unused sick leave.
All employees retired with a top of grade salary for the position (including longevity
awards).
The Social Security Administration's online "Social Security Quick Calculator" is the source
for annual Social Security benefits.
Social Security pension amounts assume that retirees do not take another paid job after
leaving County service and will be eligible for benefits beginning at age 62.
-
The Child Welfare Case Worker's retirement account balance assumes a starting salary of
$25,000; an annual employer contribution of either 8% or 6% of salary; an annual employee
contribution of
4%
of salary; and participation in the GRIP with an annual guaranteed return
of 7.25%.
Present value calculations assume that pension and Social Security cost of living adjustments
equal the future rate of inflation.
Present value calculations assume an average life expectancy of 84 years (the current average
life expectancy assumption for ERS plan members).
-
2. Should the employee contribution for an employee in the dermed benefit plan be raised
2% for everyone?
The Bill would require that all employees in a defined benefit plan contribute an
additional 2% of salary annually. As shown in the table below, the impact of the Bill varies
among different employee groups.
3
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Table 2: Executive's Proposed Increases
in
Employee Defined Benefit Contributions
Cutn!nt Employee
Contribution
(% of salary)
5
i
Employee Group
CE Proposed
Employee
Contribution
(% of salary)
6%
% Increase
in Employee
Contribution
+50%
+42%
+36%
i
Non-Public Safety (hired before
10/1/94)
Police and DeputySheriffiCorrections
4%
4.75%
5.5%
!
6.75%
7.5%
I
Fire
&
Rescue
1
!
The percentage increase in the employee contribution required by the Bill vanes
significantly by group.
This packet contains:
Expedited Bill 11-11
Legislative Request Report
Executive Memo
Fiscal Impact Statement
Circle #
1
7
8
9
Employees in the ERS who earn more than the Social Security Wage Base ($106,800
in
2012) contribute a higher
percentage toward their pensions for salary earned above the Social Security Wage Base.
5
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Expedited Bill No.
_1'-'1-'-1:....;.1_ _ __
Concerning: Personnel - Retirement
Plans - Contributions
Revised: March
30, 2011
Draft No.1
Introduced:
April 5,
2011
Expires:
October 5,
2012
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date: -:.N..."o"-'-'n=e_ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request of the County Executive
AN EXPEDITED ACT
to:
(1)
amend the Optional and Integrated Plans of the Employees' Retirement System to
increase member contributions;
(2)
amend the Guaranteed Retirement Income Plan of the Employee's Retirement
System and the Retirement Savings Plan to decrease employer contributions; and
(3)
generally amend the law regarding the employees' retirement system.
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-39, 33-40 and 33-117
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deleted from existing law by original bill.
Added by amendment.
Deleted from existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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Expedited Bill No.II-iI
Sec.
1.
2
3
4
5
6
7
8
Sections 33-39, 33-40, and 33-117 are amended as follows:
33-39.
(a)
Member Contributions and Credited Interest.
Member contributions. Each member of the retirement system must
contribute a portion of the member's regular earnings through regular
payroll deductions.
(l)
Member Contributions to the Optional Retirement Plan.
A
member of the Optional Retirement Plan must contribute the
following percentage of regular earnings:
(A)
(B)
(C)
(D)
(2)
Group A or H member, [6]
.8.
percent;
Group B member, 7 percent;
Group D member, 7Y2 per<?ent; and
Group E, F, or G member,
[8Y2]
lOYS
percent.
9
10
11
12
13
Member Contributions to the Integrated Retirement Plan. A
member of the Integrated Retirement Plan must contribute the
following percentage of regular earnings:
(A)
Group A, [4]
~
14
15
16
17
18
percent up to the maXImum Social
Security wage base, and [6]
.8.
percent of regular earnings
that exceed the wage base;
(B)
Group B,
4YS
percent up to the maximum Social Security
wage base, and 7 percent of regular earnings that exceed
the wage base;
(C)
Group E, [4%] 6% percent up to the maximum Social
Security wage base, and
[8YS] 10YS
percent of regular
earnings that exceed the wage base;
(D)
Group F, [4 %] 6% percent up to the maximum Social
Security wage base and
[8Y2]
lOYS
percent of regular
earnings that exceed the wage base;
F:\LAW\BILLS\IIll Retirement Contributions\Bi1l I
Doe
19
20
21
22
23
24
25
26
27
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Expedited Bill No.II-li
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29
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33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
(E) Group G:
(i)
[5Y2]
7Y2 percent up to the maXImum Social
Security wage base, and [9
1
/4]
11
Y4
percent of
regular earnings that exceed the wage base;
(ii) starting in the 25th year from the member's leave
accrual date under the County payroll system, [4%]
6% percent up to the maximum Social Security
wage base, and
[8Y2]
lOY2 percent of regular
earnings that exceed the wage base on and after the
member's 25th year of credited service;
(F) Group H, [4]
2.
percent up to the maximum Social
~
Security wage base and [6]
that exceed the wage base.
