23 Local Pension Plans in ‘Critical’ Condition
Tuesday, May 29, 2012
Nearly two dozen local pension plans are less than 60 percent funded and are considered in “critical status,” according to the latest experience studies and actuarial valuations required by state law.
Now state officials have grouped the municipal plans into eight tiers, ranging from the best-funded plans that aren’t in need of an intervention (Warwick’s municipal, police 2 and fire 2 plans) down to several plans that are well-under 35 percent funded and have yet to complete experience studies.
The state’s pension reform law passed last fall required all municipalities to submit their actuarial valuation studies to a pension study commission. All plans that are less than 60 percent funded are considered to be in “critical status” and communities are required to submit a corrective action plan to improve their funding status within six months.GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST
The plans in critical condition include: TIER 4 – Tiverton (54.1%), Warwick fire and police 1 (22.3%), West Warwick (26.3%), Scituate (27.5%); TIER 5 - Bristol (47.5%), Coventry municipal (25.3%), Coventry police (11.3%), Cranston (16.9%), East Providence (33.6%), Johnston police (27%), Johnston fire (32.4%), Narragansett (59.4%), Newport police (57.1%), Newport fire (39.6%), North Providence (40%), Portsmouth (55.3%) Providence (32.3%), Smithfield police (18.5%), Westerly (51.7%); TIER 6 - Coventry school (30.5%), Pawtucket (30.3%); TIER 7 - Cumberland (38.9%); and TIER 8 Narragansett police (0%).
The Chafee/Raimondo Battle
But while communities have begun taking steps toward addressing their pension woes, Governor Chafee is still hoping the General Assembly will consider his municipal relief package, which will let distressed communities (Providence, Pawtucket, West Warwick and Woonsocket) freeze cost-of-living-adjustments and will allow mandate relief and binding arbitration reform on those municipalities.
Chafee’s package also includes disability pension reform, grants communities more control over their school budgets and would advance state aid.
The Governor blames cuts in state aid as the reason cities and towns across the state have fallen on hard times. Since the beginning of the recession, the state cut funding to communities by more than $240 million and Chafee believes the result has been skyrocketing property taxes and growing deficits that have already forced Central Falls into bankruptcy and others to take drastic measures to remain solvent.
“Massachusetts raised the sales tax and Deval Patrick took a beating over it, but it stabilized Massachusetts," Chafee said during a recent interview with GoLocalProv "We did it differently. We hit the cities and towns. We just passed it down to the local levels. That’s what cost us.”
The Governor has been critical of General Treasurer Gina Raimondo for not taking a more proactive approach to municipal reform when during last year’s statewide pension reform debate. He has said that because legislators are now facing reelection, they have only offered lukewarm support for his package even though 35 cities and towns have now passed resolutions supporting his plan.
Raimondo meanwhile has said cities and towns needed to do their homework before overhauling their pension systems. The current plan also addresses all communities as opposed to just the highly distressed ones. But the criticism led Raimondo to question whether Chafee had even reviewed the pension reform bill in a recent interview with local talk show Dan Yorke.
“Maybe the Governor hasn’t reviewed the legislation that was passed by the General Assembly, but there was an entire chapter dedicated to independent municipalities and that work is happening,” Raimondo said.
Cities and Towns Begin Making Changes
But while Chafee has been pushing for his relief package, cities and towns have been conducting actuarial valuations and have begun the initial steps of addressing their unfunded pension liabilities.
In Portsmouth, for example, the town recently lowered its return on investment rate to 6.75 percent, down from 8 percent in prior years.
"I should point out that the town has consistently made its annual required contribution to the pension plan as determined by our actuary,” Town Administrator John Klimm wrote in a letter to pension recipients recently. “Due primarily to the poor financial market results in fiscal year 2008-09 and the lowering of our projected investment rate of return from 8 percent to 6.75 percent, the town's funding status has dropped below 60 percent."
In a similar letter, Bristol Town Administrator Diane Mederos informed pension recipients that the town had also reduced its projected return on investment rate, which dropped the funding rate below 50 percent.
“The town takes very seriously the responsibility of this liability to our pension plan recipients," Mederos said. "We are funding the plan at 100 percent of the amount recommended each year by our actuaries, and will continue to review the plan to ensure that it is sustainable in the long-term."
Warwick Councilor: “Time is Running Out”
In Warwick, three of Mayor Scott Avedisan’s plans are among the best funded in the state. For police and fire 1, which is only 22.3 percent funded, Avedisian says the city is on year 18 of a 40-year effort to fund the struggling pension plan.
“The truth of the matter is that of the city of Warwick's four plans, three are in good shape," Avedisian wrote in a letter to Treasurer Raimondo in April. "The city has already accomplished the second component of pension reform (coming up with a funding formula for a poorly funded plan). The city has embarked on a 40-year plan to be fully funded and is currently in year 18 of that plan."
Still, the worst pension plan in the city is also the largest, which has led City Councilman Joseph Solomon to question whether Avedisian is being honest about the city’s financial security.
For Solomon, Avedisian's argument that the majority of the plans are well-funded is tantamount to a person saying he is not in debt because three of his credit cards are paid off when the fourth carries a $50,000 tab.
“Like many of our neighbors, we in the city of Warwick face some serious liabilities,” Solomon said last week. “Time is running out. Warwick city leaders need to stop downplaying our significant financial challenges and start getting behind solutions.”
Dan McGowan can be reached at [email protected].
