Economic Tsunami: Data Shows RI Cities & Towns Are Facing Peril Due to Unfunded Obligation
Tuesday, March 12, 2019
Despite the national and regional economy being in a ten-year economic recovery, Rhode Island’s cities and towns are facing massive unfunded liabilities for both pensions and long-term healthcare costs.
Providence’s unfunded pension and long-term healthcare cost obligations are well reported —now more than $2 billion, but more concerns are emerging about the health of cities and towns across Rhode Island.
“We have two communities (Johnston and Providence) where the combined pension and OPEB liabilities comes out to over $12,000 per resident of those towns. And Providence is understating their liabilities by 15% by using an unreasonable rate of return for calculating its liabilities,” said Ken Block, former candidate for Governor who is raising questions about the lack of political action.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“Retiree medical benefits showing up as OPEB liabilities are another huge area of concern that has gone largely unaddressed. Clearly, our governments cannot continue offering lifetime medical benefits to anyone, whether those recipients are city council members in Warwick or 20 hours per week school bus monitors in Providence or anyone else in between. If any other health insurance plan is available to a younger retiree, they should be required to take that plan. And, once a retiree becomes eligible for Medicare, municipally-funded healthcare must end,” said Block.
Will Rhode Island Face More Central Falls-Like Bankruptcies?
“Bankruptcy is about politics and recognition. Aside from the ridiculousness of that definition, we all know Puerto Rico is bankrupt, Greece is bankrupt, Venezuela is bankrupt and so is Providence,” said Michael Riley, investor and former candidate for General Treasurer.
“The Providence Pension fund teeters on solvency with $300 million in assets and $1.5 billion in liabilities. It gets worse every year. Providence OPEB is $1 billion in liabilities. Pawtucket, Woonsocket, and Johnston are unhealthy and teetering. West Warwick, Central Falls, Coventry School & Police, Newport Fire, East Providence Police & Fire, and Cumberland are all in critical status and still open plans,” says Riley.
He warns, "14 others are "closed plans" and no longer accepting employees. Ten of those "closed plans" are critical. If you live in any of those towns your taxes are going to go up and services will be cut.”
Urgency?
General Treasurer Seth Magazine warns, “Part of the reason that there may be a lack of urgency in some quarters to address the large pension liabilities in these municipalities is because people feel that the problem will not become critical until sometime in the distant future. In most cases, however, underfunded pensions do not culminate in a single dramatic event like the Central Falls bankruptcy. What occurs more frequently is that pension costs slowly grow, taking up more space in municipal budgets and crowding out other priorities like education, maintaining streets and parks, and hiring new first responders.”
Missed Opportunity
Block says that while the 2012 pension reform by then-General Treasurer Gina Raimondo helped to minimize the then growing state pension threat, it failed to address the municipal issues.
“Then-Treasurer Raimondo, the General Assembly and the State of Rhode Island made a terrible mistake in not addressing the municipal pension crisis at the same time the state pension crisis was addressed in 2011/2012. It is important to note that in the next few years, unless something changes quickly, the state pension system will show the same level of liabilities that we had when the pension reform was done in 2012,” said Block, “This means that even with the significant changes made in 2012, our liabilities are still growing in what appears to be an unsustainable way.”
Warwick and Cranston
The problems are not limited to any one city or town. While Providence's financial issues are looming and well publicized, there are growing concerns that Rhode Island's second and third largest cities also are facing unfunded obligations that may cause long-term economic issues.
New Warwick Mayor and 18 year veteran of the city council Joseph Solomon said in his state of the city address in February, “The City is currently only funding OPEB on a pay as you go basis and is not presently addressing the large unfunded OPEB liability of $352 million that will now be present on the City’s balance sheet. This, too, needs to be addressed if we are to assure the City’s future fiscal health.”
Similarly, Cranston is bringing its pension obligations into focus -- and recently issued a request for proposals for the fiduciary review of Cranston’s locally administered police and fire pension plan.
"It's prudent for every pension plan to have a fiduciary review -- and it's money well spent. So kudos to them for deciding to do it," said Edward Siedle, who said he responded to the RFP. Siedle is one of Wall Street's most proficient whistleblowers and is a harsh critic of Raimondo's handling of pension issues.
“We believe that the liabilities in most cities and towns in Rhode Island are within acceptable levels. But in the few municipalities that have significant unfunded pension liabilities, the effects are already being seen in a lack of adequate funding for schools, roads and other priorities,” said Magaziner.
The Future
Despite the robust economy, the condition of many Rhode Island’s municipal pensions plans have remained the same or has gotten worse.
“There is a basic problem with these plans: we are allowing retirees to pull on their pensions for too long, and it is impossible to properly fund for this. When municipal employees retire in their 50s and live into their 80s, the pension math just breaks down, as retirees are taking pensions for more years than they worked. This is made even worse when surviving spouses continue pulling on the plan for many years as well,” says Block.
“I have introduced legislation to assist cities and towns in strengthening the management of their pension systems and have also begun publishing a set of annual report cards on the health of locally-administered pension plans. Our office stands ready to assist all stakeholders in working collaboratively to address this important issue and help strengthen retirement security for workers,” said Magaziner.
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