Michael Riley: State Pension Fix in Limbo as Municipal Debt Grows
Tuesday, April 29, 2014
The Assembly Strikes Back?
The general assembly appears to be overwhelmingly interested in allowing all fire districts in Rhode Island to be under the jurisdiction of the revenue director, if in “critical status” and presumably the pension study commission as prescribed by the Fiscal Stability Act. It is inconceivable that the state would intervene only in the fire district without taking into account the very vulnerable financial condition of the entire town of Coventry. The assembly acted after watching several votes of the people and a judge ordered liquidation. They suddenly decided that Judge Stern’s ruling and the people of the fire districts’ vote was not relevant and attempted to retroactively define the fire district under the Fiscal stability Act. This assembly effort may indicate that the worsening relationship between the General Assembly and the judiciary is coming to a boil. The assembly, after passing Pension reform in 2011 was clearly miffed at Governor Chafee’s yearlong meddling and efforts to use Judge Carter-Taft “court ordered mediation” to help out his friends in the public sector unions. After a year of negotiations, the mediation has ended in disaster proving that it’s never too late for this Governor to screw up a deal.
What about the “year of Cities and Towns”
Now that taxpayers and unions are going to court over an already passed law it is important to be aware that Mr. Chafee is not done destroying this state. In late 2011 Mr. Chafee became extremely concerned about the financial condition of cities and towns especially the Pension issues. He declared that 2012 would be the “Year of Cities and Towns”. The key tool for addressing municipal pension debt and OPEB liabilities became the Rhode Island Pension Study Commission headed by his direct report Revenue Director Rosemary Beth Gallogly. The commission’s effort matches the dithering, wandering personality of the Governor. After more than two years this commission cannot even tell us how well each City and Town has done relative to the Funding Improvement plans issued over a year ago. The revenue director, has outside the commission, produced news puff pieces claiming two towns specifically, West Warwick and Narragansett have complied with the Funding Improvement Plans (FIP) they submitted a year ago. Yet there is no evidence of this and at the last Pension Study Commission meeting none was presented. I have directly asked the Town of Narragansett for evidence and they will not even return an email. West Warwick FIP filing highlights from 15 months ago appear below:
So one obvious function of the Commission is to report on progress. Ms Gallogly claimed in public that West Warwick and Narragansett had achieved success and she was proud of the cooperation. We can see how they did if someone publishes the data. The commission should review the progress, if any, versus the FIP. We can then check off all the items they agreed to accomplish and identify those that they said they would do but failed. Let’s make them accountable. The process of comparing the Funding Improvement Plans to actual progress and reporting to the citizens of this State should have taken place months ago. The fact is , on April 28 , 2014 , more than 2 years after this commission was formed we still have no idea about the progress of these “critical status” towns and further there is no indication as to a plan for the future. What happens if the town ignores the commission and ignores their own submitted plans? Will this be like the General Auditor attempts for compliance? Will elected officials just violate commission edicts as they please?
The Pension Study Commission has failed to produce any progress of note and instead impedes progress by allowing town officials to stall and commission members to use their appointments as political platforms. The Chafee appointed Union members have to be absolutely thrilled with this commission and Mr. Chafee’s latest debacle.
The only path to avoid multiple bankruptcies involves receivership and that is up to Director Rosemary Beth Gallogly and she doesn’t have Governors support or the intestinal fortitude to do what’s right to save this state.
Related Slideshow: Providence Pension Liability
A new report shows that Providence’s pension fund—even after the recent reform—is still in trouble. The below slides break out the key numbers for the pension fund, including the unfunded liability, the assumed and actual rates of return, the current level of benefits, and how long it will take the city to pay off the unfunded liability. Figures are current as of July 1, 2013 and are taken from the new Jan. 31 actuarial report from Segal Consulting.
Impact of Lower Rates of Return
$72 million:The city unfunded liability increased by this amount when the city lowered its assumed rate of return by a quarter of a percentage point, from 8.5% to 8.25%
$506.2 million: The estimated increase in the unfunded liability were the city to use the 6% assumed rate of return recommended by Moody’s Investors Service.
Current Cost of Pension Fund
City Contribution: $58.1 million
Employees Contribution: $10.9 million
Net Investment Return: $18.1 million
Cost of Retiree Benefits: $95.4 million
Note: Net investment return is the return on investments after investment and administrative fees have been paid.
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