Long: Woonsocket ‘is in a death spiral’ that’s not ALEC’s fault

June 20th, 2012 at 2:29 pm by under Nesi's Notes, On the Main Site

Cate Long, the sharp analyst who writes Reuters’ Muniland blog, added her voice Wednesday to the chorus criticizing New York Times columnist Joe Nocera for misleading readers about Woonsocket’s problems:

Maybe it’s true that Brien was primarily motivated by ideology, but if Nocera had taken even a cursory glance at the financial statement for Woonsocket, he would see Brien’s position has some merit. Spending on retiree benefits and municipal debt are drowning Woonsocket. The city is in a death spiral. …

The real deficit sinkhole for the town lies in its Other Post Employment Benefits (OPEBs) and expenses for its debt service. OPEBs, or health and dental benefits provided to city retirees, cost the city $4.5 million, or 3.2 percent of the budget. That amounts to $10,135 for each of Woonsocket’s 450 retirees. Debt service cost the city $16.9 million in 2011, or 12.2 percent of its $139 million annual budget. Those costs will jump to $21 million for 2012 and remain at that level through 2016.

Long – who also opposes Rhode Island’s 2010 bondholders-first law – builds on the critique made by Bloomberg View’s Josh Barro, who on Wednesday explained why Woonsocket’s decision to sell $90 million in bonds to fund its pension plan now looks like a major mistake. Read Long’s entire post here.

Stepping 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 the city’s finances in order. As Long notes, about 15% of Woonsocket’s city budget can’t be adjusted at all because it’s debt service, and less than 80% of it “goes to tangible public services for Woonsocket residents.”

Perhaps a different way to look at the issue is by asking this question: What percentage of a municipal budget should be spent on employee retirement benefits and payments to bondholders?

• Related: Lots of pushback to Joe Nocera’s ALEC-in-Woonsocket column (June 19)

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3 Responses to “Long: Woonsocket ‘is in a death spiral’ that’s not ALEC’s fault”

  1. Patrick says:

    I don’t think there is a magical equation for each town. Example, Cumberland pays about 78% of its revenue to the schools. Central Falls pays 0. Woonsocket pays about 25%, I believe? So a similar question could be asked for the school systems, but it doesn’t seem to work that nice and neat. I think pensions might be the same way.

    Then again, if the question is strictly how much should go to pensions, I’d say zero, because they should be in a defined contribution plan instead. How much should go there? How about match the employee’s contribution, up to 5% of their salary.

  2. Jim Donahue says:

    When the suburbs here eventually get stuck paying almost all the ever growing bills of the illegal alien sanctuaries people will LEAVE THE STATE faster and faster – believe it.

    1. Ed says:

      What keeps most people here is the house is their biggest asset and most of the houses in Rhode Island should have been torndown 30 years ago. No one will buy these houses intact and the value of the land is too low because the plots are too small.