City pension plans in spotlight
Cushman claims system is unsustainable; Mayor says number taken out of context
So, who’s right?
Is it the former Ward 1 Councilman Robert Cushman, who says the mayor engineered his defeat and claims the city is headed for a fiscal meltdown because of the legacy costs of pensions and health care for retirees, or is it Mayor Scott Avedisian who says three of the city’s four pensions are on sounder financial footing than state plans and that there is a program in place to take care of the fourth plan?
Both are armed with statistics. Both accuse the other of taking numbers out of context and getting them to say what they want.
The point/counterpoint has simmered for years with the mayor charging the Beacon as giving Cushman a platform – his semi-monthly “The Taxpayers’ Spin” column – to bash him without responsible fact checking. Cushman argues the administration has dodged the issue, refusing to address it in public forums and seeking to discredit him with personal attacks.
Cushman’s critiques have not been limited to the Beacon. His comments have been published as op-ed pieces in the Providence Journal and he is a frequent caller to radio talk shows. The most recent exchange, actually about an hour apart from one another, occurred on the WPRO Morning News with Tara Granahan & Andrew Gobeil Monday when each virtually charged the other of lying.
The genesis of the latest exchange dates back to a joint House and Senate Finance Committee hearing on the comprehensive pension reform legislation introduced by General Treasurer Gina Raimondo and Gov. Lincoln Chafee. During the hearing, the mayors of Providence, Cranston and Pawtucket argued for enabling legislation that would allow them to suspend cost of living adjustments for municipally-operated pension plans. Such a provision was not included in the historic bill that was eventually passed and signed into law.
That provision was one of the issues discussed Tuesday when Governor Lincoln Chafee met with the three mayors and Dan Beardsley of the League of Cities and Towns to talk about statutory changes that could help municipalities address unfunded pension liabilities.
At the committee hearing last month, Avedisian painted a rosy picture of the three city plans, pointing out that the city is not only ensuring their financial viability going forward, but that with changes legislated to take affect next July, future costs would decline and that, unlike state plans, there were no automatic COLAs to keep driving costs higher.
Cushman argued that the mayor had misrepresented the facts and that, in reality, the city has an unsustainable system.
“I’m not making these numbers up. These are not my numbers,” he said.
Cushman also seeks to put at rest he’s out to get back at the mayor for his loss of the Ward 1 Council seat or that he is looking to run for office again.
“I’m not out to bash the mayor. I’m not running for office.”
He says the administration is in “a state of denial” and that his motive is to alert the taxpayers of the problem and get officials to do something about it now. He says the administration has increased spending and points to raises while “they have done nothing to address pension problems.”
That’s not the way others see it.
In a report issued in September, the state Auditor General ranked the most seriously imperiled municipal pension plans with a Category I being the worst. Two Central Falls’ plans were ranked as Category I, and 12 plans fell into Category II that are significantly under funded. Warwick’s Fire and Police Plan I was listed as Category II with a total unfunded liability of $210 million. The plan has a funded ratio of 26 percent. That plan is closed and the city implemented annual payments under a 40-year program to meet obligations.
The total unfunded liability of the city’s five plans including the Warwick Public Schools Employee Pension Plan is $260.5 million according to the Auditor General’s report. The unfunded liability of the four plans coming under the responsibility of the city administration is $250.8 million.
The city performs actuarial studies of the plans every two years. Studies of the Fire II and Police II plans are in the process of being done now and should be completed after the first of the New Year.
Peder Schafer, former Warwick finance director and currently associate director of the League of Cities and Towns, says it’s not simple to make comparisons or long-range assessments. Nonetheless, he said that the linkage of investment returns to cost of living adjustments, which is used in the Warwick municipal plan “became a model for the state plan.” The Warwick plan doesn’t make cost of living adjustments unless investment returns merit it, whereas plans in many other municipalities have built in COLAs regardless of investment performances.
Bearsdley takes issue with Raimondo that municipalities can change the COLAs on their own or do what Cushman suggests by eliminating pension payment increases for Fire and Police I retirees.
