Michael Riley: Failed Pension Commission Ponders Permanent Oversight Commission
Tuesday, May 20, 2014
After last month’s debacle and rant by Mayor Joe Polisena, the RI Municipal Pension Commission resumed its rudderless mission to “do something” after 2 ½ years of meetings. On the surface was more of the same, no Angel Taveras in sight. He has clearly determined this Pension Commission is a complete waste of time. After all, why would anyone running for Governor of Rhode Island even care about possible solutions to the Municipal Pension Crisis? There were, however, a bunch of serious questions and comments mixed with predictable maneuvering to have even more Labor and Mayoral representation on the contemplated and inevitable useless oversight committee.
Realizing that this commission has done all it will ever do, Chair Gallogly moved on to discuss a permanent version called the” RI Municipal Permanent Pension Oversight Committee”. Almost immediately, the dysfunctional current commission members began lobbying for greater representation… Mayor Polisena said “what about mayors or administrators and unions and of course, Municipal employees are different than police and fire. The contemplated committee of 5 quickly doubled. Somehow within the documents handed to onlookers, the suggestion of 2 public appointments was in the design but only if those public professionals were on a list compiled and approved by John Simmons at RIPEC. Well, there’s some real “outside “input. Taxpayers statewide should be greatly assured by this “independent” entity selecting arbiters.
The notion that the general assembly will put teeth into a proposed new “pension oversight committee” is laughable. Long ago the single party Assembly has distanced itself and all cities & towns from any accountability for pension underfunding.. The Assembly could have avoided much of the current pension and OPEB crisis by having empowered the Auditor General. A good government would have done just that and still should consider it as an option. The office has been a watchdog but without any power, not much more than that. Towns regularly ignored warnings without fear of reprisal. For example Auditor General Ernest Almonte in 2007, the year Mayor Polisena was elected in Johnston, identified the Locally Administered Pension Plans Considered at risk. The report is linked here.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTJohnston Rhode Island is on the list of towns entitled “pension plans at Risk”, so contrary to Mayor Polisena and his rant last meeting, Mr. Almonte had actually warned Johnston in a very public way as far back as 2007.Polisena did nothing and could obviously care less. Narragansett did the same thing when I publicized the issue there in 2006. Appropriately, one of the questions posed aloud this morning was, “what if a city and or Mayor is officially warned or cited by the commission and has submitted a plan that they really have no intention of implementing and or just refuse to pay the ARC. What then?” This is exactly the situation in many towns today and is the crux of the issue. This is why the last 2 years of this commission have been a waste of time., further imbedding the notion that there are no consequences to their behavior.
Fact Gathering …we got that
So we have 2 yr old data on our “Crisis Towns” . Now what? The commission and the towns have completed the unneeded hand-holding project, of slowly allowing towns to come into compliance with existing law by providing up to date CAFR, Experience Studies , OPEB studies and Funding Improvement Plans. This slow process has created its own problems of stale data now being used for analysis.
How big is the Problem?
In order to determine the extent of the problem we need recent data and standardized discount rates as well as culling data for “asset pumping” like Providence. One major problem and a huge miss by this commission relates to the discount rate. It seems that, despite their own track records, every town thinks they have a financial genius. Or much more likely they are completely aware that a high discount rate translates to lower their obligation. Thus their cynical goal is to find an actuary to pay and confirm that higher rate. Far too many towns want to use a discount rate that is highly inappropriate. This “ad hoc” rate decision combined with purposeful underfunding and exorbitant as well as unaccounted for benefits, are why we have this crisis today. Okay. Lets Stop this.
We could have cleared up any discount rate controversy in just 2 meetings. Now, how do we compare apples to apples these “Crisis Towns” current funding condition? How do we evaluate the effect that updated FIP‘s will have on plans to get to 60% funded? The last two commission meetings have properly focused on GASB 68 and it’s clear that every city and town currently on the “Crisis list” will have an increased liability and an increased ARC as a result of following GASB 68. A real commission would have already explicitly warned exactly that. They would have standardized each town’s calculation based on GASB 68. The Auditor General and the Pension commission then should adjust the FIP’ they have already collected in order to calculate the Correct ARC’s. This commission or its surviving oversight entity then should closely monitor the towns to make sure the towns actually budget the newly calculated ARC payments. This is a workable process. The process can be repeated for OPEB as well.
Teeth
Paraphrasing Chair Gallogly: ” if the Oversight entity or the State does not have any enforcement mechanism or any teeth ..then all we have done for 2 years as a Commission is collect Data that is already out of date….” EXACTLY !!! When Chair Gallogly asked for suggestions of teeth or enforcement… she was met with a lengthy silence. Duh! Did she really expect a suggestion from the Mayor of Johnston or from anyone else at the table? This is where leadership should have been exhibited and the Chair once again failed miserably to lead.
One really helpful suggestion made was to Amend legislation related to collective bargaining, relating to fiscal impact statements to require that an actuary provide a statement, with cost estimate, for collective bargaining changes effecting pension and OPEB items, prior to entering them, if there is a material change.
This could really help. A fiscal impact statement would prevent questionably solvent towns maintaining huge pension obligations from exacerbating town liability with raises, or anything affecting pensionable salaries.
The problem of Pension Crisis is massive and still not properly calculated. We could calculate that in a week then we need an action plan with teeth. Real teeth. Without that we will see the irresponsible Towns ignoring yet again another commission and planning instead to ultimately look to the State and all Rhode Island taxpayers to “bail out” their poorly run towns.
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