Woonsocket’s problems include debt, botched 2002 pension fix

June 14th, 2012 at 5:00 am by under Nesi's Notes, On the Main Site

There are many reasons Woonsocket is facing financial collapse, including a sluggish economy and a declining population. Another key problem, though, is the city’s heavy, self-imposed debt burden.

As the Moody’s chart at right shows, Woonsocket’s bond obligations and pension liabilities are equal to nearly 20% of its total property value, more than any other municipality in Rhode Island including Central Falls.

Woonsocket’s debt burden is “high” at $3,265 per capita or 7.6% of property value, Fitch Ratings said in March. The city spent $17 million on debt service in 2010-11, which was 12% of all government spending; Providence, by comparison, spent 9%.

Woonsocket’s bonded debt totaled $210.5 million on June 30, 2011, and its most recent audit lists more than a dozen times the city has borrowed since 1996, including $90 million in 30-year pension obligation bonds sold in 2002 and $11.5 million in deficit bonds sold last year at a 7.125% interest rate.

Woonsocket’s pension fund isn’t healthy, though.

The city has a locally run pension plan for police officers hired before 1980 and firefighters hired before 1985. In 2002, the city moved to stop paying for those pensions on a pay-as-you-go basis and for the first time to formally acknowledge its long-term liability – then closed the shortfall by selling the $90 million in pension obligation bonds, becoming the first Rhode Island city to do so.

Former Woonsocket Mayor Susan Menard, her successor Leo Fontaine and the Northern Rhode Island Chamber of Commerce all supported the pension borrowing, which was approved by lawmakers, former Gov. Lincoln Almond and city voters in a referendum. (Almond had vetoed a similar measure the year before.) By 2005, Menard told The Providence Journal: “Ours is probably one of the better pension funds in the country.”

Unfortunately, as the audit explains, a new shortfall opened in the old police and fire pension plan within a few years “due to declines in the market value of the investments and [in the] rate of return on the plan” – and in 2008-09 Woonsocket’s actuary told Menard and the City Council the pension fund needed additional annual deposit to shore it up, even as they’d barely begun to pay off the pension bonds sold in 2002.

City leaders complied, at first barely: in 2008-09, they deposited $26,200, far less than the $1.5 million called for by the actuary; the next year they deposited just $15,612, although the actuary called for $2.7 million. They came closer in 2010-11, putting in $1 million of the $2.8 million requested.

On top of that, the closed plan has no active police officers contributing to it anymore – they’ve all retired and started collecting – and just a handful of active firefighters doing so. Treasurer Gina Raimondo has suggested closed pension plans may need to buy out their beneficiaries rather than pay up.

As if all that wasn’t enough, Woonsocket has promised to provide medical, dental and life insurance to 1,743 city workers once they retire, but has yet to set any money aside to cover those promises. That includes 654 current retirees who are already receiving benefits, which cost Woonsocket more than $6 million last year.

(chart: Moody’s Investors Service)

An earlier version of the headline on this post listed the wrong year for the pension bonds.

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10 Responses to “Woonsocket’s problems include debt, botched 2002 pension fix”

  1. [...] Nesi, on the other hand, falls into the old trap of tacitly blaming municipal financial issues on employee benefit packages. He rightly points out that the city failed to put some $6 million into its pension fund since [...]

  2. bee says:

    How does it get that bad in debt? When does anyone oversee after a million net loss. Not 10 million.

  3. Ed says:

    How many of these people who ran this budget attended Rhode Island public schools? It is obvious why the kids do so poorly the public school teachers don’t know how to do math themselves.

    1. Cosmo says:

      I think somebody did the math correctly but for a purpose other than fixing the situation. The money was directed into the pockets into which it was intended to go, it’s gone now probably cannot be reclaimed. Remember in RI it has at least as much to do with corruption as stupidity, although we do have an overabundance of both.

  4. GaryM says:

    Irresponsible politicians know that if they siphon slowly enough from the taxpayer, it’s like vampire bats on a dimwitted cow.

    The cow doesn’t realize the danger from the repeated hits until it is at the point of collapse.

    The lesson learned is that residents need to improve their IQ beyond that of a cow.

    1. Bob says:

      he he!!

  5. alan says:

    to be honest the only thing the politicians in my town worry about is how to get their family on the public payroll. It is amazing how many connected kids show up on the fire dept or the elementary school faculty(not hard high school math/physics but simple teaching). Also since most are lawyers they know the largest employer(board of ed followed by public safety) will keep them knee deep DUI, divorces, real estate- or shut them off if they dont toe the public union line. The few private sector workers of note are all involved with long commutes so are not even aware of the problem(like the cow)

  6. [...] here, a million there, and pretty soon you’re talking about real money. As WPRI’s Ted Nesi notes, when you add together bond debt and unfunded pensions, Woonsocket is the most indebted [...]

  7. [...] back from this week’s ALEC controversy, the posts by Barro and Long (plus this one here on WPRI.com) illustrate the huge challenge facing Woonsocket’s new budget commission as it tries to put [...]

  8. Elaine says:

    How can Woonsocket possibly survive when its residents and economic development leaders could not keep Walmart are losing Lowes and nearly bit a hand that feeds us (CVS). This is substantially due to complaints from residents about addtional traffic. Get over yourselves Woonsocket you are not some rural city or town like Foster you are a city and there will be traffic!!!!! Companies and stores create jobs and most importantly pay taxes. It is so sad to watch are more astute neighbors(N. Smithfield) capitalize on our stupidity. On another note, how can our water dept. justify having last years report printed in full color on glossy stock rather than Black ink on white paper? Does that dept. have extra money that they aren’t telling us about?