Municipalities Choking on Pension Costs: City-by-City Breakdown
Monday, January 30, 2012
Some of the most cash-strapped cities in the state would need to dedicate at least 30 percent of all property taxes to pensions and health benefits in order to cover the costs needed to pay for retirees, according to a report issued by the auditor general last fall.
In total, eight municipalities would have to use more than 30 percent of their property taxes to make the annual required contribution to all pension and other post-employment benefit (OPEB) plans, including Woonsocket (60.7 percent), Central Falls (57.5 percent) and Providence (50.6 percent). Statewide, $1 of every $4 brought in from property taxes would need to go toward retirees to make the yearly required contributions in full.
The report factored in property tax levy, pension and OPEB information from 2010.
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The numbers serve as yet another indicator of the struggles municipalities are facing as they wait for state lawmakers to address local pension plans. According to the same report, two-thirds of all locally administered pension plans at considered at-risk and less than a month into the new year, the state has already had to offer cash advances to help keep two cities afloat.
In East Providence, lawmakers agreed to give the city $12.6 million in education aid early to help pay bills and just last week, the state allowed Pawtucket to borrow $12.6 million in tax anticipation notes (TANs) to help cover city costs beyond March. It was the second consecutive year Pawtucket borrowed from the state.
“East Providence is just the beginning of round two of the cities and towns that will be asking for state fiscal management assistance,” Dr. Edward Mazze, Distinguished University Professor of Business Administration at the University of Rhode Island, said late last year. “West Warwick may be next followed by the larger cities and towns who have been unable to manage their fiscal affairs because of the economy and lack of state financial support. It is time to put fiscal decisions and the control of the budget back to city and town governments.”
Paying Past Promises
In the capital city, $1 out of every $2 in property taxes would need to go toward pensions and OPEB if the city were to make its annual required contributions across the board. The city’s financial outlook took another hit late last week when an internal memo revealed the city could run out of money by June.
For months, Mayor Angel Taveras has called on the state to allow the city to make changes to pension plans, most notably through the suspensions on cost-of-living-adjustments (COLAs).
“The biggest issue that we have in the city of Providence on pensions are five and six percent compounded COLAs given out in 1989 and 1990,” Taveras told GoLocalProv in a recent interview. “And I like to point out, I was in college back then. Those are the ones that are most troublesome overall for us and the city. We are paying for past promises.”
But those past promises will be nearly impossible to address without intervention from the General Assembly because the State Supreme Court has already ruled that unions do not represent retirees. Taveras said the city can’t simply “contract” or “tax” its way out of the problems.
“You want to solve this issue in this city, we are going to have to address the past,” Taveras said. “And this is not something you can contract your way out of. And you can’t tax your way out of it either. You can’t contract your way out of it because the contracts we signed do not apply to the retirees. And the Supreme Court says the union doesn’t represent the retirees.”
Give Cities and Towns Power
Pawtucket and West Warwick are no different. In addition to borrowing from the state, Mayor Don Grebien has added his voice to the growing cast of local leaders calling for changes to local pensions. Grebien said pension reform will not be complete until municipal plans are addressed.
“Until pension plans now threatened with failure at the city and town level are addressed, the task of reforming and stabilizing the pension systems throughout Rhode Island, for the financial security and well-being of retirees, current employees and taxpayers alike, cannot be called complete,” Grebien said. “It is a problem the City of Pawtucket shares with many other municipalities similarly affected, and as mayor I will work diligently with them and with state and local leaders until we have achieved the long-term solutions that it so clearly demands.”
West Warwick Council President Angelo Padula has been more aggressive with his suggestions. More than one-third of all of his town’s property taxes would need to go retirees in order to make the full contribution and Padula has predicted the town's pension system is only five years from being insolvent.
“It’s ludicrous,” Padula told GoLocalProv in an interview late last year. “You can’t keep paying pensions and let it keep going and make taxpayers pay for it. They have to give cities and towns some power. If they give us no pension reform, nobody is going to get anything,” Padula said. “You couldn’t raise taxes enough pay for these pensions.”
Chafee: Time for Solutions
While General Treasurer Gina Raimondo has been hesitant about calling for immediate changes to local pension plans – she wants cities and towns to research the full extent of their problems first – local leaders do have Governor Chafee’s ear.
Chafee called for municipal pensions to be addressed during the special session last November and has continued to offer his support to cities and towns.
“The fiscal health of the state of Rhode Island is directly linked to the fiscal health of our cities and towns,” Chafee said just after Christmas. “Thriving municipalities are key to Rhode Island’s future economic success. We all worked hard for the passage of the Rhode Island Retirement Security Act but it was just a first step towards getting Rhode Island’s fiscal house in order. As I said at the time, that legislation doesn’t address the whole problem. I remain fully committed to developing solutions that address the whole problem for the people of Rhode Island.”
Chafee said the problems are evident and it’s time for action to be taken.
“As a former Mayor, I fully understand the issues facing our cities and towns and know that a collaborative effort on the part of all the interested parties is necessary to develop real solutions,” he said. “These issues have been studied over and over again. We all know what the problems are; we must continue to work with our sleeves rolled up and get to solving them.”
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