December 18, 2014
Rate this
Mayors find proposal for municipal pensions, 'all stick, no carrot'

Governor Lincoln Chafee said Tuesday cities and towns that run their own pension plans face a choice. But after looking at Chafee and General Treasurer Gina Raimondo’s pension reform, as it would affect plans independent of state plans, at least two mayors don’t like the choices.

Reminding legislators of what’s happened in Central Falls Chafee told state legislators, “We can pass legislation that doesn’t touch the local plans, and return here soon to take up this issue again. Or we can address them now in a comprehensive pension reform package that ensures financial stability for our municipalities and the citizens of our state.”

Further, he said the condition of some of these plans qualify for the state to intervene. He said 24 of the 36 independent plans “are in grave danger because of inadequate funding levels.”

“I know that you don’t want to hear these words, just as I don’t want to be uttering them. But I also don’t want to have to appoint receivers to take over these cities and towns, receivers who will have no choice but to impose drastic cuts, such as those Judge Flanders has imposed in Central Falls. Honest, comprehensive reform means a top-to-bottom effort that doesn’t simply ignore these local plans because they aren’t operated by the state. We can’t have true pension reform if our cities and towns are neglected,” he told legislators.

Unlike state pension benefits that are set by statute, municipal pension benefits are the result of contract negotiations. This raises the issue of how municipalities would gain concessions and whether that can be achieved within next year’s deadlines set forth in the proposal. Further, many municipalities are at a loss as to how to deal with retirees already receiving pension benefits. These people are no longer union members and are without representation, yet it is their cost of living increases that are principally responsible for the unfunded portion of their plans.

Cranston Mayor Allan Fung, who served on Raimondo’s pension advisory board, called the plan “horrible” yesterday.

Fung said the plan is “all stick without any carrot.”

The proposal requires municipalities to conduct actuarial studies of their plans that would be partially funded by the state and draft a 10-year plan that would improve its funding by at least half of what it would take to reach 80 percent funding.

The plans would be subject to approval by a solvency review board that would have the power to withhold state aid to municipalities, including school aid, as an incentive. If the municipality doesn’t take action, the state would step in to remove COLAs in the city plans and presumably the municipality would also see a decrease in state funding.

This is a bitter pill for Cranston to swallow, says Fung.

He cites the Cranston plan for police and fire hired before 1995. That plan has 500 members with all but 55 who have retired. Presently the plan faces an unfunded liability of about $300 million. It is approximately 18 percent funded.

To accomplish what the governor and Raimondo set forth, Fung projects he would have to raise an additional $9.5 million in tax revenues every year for the next 10 years.

“I can’t level 10 years of tax increases on the taxpayers. They have had enough,” he said.

If there was a carrot – state aid – then, says Fung, the city could handle it. The alternative is for legislators to also reform local plans, and to suspend COLAs, although the unions would likely challenge that.

But faced with either losing state aid or increasing taxes, Fung calls the plan “a losing proposition.”

Johnston Mayor Joseph Polisena would like some “breathing room” for municipal officials so they can meet with Raimondo and House and Senate leaders to hammer out something after the first of the year.

“They didn’t really ask our opinion on anything,” said Polisena.

He called the current proposal “punitive” and if it were implemented “it’s going to put the cities and towns in virtual bankruptcy.”

“Let’s get the state pension straightened away and MERS,” he said.

The Johnston fire and police plan faces an $84.4 million unfunded liability.

Warwick Mayor Scott Avedisian sees complications, although his assessment isn’t nearly as dire.

"The complexity of adding all of the nuances relative to each individual municipal plan could create problems with passage of real reform,” he said in a statement. “I believe that the Governor and the Treasurer are both committed to working with each individual community and on each individual plan. Each plan would require its own actuarial study, updated assumptions addressing rates of return on investments and mortality rates. I know that Governor Chafee and Treasurer Raimondo stand ready to be full partners with cities and towns. Rhode Island stands on the threshold of making major pension reforms. I thank the Governor and the Treasurer and look forward to working with them on communities’ individual pension plans and in strengthening Warwick's one problematic pension plan.”


Comments
4 comments on this item

The "one problematic pension plan" needs to be fixed. Let's have a real discussion. It is not OK to have just one pension plan that can drag the city's bond rating down. The taxpayers need to know how much it will cost to fix this plan.

The mayor needs to take the lead on this issue.

Richard the Uninformed speaks again....

Yes there is one problematic plan in the city. They are taking steps to fix it. The rest are doing quite well. Two of the plans recieved a 19% return last quarter and are funded in the high 80's low 90's. Please stop with the sky is falling mentality. Its not. We in warwick are in much better shape than you lead on. Go back to doing something usefull, putting sandbags near the wastewater treatment plant...

Stevie D I really have to question your understanding of the entire pension process when you write about getting a 19% return in one quarter. Over the last ten years the plans have come no where near the 8% return they are acturially based on. meaning the unfunded liabilities keep getting larger in all plans. Also in a few years the taxpayer contiribution to many of the plans will exceed 30%. Employee contributions will also get bigger. Why? Because the plans are not i"doing quite well".

Warwick's pension plans will force the city into bankrupcy if something is not done. Even Mayor Avedisian stated that it would happen in tens years without reform. I predict it will be alot sooner.

Since you appear to know so much about the issue in the city, why don't you enlighten me as to the unfunded liability associated with OPEB (Other Post Employment Benefits - lifetime healthcare). Specifically tell me, how much money should the city be saving each year according to the experts (acturially reports)? How much does the city have in the bank currently? What is the unfunded liability? Where is the city going to get the money to fund these programs, along with raises for current employees and pay for all the other expenses related to the buget. The answer is they are not. And what ultimately will happen is that retirees and current employees will suffer.

Bottom line is that you need to wake up. All is not well in warwick. As the General Tresurey likes to say "do the math, the numbers don't lie".

SteveD: The bond rating agencies do not aggregate all the pensions together and take an average of the unfunded liabilities. Even if they did, you would not be very happy -- because the one pension that is bad is a real basket case and would drag all the other pensions down "below the line" that the bond rating agencies use to measure the risk of failure.

The 19% return for a single quarter is not a good sign. The 30 year fixed income yield is running at about 0.75% per quarter. That would mean that the actual return on the equity side would be significantly higher than 19% -- perhaps as much as 37% -- for a single quarter -- if the pension is invested half in fixed income assets and half in equities. Most people understand that a 37% gain in a portfolio for a quarter or 12% per month puts the asset into a very risky category.

By the way, putting sandbags next to the sewer plant is not a bad idea. Rhode Island Airport Corporation is pushing itself to the front of the line when it comes to waste water facility upgrades leaving the Sewer Authority competing for funds to fix the levee. It may be many years before the sewer authority has the borrowing capacity to fix the levee. Sandbags could at least even off the levee so that waters do not simply enter the plant through the low spot in the levee.

The levee is kind of like the Warwick Fire I pension: a certain to fail risk during the study period (30 years). Thanks for bringing it up.

You must be logged in to post a comment. Click here to log in.
Welcome to RIjobs.com
Copyright © 2014, Beacon Communications. Powered by: Creative Circle Advertising Solutions, Inc.