EDITORIAL: If You Are in the Providence Pension System or a Taxpayer, You Should Be Very Worried
Wednesday, May 01, 2019
Providence pension fund retirees and taxpayers received three terrible pieces of news in the past 48 hours.
First, on Monday, Rhode Island General Treasurer Seth Magaziner labeled the Providence Pension system as being in “Crisis Status.” The determination is made about pension funds which are unfunded by 40 percent or more. Providence’s pension systems funded at just 26 percent.
Second, the report issued by the Advisory Council for Locally Administered Pension Plans led by Magaziner took the unusual step of warning the City of Providence for its overly optimistic and some would say an irresponsible rate of return of 8 percent.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“Some plans have investment return and payroll growth assumptions that may not be realistic. The 8% investment return assumption used by the Providence pension plan is the highest of any public pension plan in the state,” said the report.
GoLocal reviewed the assumed rate of return of the other funds of funds around the country. According to data provided by the National Association of State Retirement Administrators, only 6 of 129 funds in the country use an 8 percent investment rate of return.
There are 14 funds that have a more fiscally responsible assumed rate in the 6 percent range. The majority are in the 7 percent range.
There is one that is set a 5.25 rate. That is the Kentucky Employee Retirement System that reset its assumed rate of return to a lower rate after years of fiscal mismanagement and underfunding by the state.
“The KERS (Non Hazardous) fund is considered one of the nation’s worst-off public pension funds, largely due to many years of inadequate contributions by state leaders and unreasonable expectations about investment returns and payroll growth," reports the Lexington Herald-Leader.
Sound like anyone we know?
Third, Mayor Jorge Elorza once again did nothing to address the “crisis” this year -- or his first five years -- in office to address the critical pension situation.
The Mayor abandoned his attempt to sell the Providence Water Supply. He had said the revenue from the sale would be used to address the pension liability.
“If you look at our actual rate of return over the past ten years it’s pretty close to 8%,” Elorza told GoLocal’s News Editor Kate Nagle following his budget address.
That is true, but the country has enjoyed a record run of the stock market which will subside at some point in the future. It always does.
Simply, if you just pay the minimum on your credit card balance for years, the obligation continues to grow and grow.
“In more than a few cases, the share of the municipal ARC payment to a community’s total tax levy is as high as 10-20%, suggesting that local pension liabilities are, or have the potential for, crowding out other important budget priorities. Pension ARCs are particularly high in relation to tax levies in Providence, Johnston and West Warwick,” writes Magaziner’s report.
Elorza has no plan, and the depth and severity of the unfunded liability in Providence is greater than the liability of all other municipalities in Rhode Island combined.
It is all bad news for Providence pension plan members and taxpayers. Heck, let's all go to PVDFest.
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