Providence Council Considering Overhauling Pension System
Wednesday, February 08, 2012
More school closures, fire station closures, the inability to make payroll and ultimately, bankruptcy, are looming if the city cannot address its massive unfunded pension liability, former Auditor General Ernest Almonte said Tuesday.
Almonte delivered the stark warning to members of the Providence City Council Subcommittee on Pension Sustainability, the group tasked with making recommendations to the rest of the Council on how to reform the city’s pension system.
The meeting was the first in a series of hearings where the subcommittee will receive testimony on municipal pension reform.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“What I’m about to tell you doesn’t feel good, taste good or smell good,” Almonte said before breaking down information about the city’s financial struggles as well as a municipal pension report issued last fall.
$901 Million Unfunded Liability
The June 30, 2011 actuarial valuation of the Providence Employees Retirement System conducted by Buck Consultants showed an unfunded liability of $901 million. The same valuation estimates the Fiscal Year 2012 annual required contribution to be $64.8 million, which is a year over year increase of $ 5.9 million In addition, the city is staring down a nearly $1.5 billion unfunded liability for Other Post-Employment Benefits (OPEB), of which it has just $1 million set aside for.
“The numbers are all big and they’re all bad,” Almonte said.
Almonte said a lack of actions will have a ripple effect and the consequences will be dire. He noted that Providence is one of four communities where more than 40 percent of the entire tax levy is going toward paying for pensions and health benefits for retirees. The others include Central Falls, Woonsocket and Johnston.
“It’s bad company to be in,” Almonte said.
System is Unsustainable
The subcommittee has already approved two ordinances which would 1) Change the definition of “final compensation” for purposes of calculating retirees’ benefits so the benefits would be based on the highest five consecutive years of compensation within the last ten years of service rather than the highest three years; and 2) Require employees with 25 years or more of service to continue to contribute to the pension system for the length of their employment.
But the city is still waiting for the General Assembly to grant it the tools to make substantial changes to the pension system, most notably through the suspension of cost-of-living-adjustments (COLAs). Last year state lawmakers allowed the city to move retirees over the age of 65 to Medicare, but a judge ruled that retirees are entitled to lifetime benefits from the city last week.
Salvatore said the Council is committed to reforming the current system.
“The current pension system is unsustainable; moreover, maintaining the current pension system without making fundamental changes will significantly affect residents’ quality of life,” he said “The system demands more and more money from taxpayers every year, which results in the crowding out of resources for crucial city services. There are no easy solutions, but the subcommittee is committed to taking the required actions to make Providence’s pension system sustainable once again.”
Recipe for Disaster
Almonte warned the Council not to sit idle when it comes to pensions.
“The status quo does not work. It’s a recipe for disaster,” he said.
“You’ll basically run out of cash and you will be a bankrupt city.”
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