Ten Communities Facing Pension Disaster
Thursday, August 11, 2011
More than ten cities and towns across the state will see the annual amount they have to contribute to the state pension funds for municipal workers and teachers nearly double between this fiscal year and next—if the General Assembly takes no action to reform pensions this fall.
“It’s going to be devastating,” said Gary Sasse, the former Director of the Department of Administration and former long-time head of the Rhode Island Public Expenditure Council. “It will probably push some cities and towns that are already at the tipping point over the edge.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTOverall, the amount all cities and towns have to contribute will go from about $138.2 million in the current fiscal year to $230.5 million in the next, a hike of a little over $92.2 million, or 67 percent, according to data provided to GoLocalProv by the Rhode Island League of Cities and Towns.
About a fourth of all communities, however, will see sharp increases ranging from 70 percent to more than 90 percent, including everyone from Barrington and Hopkinton to North Providence and Woonsocket. (See below chart for the complete breakdown.)
“Unless there is serious meaningful pension reform enacted by the General Assembly when it reconvenes in October many municipalities will be looking at financial emergencies and, in the future, communities may very well experience the same kind of fiscal stress Central Falls is experiencing,” Sasse said.
A few increases as high as 300 percent—or more
The skyrocketing costs are even more dramatic for some of the individual pension funds. For example:
■ In North Providence, the employer contribution to the state plan for municipal workers will shoot up 678 percent.
■ North Smithfield will have to pay 521 percent more into the state fund for municipal workers, known as MERS.
■ East Greenwich will owe 237 percent more to MERS.
■ Barrington is facing 334 percent more to one of the funds for firefighters it has through the state retirement system.
When will ‘urban centers start collapsing?’
Sasse worries that, if unaddressed, the rising pension costs could send Rhode Island on a downward economic spiral that will be harder for the Ocean State to climb out of than other states.
He warns that the only way cities and towns can keep up is by raising taxes above the state-mandated tax cap—at a time when Rhode Island property taxes are already about 40 percent the national average. Those tax hikes, he said, will create economic hardships for homeowners across the state.
Sasse noted that 70 percent of the increased contributions stem from the state pension plan for teachers—beyond the control of local municipalities. He also said the data actually understates the problem because it only shows the increased contributions for the state retirement system. Another key factor, he said, is how much more cities like Providence will owe to the pension funds that they maintain independently of the state.
The troubles in the state system add to the pension burdens cities like Warwick, Cranston, and Providence were already facing in their own systems, said John Ward, the president of the Woonsocket City Council. “How long will be before some of these urban centers start collapsing?” he said. “It’s a very precarious position we’re in.”
Woonsocket official: Nothing left in budget to cut
In the 2013 fiscal year, Woonsocket will owe the state $5.9 million more for municipal workers and teachers—an increase of 92 percent.
Ward said the city would have to raise taxes by 10.5 percent just to pay for that increased pension cost.
“It’s an extraordinary burden,” Ward said.
If the city ends up having to pay that, Ward said it will have little choice but to raise taxes—Woonsocket, he said, has already cut just about everything it can in municipal services. The number of full-time employees has been reduced by one third since 2001, there is no longer a city-funded recreation program, the Police Department is down by 10 officers, and the Fire Department has lost 16 members over the last four years.
“Our parks are being neglected. Our streets are not being repaired,” Ward said.
On the school side, he said the budget is actually down by $3 million from where it was three years ago.
Ward said there is not much left to cut. “We’ve been working at this for a good long time,” Ward said. “The problem is you can’t do anything further without doing things that nobody has done.” As an example, he said the city would have to turn to more extreme cost-cutting measures, such as ending trash collection, to further reduce its budget.
Moreover, even with the cuts already implemented, he said the city has still had to increase taxes—at an average rate of 8.5 percent more each year for the past few years.
Ward is optimistic that real pension reform will happen this year—if for no other reason than the fact that there is no other alternative for state lawmakers. “I think we’re seeing the brick wall that we’re running headlong into,” he said. “I think their options are very limited.”
Hopkinton official: Only option is tax hikes
In many respects Woonsocket and Hopkinton are opposites—in terms of geographic location, size, and density. But when it comes to the pension shock, the impact is comparable: Both communities are facing increases in their contributions to the state pension system of more than 90 percent in the next fiscal year.
In terms of dollars, Hopkinton will owe about $280,000 more—a not insignificant amount for a town that has a total municipal budget of about $23.2 million in fiscal year 2010. (And just $5.6 million of that goes towards town departments. The rest is for the schools.)
News of just how much more Hopkinton will owe came as a bit of a shock to Thomas Buck, who is vice president of the town council. “That kind of an increase compounded with everything else that goes up—we’re really going to have to sit back and look at how we’re going to accomplish it,” Buck said.
Unlike larger communities and cities, he said there isn’t much to cut in the first place in the way of municipal services—Hopkinton does not pick up trash and it does not have municipal water or sewer service, he noted. “Hopkinton doesn’t offer services,” he said. “What services are you going to cut?”
“Do you cut the Highway Department? Do you cut the secretary?” Buck said. “How do you cut $200,000 plus?”
He said the town in recent years cut a police officer. If it cuts one more, he said the move will backfire because minimum manning requirements will force the department to pay officers on overtime. “You’re in a Catch 22,” Buck said.
The bottom line: “The problem is the taxpayers are going to be the ones to foot the bill.”
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