The Pension Tax - How Much Do You Owe?
Wednesday, June 15, 2011
One out of every four dollars cities and towns collected in taxes in 2010 was owed to retiree pensions and health care benefits, according to new data obtained by GoLocalProv.
The amounts that some cities and towns owed peaked at nearly half or more of their tax levies. There were five such communities: Central Falls, Woonsocket, Providence, Johnston, and Pawtucket. Two communities owed a third of their taxes to retiree expenses—West Warwick and Newport. (See below chart.)
The data shows that most communities simply could not keep up with the higher costs and paid less than they owed. But a fifth of all local taxes collected still ended up going toward retirement expenses.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTRetiree expenses will ‘devour’ local budgets
Municipal budget experts say that the increasing share of taxes devoted to retiree costs adds to the tax burden and threatens basic services. “Pension reform is the number one public policy issue from a financial perspective and it really indicates the need to put everything on the table to examine the benefit levels,” said Gary Sasse, a former director of the state Department of Administration.
Data provided to GoLocalProv by the Rhode Island Public Expenditure indicates a significant jump in costs. Between fiscal years 2010 and 2013, the amount communities owe just to the state system for municipal workers will increase by 15 percent, from $26.8 million to $57.6 million. That does not take into account the increases in more than 140 local pension plans, a number of which are not as well funded as the state system.
“The report validates what [the Rhode Island Statewide Coalition] has been saying for a while now, that if the current pace of growth of the pensions and retirement health benefits are not reversed, they will devour well over half of local community budgets within a few short years,” said Harriet S. Lloyd, the executive director of RISC.
“It’s already reached that point for Providence, which is bordering on insolvency now,” she added.
Governor Lincoln Chafee is aiming to address the pension issue by offering increased state aid in exchange for communities fully funding their pension systems. But Lloyd warned the program would backfire by causing taxes to go even higher.
“This data shows that Governor Chafee’s MAST Program, though presented as an aid program to cities and towns, will actually cause greater fiscal stress because it demands full funding of the pension plans but offers no scaling back of the benefit structure,” Lloyd said.
Central Falls: The Worst Case
The problem is perhaps most acute in the City of Central Falls, whose fiscal woes have landed it in state-run receivership. The current appointed receiver, former state Supreme Court Associate Justice Bob Flanders, told GoLocalProv that the state’s smallest city simply does not have the tax base to cover the annual required contributions to the retirement system and run city services at the same time.
“It’s extremely serious,” Flanders said.
Flanders said the city is currently in negotiations with all of its unions in order to restructure their retirement benefits. Time is running out to fix the city’s finances, he said. The city could soon be forced into a situation where it has to file for formal bankruptcy in federal court—which is the last and final stage of the new law governing state intervention in fiscally distressed communities.
“It’s close in the sense that if we don’t achieve the reductions in negotiations that’s probably the only other viable option,” Flanders said, adding that such a scenario also assumes that the city does not receive $4.9 million in state aid next year.
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