33-40.
Employer Contributions.
percent of regular earnings
*
(d)
*
*
Elected officials' plan. Subsections 33-40(a), (b), and (c) do not apply
to the elected officials' plan. Instead, the following provisions apply:
(1) The County must contribute to the elected officials' plan in
monthly installments, on behalf of each elected officials'
participant, an amount equal to [8]
2.
percent of the elected
officials' participants' regular earnings. The county's elected
officials' contributions are to be adjusted to take into account
any forfeiture under subsection 33-40(d)(2)(D). In determining
the amount of the County elected officials' contributions, only
an elected officials' participant's regular earnings earned while
that elected officials' participant made required elected officials'
participant contributions are counted.
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Expedited Bill No.II-11
55
56
57
*
(e)
(1)
*
*
Guaranteed Retirement Income Plan.
Each pay period, the County must credit to each non-public
safety member's guaranteed retirement income plan account an
amount equal to [8%] 6% of the member's regular earnings.
The County must make a one-time credit equal to .36% of the
member's fiscal year 2010 regular earnings to the member's
guaranteed retirement income plan account on the second pay
period in July 2010 for a member who is on the County payroll
as of June 30, 2009 and who is also on the County payroll as of
June 30, 2010. Interest must be credited at an annual rate of
7.25% on the County contribution credits. If the annual 7.25%
interest rate does not comply with applicable law, the third
segment rate described in Internal Revenue Code Section
430(h)(2)(G) or any successor provision must apply. Interest
must be credited to a member's guaranteed retirement income
plan account balance on a monthly basis as of the last day of the
month.
(2)
Each pay period, the County must credit to each public safety
member's guaranteetl retirement income plan account an
amount equal to [10%] 8% of the member's regular earnings.
Interest must be credited at an annual rate of 7.250/0 on the
County contribution credits. If the annual 7.25% interest rate
does not comply with applicable law, the third segment rate
described in Internal Revenue Code Section 430(h)(2)(G) or
any successor provision must apply. Interest must be credited
58
59
60
61
62
63
64
65
66
67
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69
70
71
72
73
74
75
76
77
78
79
80
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Expedited Bill No.II-II
81
to a member's guaranteed retirement income plan account
balance on a monthly basis as of the last day of the month.
33-117.
Employer Contributions.
82
83
84
85
86
(a)
Amount of employer contributions.
(l)
Group I participants. The County must contribute to the
retirement savings plan in quarterly installments, on behalf of
each Group I participant, an amount equal to [8%] 6% of that
participant's regular earnings while a Group I participant during
a plan year. The County must make a one-time contribution of
.36% of the participant's fiscal year 2010 regular earnings on
the second pay period in July 2010 for a Group I participant on
the County payroll as of June 30, 2009 and who is also on the
County payroll as of June 30, 2010.
(2)
Group II participants. The County must contribute to the
retirement savings plan in quarterly installments, on behalf of
each Group II participant, an amount equal to [10%] 8% of that
participant's regular earnings while a Group II participant
during a plan year.
The County must make a one-time
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
contribution of .36% of the participant's fiscal year 2010
regular earnings on the second pay period in July 2010 for a
Group II participant on the County payroll as of June 30, 2009
and who is also on the County payroll as of June 30, 2010.
Sec. 2.
Effective Date.
The Council declares that this legislation is necessary for the immediate
protection of the public interest. This Act takes effect on July 1, 2011 except as
otherwise provided. For a member of the Optional Plan, Integrated Plan, Elected
Officials' Plan, or Guaranteed Retirement Income Plan holding the office of
(s)
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Expedited Bill No.ll-11
108
109
County Executive, Councilmember, or Sheriff, the amendments to Sections 33­
39(a)(1), 33-39(a)(2), 33-40(d)(1) and 33-40(e)(1) take effect on December 1,
2014. For a member of the Optional Plan, Integrated Plan, Elected Officials' Plan,
or Guaranteed Retirement Income Plan holding the office of State's Attorney, the
amendments to Sections 33-39(a)(1), 33-39(a)(2), 33-40(d)(1) and 33-40(e)(1) take
effect on January 5, 2015.
