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Michael Riley: West Warwick Is Headed For Disaster

Tuesday, January 21, 2014


The town of West Warwick is in hot water, believes Michael G. Riley.

It is time for the State of Rhode Island to appoint a receiver for the town of West Warwick. It has been nearly two years since Revenue Director Rosemary Booth Gallogly cited dozens of reports and studies that the town was underfunded. On May 8, 2012, Gallogly took to WPRI to warn that West Warwick was close to becoming Central Falls. “I see many similarities," she said. "I think you should all be concerned. I don't want that to happen again. I had to negotiate with police and fire, and some of those pensions were reduced 55%." She went on, "I understand that you have many things on your plate right now, but the pension funding tends to be an issue that people think you can worry about later. Well, the later is now...You're on the same track that Central Falls was."

We should have known West Warwick didn’t take this seriously when only two dozen citizens even bothered to show up to the state- and town-arranged open meeting discussing the severity of the problems. Director Gallogly, state officials, and town officials were on stage and literally outnumbered those in the audience.

Let's review...

So what of the progress the town of West Warwick has actually made in the last 2 years since that town meeting on improving the pension crisis? According to West Warwick submission to the Commission in 2012, and compared to the report issued a few days ago, it looks bad.

For a town with a $15 million dollar payroll and a $33 million dollar municipal budget, the Pension Liabilities are now $128,400,000 and have been worsening. It is interesting to note that this massive debt is due to a mere 650 employees—about half of which are currently retired—while the population of West Warwick is approximately 29,600. The pension plan is currently only 17% funded, and that’s without properly adjusting the discount rate.

While the recent auditor report claims the Town has been negotiating with the unions, I was unable to find any evidence of negotiation until a Providence Journal article appeared this weekend. A review of the State website also shows that the Pension Commission has stopped meeting. At the time of this writing, I have no evidence that the FIP (Funding Improvement Plan) presented by the town to the Commission has been even approved by the town or implemented in any way.

The article in the Journal refers to a series of town officials and also the questionable hiring of former Cicilline official John Cimino. Mr. Cimino reportedly was let go by Mayor Taveras following his declaration of “Category 5” financial hurricane. Additionally, moving the planning director to Town Manager definitely does not constitute a plan. In fact, these moves make a mockery of the Commission headed by Gallogly.

One of the requirements, under Rhode Island law, to put a municipality in receivership in Rhode Island is a ratings downgrade. This has occurred twice since the 2012 public admonishments by Gallogly. In June 2013, Fitch downgraded GO debt to BBB-, specifically citing pension impacts on budget. In September 2013, Moody has followed suit with a downgrade to Baa2; outlook negative. Moody’s directly cites significant pension underfunding, accumulated school fund deficit and large pension and OPEB liabilities.

However, it must be said that not everyone in West Warwick is ignoring the pension crisis. Prior to the recent ProJo article, which I suspect was spurred by my upcoming analysis, at least one councilman and pension board member have been vocal about the need for drastic and immediate reform. Their efforts, however, have gone nowhere, and it’s time for Gallogly to back up the warnings.

Its quite possible that Gallogly was crying wolf and the widely reported statements may have been just theater. Ask yourselves: what has really happened in the last 2 years? Nothing. If Director Gallogly’s statements were just a bluff, then this unwise tactic could backfire and lead to stalling strategies employed by every town and negotiating union in the State of Rhode Island. That would threaten the progress made by the commission in other towns. Combine stalling tactics with a general lack of respect for the commission, and this whole effort to reform pension funding could unravel quickly. Why should any other town in RI reform pensions and OPEB if the worst among them, like West Warwick, literally make no effort whatsoever?

I don’t think after Director Gallogly’s severe comments 2 years ago that this weekend’s quotes make any sense. Out of the blue and with no intervening Commission meetings, Gallogly was quoted saying the following: “They’ve been very successful in getting everyone to the table, and I think they understand the [magnitude] of the problem. They have more than enough spirit to resolve this as a community.” This is not a very accurate picture.

There is a time for cheerleading and there is a time for action. Place West Warwick in receivership so the Town’s 29,000 residents don’t end up going broke for 650 public employee retirement costs.

Next week: How did West Warwick get here? Was it too many benefits? Lack of funding? Not enough taxes?


Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC news, Yahoo TV, and CNBC.


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