Michael Riley: These RI Cities + Towns Could Be Next in Bankruptcy
Tuesday, March 18, 2014
In Rhode Island we have a process for distressed cities and through 2010 legislation we have also strengthened the protection of Municipal bondholders. Central Falls went through this process and the result was an overseer, commission and ultimately receivership that resulted in sharp cuts to employee and retiree benefits. Using Central Falls metrics as markers, I have compared their stats just prior to Chapter 9 filings with other current vulnerable cities in Rhode Island and to re-emphasize the point that Rhode Island is much worse than other regions around the country, I have compared some of the most vulnerable and tax burdened towns in Rhode Island to the top 25 Cities in America. Rhode Island municipalities look awful when using very widely used metrics such as Unfunded Actuarial Accrued Liability. UAAL is then measured against payroll, against assets currently in the plan, UAAL per capita and UAAL per household.
As you can see several RI towns and cities have already passed the point where Central Falls was forced to file for Chapter 9. Measuring household burden shows many RI communities are in serious trouble. Funded ratios are also alarming. This canary in the coal mine, known as Central Falls, has established historic warning levels and if you live in a town on this list you should be asking your town officials what they are doing about it. Far too many officials are still doing nothing because they won’t confront the unions and taxpayers or don’t have any idea what to do. They should be fired.
Ultimately it’s up to the voters. The path of least resistance for elected and appointed officials is still to ignore the problem they have either created or exacerbated. The result will likely be devastating to your personal finances and the town as a whole. Affecting everything from tax rates to municipal services and home values. The time for taxpayers to speak up for change is running out.
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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