110
111
112
113
114
115
116
117
Approved:
Valerie Ervin, President, County Council
Date
118
Approved:
119
Isiah Leggett, County Executive
Date
120
This is a correct copy ofCouncil action.
121
Linda M. Lauer, Clerk of the Council
Date
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LEGISLATIVE REQUEST REPORT
Expedited Bill 11-11
Personnel - Retirement Plans - Contributions
DESCRIPTION:
The requested legislation amends the County Retirement Law to
(1)
increase by 2 percent member contributions to the Optional and Integrated
Plans; (2) decrease by 2 percent employer contributions to the Guaranteed
Retirement Income Plan, the Elected Officials' Plan, and the Retirement
Savings Plan; and (3) generally make changes in the employees'
retirement system.
The County faces a severe budget shortfall for Fiscal Year 2012 and the
proposed legislation is part of the savings in the County Executive's
proposed budget.
PROBLEM:
GOALS AND
OBJECTIVES:
To statutorily implement savmgs contained in the County Executive's
proposed budget.
COORDINATION:
Office of Human Resources
FISCAL IMPACT:
Office of Management and Budget
ECONOMIC
IMPACT:
EVALUATION:
See OMB Fiscal Impact Statement.
nla
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roO
cc.
set=
J-L­
061303
OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE, MARYLAND 20850
Isiah Leggett
County Executive
MEMORANDUM
March 15,2011
0:)
TO:
Valerie Ervin, President
Montgomery County Council
Isiah Leggett, County Executive
Legislation to Modify the County Retirement Law
FROM:
SUBJECT:
I am submitting for Council consideration a bill that would amend the County's
Retirement Law to increase by two percent member contributions to the Optional and Integrated
Plans in the Employees' Retirement System, and to decrease by two percent employer
contributions to the Guaranteed Retirement Income Plan and Retirement Savings Plan in the
Employees' Retirement System. This bill implements a part ofmy recommended FY12
Operating Budget and is projected to save the County $10.9 million in FYI2. I am attaching a
Legislative Request Report and Fiscal and Economic Impact Statement for the bilL
In light of constitutional concerns raised by the County Attorney, the changes for
elected officials in the Optional Plan, Integrated Plan, Elected Officials' Plan and Guaranteed
Income Plan would not become effective until December 2,2014, after the end oftheir current
terms.
c: Joseph Adler, Director, Office of Human Resources
Joseph Beach, Director, Office of Management and Budget
Kathleen Boucher, Assistant Chief Administrative Officer
Marc Hansen, County Attorney
montgomerycountymd.gov/311
~311/
240-773-3556 TTY
,.,
0'#''''••.•...,.
.
-.:y~.\.y
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OFFICE OF MANAGEMENT AND BUDGET
Isiah Leggett
County Executive
Joseph
F.
Beach
Director
MEMORANDUM
March 15,2011
TO:
FROM:
SUBJECT:
Valerie Ervin, President, County Council
Joseph F. Beach,
Director~
Council Bill XX-II, Perso
el- Retirement Plans - Contributions
The purpose of this memorandum is to transmit a fiscal and economic impact statement
to the Council on the subject legislation.
LEGISLATION SUMMARY
Expedited Bill XX-II amends the Optional and Integrated Plans ofthe Employees'
Retirement System (ERS) to increase member contributions, amends the Guaranteed Retirement Income
Plan (GRIP) of the Employee's Retirement System and the Retirement Savings Plan (RSP) to decrease
employer contributions, and generally amends the law regarding the employees' retirement system.
FISCAL AND ECONOMIC SUMMARY
There is a fiscal impact resulting from this legislation. The County Executive's FY12
Recommended Operating Budget includes the following savings:
2% Employee Increase in ERS Contributions
2% Employer Reduction
in
GRIP Contributions
2% Employer Reduction in RSP Contributions
Total
-$6,044,180
-$1,138,130
-$3,722,160
-$10,904,470
These budgetary savings are net of a total FY12 County cost for the retirement benefit of
$117,926,100. These are permanent, on-going reductions in the cost of employee benefits which will
change as employee compensation changes over time.
