cate long

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)


RI pension fund earned 1.4% in 2011; Raimondo avoiding risk

January 26th, 2012 at 5:41 pm by under Nesi's Notes, On the Main Site

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Rhode Island’s state pension fund earned a paltry 1.4% return on its investment portfolio last year, far below its target of a 7.5% annual return, WPRI.com has confirmed.

Treasurer Gina Raimondo’s office disclosed the figure for 2011, which is after expenses, in response to an inquiry on Thursday. The pension fund earned 12.5% in 2010, according to the House Fiscal Office.

“It’s really hard to manage money right now,” Raimondo told WPRI.com in an interview. She cited ongoing volatility in the stock market and the impact of the Federal Reserve’s low interest-rate policy on the state’s domestic fixed-income portfolio, which made up about 22% of the pension fund’s assets in 2010.

Rhode Island’s 1.4% return in 2011 beat the 1.1% return earned by the nation’s largest public pension fund, the California Public Employees’ Retirement System. California’s teachers pension fund grew 2.3%.

(more…)


Muniland’s Cate Long on the thorny public pension problem

September 13th, 2011 at 10:14 am by under Nesi's Notes

Cate Long, a guest contributor to Reuters who writes the news service’s Muniland blog, is a close watcher of state and local governments’ finances, which means she’s been keeping an eye on Central Falls. In response to our report about the 55% pension cuts there, Long laid out the broader problem as she sees it:

It’s understandable that unions would fight to retain as much as possible but many pension plans as currently established, especially New Jersey’s, are not sustainable. All sides must be realistic about what can be supported over time.

Public workers have a strong argument that they have earned their pensions. But they have a weak argument asking taxpayers to pay additional taxes to make up shortfalls in pension plans. The average public pension payment is less than $30,000 per year according to the SEIU but this is much higher than the average Social Security benefit at $14,172 per year.

Public pensions are entering a new area. Shrinking public budgets and continued funding problems are requiring changes. How will the change come? Through bankruptcy courts, legislative changes or litigation? Public workers are essential for a stable and smooth functioning society. But their needs must be balanced with the demands on taxpayers.

In Rhode Island, it looks like changes will come through all three – bankruptcy court in Central Falls, legislative changes at the General Assembly next month, and litigation every step of the way. The nation’s smallest state is turning out to be a laboratory for the public-sector fiscal squeeze of the 2010s.

Long also included a bit of news I had missed – more than 20 unions and individuals in New Jersey have filed suit there to block a law “forcing them to pay more for pensions an health insurance,” Bloomberg reports. The comments from the state’s Democratic legislative leaders (“This isn’t Wisconsin”) are especially interesting.

R.I. Superior Court Judge Sarah Taft-Carter will issue a decision this month on a similar suit in Rhode Island that’s being closely watched.