The news from the financial fronts all looks to be good.
The city ended the fiscal year with a $3.6 million surplus, putting municipal reserves at $11.8 million, the highest they have been since Mayor Scott Avedisian took office. Then several weeks ago the mayor released the actuarial reports of the city’s three law enforcement pensions. One of those pensions, Fire/Police I, has a funded ratio of 22.3 percent as of July 1, 2013. That’s an improvement of 2 percent, but overall, as city officials have known for years, the pension is seriously underfunded if it is to meet projected benefits going forward. In 1995, the city implemented a 40-year amortization schedule that it has faithfully followed at the cost of $14.8 million for fiscal year 2014 alone. There’s a plan in place, but it only promises to get pricier every year.
Then last week, the mayor announced that for the 2013 calendar year, all four of the city’s pension investments had outpaced benchmarks, showing market returns ranging from 16.1 to 17 percent. Fiduciary Investment Advisors manages the investments under the oversight of city financial officers and the Retirement Board in the case of the municipal plan.
But to assume the fiscal horizon is clear of clouds would be a mistake.
The gradual growth in pension contributions the administration foresees for public safety pensions is largely attributable to the three-year, no-raise contracts negotiated with municipal employees. As cost of living adjustments (COLAs) for public safety retirees in Fire/Police I are linked to current salaries, the city has accelerated amortization by $5 million by freezing the COLAs for even this relatively brief period. That has eased the precipitous increase in city contributions over the next several years.
To truly change the dynamic, and build in relief for the taxpayer, COLAs, as is the case with the Municipal plan, should be linked to the actuarial soundness of the plan and performance. Maybe this means giving retirees less than what they had been promised, but it’s ensuring a plan is there for them.
Let’s not let this financial euphoria hide the long view.
When looked at over the past five years, the investment returns on the four plans average about 13 percent. Over 10 years, the average yearly drops to 7.2 to 7.3 percent, or practically the 7.5 percent used as a benchmark.
No question, Warwick’s fiscal house is in better order than many other municipalities. It has come with sacrifices of its workers and its taxpayers. To solidify that foundation so that legacy costs don’t deplete resources to carry the community forward requires more hard work and reform.
We shouldn’t be lulled to complacency by this welcome bit of financial sunshine.