The impact on the individual employee varies, depending on the type of plan in which
they are enrolled. For the ERS, a defined benefit plan, to maintain the same level of benefit at retirement,
the proposed legislation requires an increase to employee contributions of two percent of covered
compensation. For RSP and GRIP, savings are realized through a reduction in the employer contribution
of two percent of covered compensation.
Office of the Director
101 Monroe Street, 14th Floor· Rockville, Maryland 20850 • 240-777-2800
\v\vw.montgomerycountymd.gov
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Valerie Ervin, President, County Council
March 15,2011
Page 2
The Department of Finance reports that the proposed bill may affect the take-home pay
for certain County employees who live in the County because ofthe increase in their contribution under
the Optional Retirement Plan or the Integrated Retirement Plan. However, the legislation has no
significant economic impact since any reduction in take-home pay for this group of employees is small
relative to the Montgomery County economy as a whole.
Other
Changes
These retirement changes are in addition to changes to the group health plan. The County
Executive's FY12 Recommended Operating Budget also includes group health savings, most
significantly from an increased employee cost share for the benefit. Under the County Executive's
Recommended Budget, in addition to salary-based premiums (described below), the County pays up to
70% of the cost of the premiums for the benefits listed below and all employees must pay a base-level
30% of the cost ofthe premiums for:
o
o
o
o
o
o
Health
Dental
Vision
Prescription Drug (standard plan). High Option plan participants still buy up.
Life Insurance
Long Term Disability
In addition, part-time and full-time employees whose annualized base salary is equal to or
over $50,000 and under $90,000 must pay an additional premium of $35.00 each pay period if they enroll
in a health plan or a prescription drug plan. If their annualized base salary is equal to $90,000 and above
they must pay an additional premium of $60.00 each pay period.
Finally, there is also savings in the CE's Recommended Budget from the following
prescription and life insurance plan changes:
o Mandatory generics. If a participant chooses to receive a brand name prescription
drug that has a generic equivalent, even if their doctor specifies that the prescription
be dispensed as written, the participant must pay the generic co-pay plus the
difference between the cost ofthe brand name drug and the generic drug.
o Participants receiving prescriptions by mail order must pay two copayments for up to
a 90 day supply.
o The County's prescription drug benefit will no longer cover reimbursement for' any
ofthe drugs specifically approved by the Food and Drug Administration for the
treatment of erectile dysfunction.
o Employees eligible for life insurance coverage must have term life insurance
coverage equal to one times their basic annual salary.
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Valerie Ervin, President, County Council
March 15,2011
Page 3
Projected FY12 and Outyear Savings
Projected budget year and outyear savings from these cost share, program, and contribution
changes are as follows:
Retirement and Gronp Health Savings Summary
FY12 -FY17
Savings
($
in millions)
1
2% Employee Increase in ERS Contributions
2% Employer Reduction in GRIP
Contributions
l
FY12
-$6.0
-$1.1
-$3.7
FY13
-$6.2
-$1.2
-$3.S
FY14
-$6.3
-$1.2
-$3.9
FY15
-$6.4
-$1.2
-$3.9
FY16
-$6.5
-$1.2
-$4.0
FY17
-$6.7
-$1.3
-$4.1
2% Employer Reduction in RSP Contributions·
Three-tiered Cost Sharing Arrangement!
Prescription Plan Design Changes
Total
I
-$IS.7 -$20.6 -$22.6 -$24.9 -$27.4 -$30.1
-$29.6 -$31.7 -$34.0 -$36.5 -$39.2 -$42.1
2
Outyear savings are projected to grow
by
the CPI-U for the BaltimorelWashington area (Source: Montgomery County
Department ofFinance).
2
Outyear savings are projected to grow
by
the assumed growth in group health claims, premiums, and administrative
cost growth, as projected
by
Aon Hewitt.
The following contributed to and concurred
with
this analysis: Lori O'Brien, Office of
Management and Budget; David Platt, Department of Finance; and Wesley Girling, Office of Human Resources.
IFB:lob
c: Kathleen Boucher, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Jennifer Barrett, Director, Department of Finance
Joseph Adler, Director, Office of Human Resources
Linda Herman, Director, Board of Investment Trustees
Wesley Girting, Office of Human Resources
David Platt, Department of Finance
Michael Coveyou, Department ofFinance
John Cuff, Office of Management and Budget