Report Inappropriate Comments

Providence Journal: Misguided sacrifice by Warwick unions

by ROBERT CUSHMAN

The City of Warwick and its police, fire and municipal unions recently agreed to contracts that included provisions for no raises and increases in health-care cost sharing over three years. According to one union president, job security and preservation of pension benefits played a role in the sacrifices made in accepting the contract.

On the face of it, how could anyone argue against such reasoning?

One needs to look no further then Stockton, Calif., to answer that question.

In the past, Stockton employees accepted similar terms, believing the money they gave up would pay for future benefits. Today, more than 25 percent of its police officers, 30 percent of its firefighters and 40 percent of all other city employees have been terminated. As a result of fiscal mismanagement and outright deception by city leaders, those promised benefits are also now in jeopardy. The city just filed for bankruptcy.

Could Warwick employees be facing the same future? Some signs suggest the city is already experiencing the same fiscal problems that occurred in Stockton years ago.

For example, with a population 3.5 times the size of War-wick, Stockton’s unfunded health-care liability, at $417 million, is much lower per capita than Warwick’s $300 million health-care liability. Factoring in pension liabilities and outstanding bonds, Warwick’s total debt is over $1 billion.

That number will soon grow exponentially when new government accounting standards require the use of a more realistic rate of return on pension investments. That didn’t stop Warwick administration officials from quelling the apprehension of city employees at the budget hearing by announcing to them huge first-quarter pension investment returns, even though city officials knew that over the last15 years no plan has met the expected return. The crowd erupted in a standing ovation, believing the plans were in good shape.

Moody’s, the credit rating agency, is changing how it accounts for reported pension debt precisely because other government leaders have similarly misrepresented liabilities. This will result in a massive increase in the annual required contributions to fund benefits and will overwhelm the ability of taxpayers to fund these plans. The harm will be felt across the country as municipal bond ratings are cut.

Warwick pension plans made national news when Eileen Nor-cross, a senior research fellow with the Mercatus Center at George Mason University, examined the effect of the city’s using a low-risk rate to calculate its pension obligations and the effect it will have on the budget.

The National Review Online reporting on Norcross's finding stated that “the main message is that if Warwick wasn’t engaging in discount-rate gimmicks and other actuarial tricks, 75 percent of the town’s budget should be dedicated to health-care and pension spending. For the city to fully fund its pensions, it must increase its annual contributions threefold. That means cutting a gigantic amount of ‘other’ spending.”

Already, local taxes to support the city budget have increased more than 52 percent since 2007. City spending is at an all-time high. Education spending is below 2008 levels and has been level funded four out of the last five years. Over the last eight years, less than 8 cents for every new dollar allocated to the city budget has been spent on non-personnel related items.

One need only drive around town to see the effect of eliminating the street repaving budget, and the effects of cuts to public-works projects, and elderly, youth, recreation and social-service programs.

Last month, Councilwoman Camille Vella-Wilkingson made matters worse with legislation that requires Warwick to approve a budget that allocates funds equal to actuarial required pension payments, regardless of the consequences it will have on employment levels and other municipal programs and services.

Mayor Scott Avedisian’s pension-reform legislation, enacted last year, only affected employees hired after July 2012. The net $1 million savings over the next 10 years that were touted by him are dwarfed by the $25 million in additional revenue that will be needed.

The problem in Warwick and municipalities throughout the state is that political and union leaders have failed to make the changes necessary to create an honest, sustainable system for the taxpayer and the employee. Instead, they promote a false sense of security for active employees whose disposable income is reduced while retired employees receive an automatic 3 percent raise each year and all pay nothing for their health care. That simply is not fair.

The National Review said it best: “Unfortunately, at this point, Mayor Scott Avedisian, like many others, prefers denial to sound accounting and budgeting. Mayors, like governors and congressmen, do not like hard choices and spending cuts. That’s too bad, because if the city keeps its head in the sand, it is likely to experience a severe crisis within the next 10 years.”

Robert Cushman, a Democrat, is a former Warwick city councilman and former chairman of the School Committee.

From: Mayor touts city's financial position

Please explain the inappropriate content below.