Stop downplaying Warwick’s pension crisis
During recent General Assembly hearings on pension reform legislation the mayors from three of Rhode Island’s four largest cities, Angel Taveras in Providence, Allan Fung in Cranston and Donald Grebien in Pawtucket, testified that their pension plans were in crisis and they needed help.
They practically pleaded with lawmakers to pass state enabling legislation that would allow them to suspend cost of living adjustments (COLAs) similar to the proposal for the state administered plans.
In presenting their case they also came prepared by providing facts and figures on how this one measure would save community services and help them reinvest some of the savings back into the underfunded plans.
Being that Warwick’s combined unfunded pension and other post-employment benefits (health care) are far worse than Cranston’s, one would have hoped that Warwick Mayor Scott Avedisian’s message to state lawmakers would be similar. Unfortunately, his testimony was the complete opposite.
Mayor Avedisian painted an upbeat picture for Warwick’s pension plans, indicating that all but one plan is well funded and that self-correcting mechanisms were in place to keep plans funded at required levels. What is most troubling is that many of his statements when examined more closely appear not to be entirely true.
For example, when the mayor testified as to the funding ratio for each plan, he claimed that new pension assumptions recently adopted by the state retirement board were also adopted in Warwick. The mayor states, “We mirrored the state ... we did the exact same thing and they were formally adopted by our city in July of this year.”
When a freedom of information request was made to the city clerk’s office requesting documentation verifying the mayor’s testimony, the response was as follows: “No formal correspondence, such as a formal letter, was sent to GRS [city actuarial firm] requesting incorporating the new state assumptions into our plans.” The response also included, “The City has not received new public safety valuation reports.”
The significance of this fact is that the mayor’s testimony may have led many to believe that all Warwick pension funding levels reflect the new assumptions. In reality, once these assumptions are used in calculations, the funding ratio of each plan will decrease, thereby resulting in additional taxpayer dollars needed to meet annual required contributions.
For state plans, billions of dollars of new liabilities were realized that will require over $300 million in new tax dollars without state reforms.
When the mayor described how procedures keep the newer public safety plans funded at required levels what he failed to mention was at what cost to Warwick taxpayers. Actuarial reports dated April 1, 2011 indicate that taxpayers will pay 21.48 percent and 19.89 percent, respectively, of a police and firefighter salary toward their pension. By 2015, that percent will increase to over 30 and 20 of salary, respectively. This level is simply unsustainable.
Further testimony by the mayor focused on new pension reform measures adopted by the city for new employees hired after July 1, 2012. The mayor testified that the city will realize savings of “$140,000 in the current fiscal year and increase to $500,000 in three years.”
Actuarial reports indicate that the $140,000 will not be realized until 2016. By that time, taxpayer contributions will increase by approximately $7.2 million. The $500,000 savings will occur in 2019 with taxpayer contributions increasing by more than $11 million by then. In 10 years, taxpayer pension contributions will double to over $41 million.
Already, Warwick municipal finances are heading in the wrong direction. Since 2004, over 45 percent of all new revenue allocated to the municipal budget is spent on retiree pension and health care expenses. After factoring in active employee health care costs and salary increases, approximately 92 percent of the new revenue is consumed.
Warwick city leaders don’t know how much lifetime retiree health care costs will increase over the next 10 years, that alone is frightful. However, the fact they haven’t even asked the experts to provide those figures should be more frightful to taxpayers.
We have all seen what happened in the city of Providence when the former mayor painted a false picture of financial stability. Warwick unfunded pension and health care liabilities are just as bad or, in some cases, worse than other cities.
According to a recent Beacon article, General Treasurer Gina Raimondo called on mayors and municipal leaders to follow the same path as the state and initiate pension reforms immediately if their plans face a crisis. Taxpayers must demand that the mayor stop downplaying the problem in Warwick and get the facts straight because you can’t fix a problem unless you first realize it exists.
Robert Cushman is a former Warwick City Councilman and School Committee Chairman.