“We don’t have the tools; we can’t unilaterally change the terms of bargaining contracts,” Beardsley said.
Beardsley expects any effort to change benefits that are not negotiated will end up in court.
“It has to go to court,” he said, “and we’re asking for the tool to at least go to court.”
He said there is no law empowering municipalities to negotiate with retirees and what municipalities are seeking is enabling legislation from legislators. If cities and towns don’t get that power he predicts there will be “at least a half dozen more bankruptcies.”
Warwick is not one of them in his view.
“The city is definitely heading in the right direction,” says Joy Fox, spokeswoman for General Treasurer Gina Raimondo.
Fox said Raimondo has met with Avedisian and plans to do so again today to discuss the city’s pension plans. Fox noted that Avedisian is the first of the state’s mayors to seek a meeting to discuss municipal plans since state passage of the Retirement Security Act that reformed state pensions and reduces the state’s unfunded pension liability by about $4 billion over the next 24 years.
Avedisian said earlier this week his intent is to “get out ahead” of any legislative changes being contemplated.
“He’s proactive,” Fox said. Raimondo, she said, is looking at municipal plans with the thought that “retirement security is a priority.”
Fox said that cost of living adjustments that were responsible for pushing up the unfunded liability of state pensions and which were suspended under the legislation are tied to investment performance in the case of the city’s municipal plan and “self correcting “ for the Warwick Police and Fire II plan.
The mayor’s chief of staff, Mark Carruolo has reviewed Cushman’s graphs and conclusions. What he says Cushman has done is to take numbers from the actuarial reports out of context to arrive at incorrect conclusions.
As an example, he cites Police & Fire I, a plan that has been closed and by itself represents $210 million of the city’s unfunded pension liability costs. When Lincoln Chafee was mayor, the city adopted a 40-year plan to pay the pensions of those who retired on the plan. The city has 22 more years of payments to fully pay off the plan, according to actuarial estimates.
Those estimates, however, were based on the assumption that current fire and police salaries would increase by 4 percent per annum. That is a huge cost driver of the plan, as retirees get the same percentage increases won by unions for current employees. Fire and police haven’t received 4 percent increases and there is no guarantee they will in years going ahead.
While Cushman says his projections only consider municipal plans, Carruolo contends they also include city costs for teachers who are part of the state plan. Carruolo notes that with passage of the legislation, the city won’t incur the more than $6 million it would have otherwise had to pay and, in addition, there will be an $800,000 savings from current costs. That alone, he said, is about $7 million in pension savings next year that was not projected by actuaries when they did their report last April.
Further, he says, no city pension plan is less than 60 percent funded.
Acting Public Works Director David Picozzi, who also chairs the retirement board that oversees the municipal employee plans, says he’s proud of what they have been able to do with the plan.
“These are three good pension plans that have gotten lost in the shuffle,” he said Monday.
On the Monday morning show on WPRO, Cushman said, “We’re presenting the facts and if the mayor wants to sit down and have a debate let’s do that. Let’s open this up in a public forum. We just want him to recognize the problem. Let’s stop beating around the bush and dancing around the issues and say, ‘Warwick is in great shape.’ It isn’t.”
Later the mayor responded on air, “I’m not dodging the issue. I have a meeting this week with the governor and general treasurer to talk about what the next step in terms of what the pension reform should be. They want a forum where they can yell and scream at people, which I think is counterproductive.”
Ernest Zmyslinski, city finance director, says Cushman’s contention that the administration has had to raise taxes every year to account for the increasing cost of pensions fails to account for lost state revenues.
“It wasn’t because of pensions,” he said.
He points out that the city lost $4 million in state aid and another $12 million when it ceased reimbursing for $5,500 of the $6,000 motor vehicle value exemption. The exemption was lifted by the council and mayor in order to balance the current budget. It is projected to generate nearly an additional $8 million in motor vehicle tax revenues, still $4 million short of what the state was paying the city.