By Ted Nesi
PROVIDENCE, R.I. (WPRI) – The Rhode Island judge handling organized labor’s sprawling challenge to the state’s landmark 2011 pension law has ordered that an unknown number of municipalities be added as defendants in the case.
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – The Rhode Island judge handling organized labor’s sprawling challenge to the state’s landmark 2011 pension law has ordered that an unknown number of municipalities be added as defendants in the case.
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – Democratic mayoral candidate Jorge Elorza said Tuesday he wants Providence to try its hand at the broadband business, proposing a multi-million dollar plan to build a public network that would compete with existing Internet service providers.
By Tim White
NORTH PROVIDENCE, R.I. (WPRI) – North Providence Mayor Charles Lombardi said he was “distraught” that he had to sign a check for unused sick and vacation time to a firefighter who missed nearly half his career out injured and is now collecting a disability pension.
• Related: Mollis hired 52-year-old as rookie North Providence firefighter (Nov. 26)
By Tim White
NORTH PROVIDENCE, R.I. (WPRI) – The hiring of a 52-year-old as a North Providence firefighter nine years ago has proved to be an expensive liability for taxpayers in the town and the state, Mayor Charles Lombardi told Target 12.
Stephen Campbell was sworn in as a frontline firefighter in 2003 under former Mayor Ralph Mollis, who is now Rhode Island’s secretary of state. Under the terms of his union contract, Campbell would have had to fight fires until the age of 72 to be eligible for a pension.
By Ted Nesi
EAST PROVIDENCE, R.I. (WPRI) – There’s more good news for East Providence leaders about the turnaround in the city’s finances. Moody’s Investors Services on Wednesday night restored the city’s credit rating to investment grade, citing the work of the budget commission that finished work last month.
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – A Rhode Island official who oversees the financial stability of cities and towns suggested Monday the state should explore having municipal retirees get their health insurance through the new marketplace being created under the federal health law.
• Related: Should RI move government retirees to the Obamacare marketplace? (July 19)
Jason Becker, an education policy wonk and Twitter must-follow, helped design Rhode Island’s new education funding formula when he was at Brown University. Now he’s out with a long essay on his personal blog proposing a number of changes that could be made, and it’s well worth a read:
After a little over three years since its establishment, I think we are ready to tackle several additional aspects of state education funding in Rhode Island. One thing you may notice is that few of these ideas impact the original formula. Part of why that is comes from my aforementioned preference for a simple formula, and part is because these include some non-formula issues that were not pursued in 2010 in an effort to keep the focus on the main policy matters.
First, and perhaps the most consequential change that can be made to state funding, is the teacher pension fund payments. …
Second, I would make a slight change to the way that we fund charter schools. …
Third, we excluded all building maintenance costs from the base amount of state aid. … I would like to see the state contribute to the maintenance of buildings more directly. …
All of these changes will require an even greater state contribution to education aid, but these increases would be an order of magnitude lower than what it would take to increase the state aid to covering 50-60% of all education expenditures.
• Related: Becker: Woonsocket, not the state, failed to fund city schools (July 12, 2012)
After Central Falls collapsed into insolvency in 2010, state leaders scrambled to contain the fallout and ensure the tiny city’s struggles didn’t cause a domino effect that would raise borrowing costs for other cities. House Democratic leaders quickly pushed through a new law giving bondholders first dibs for repayment if a city or town files for bankruptcy – which is what happened in Central Falls’ Chapter 9 case.
The law has won praise from big investors, but has been somewhat controversial locally: Governor Chafee rejected a call for its repeal by the AFL-CIO. One of the big unanswered questions, though, has been whether there was really a risk of contagion in the bond market – or if Central Falls wouldn’t impact other cities.
Stephen Eide, a senior fellow at the Manhattan Institute’s Center for State and Local Leadership, thinks the situation in Michigan since Detroit filed for bankruptcy may be vindicating Rhode Island leaders’ concerns. In a new post for Public Sector Inc, Eide writes:
[Rhode Island's] law was way more Wall Street-friendly than paying back the 38 Studios debt and incomparably harsher towards retirees, who took brunt of the bankruptcy cuts, than Gina Raimondo’s pension reform.
From a policy perspective, the deepest problem with the great Rhode Island bondholder bailout of 2011 is that many hold out hope that, someday, bondholders might play a more constructive role in holding state and local governments accountable for their fiscal misdeeds. But there’s little chance a bondholder will become a bond vigilante if he can be confident that, no matter how bad things get, his interests will never be harmed.
Anyway, the point is that events in Michigan have provided defenders of Rhode Island’s actions during the Central Falls meltdown (and also, for that matter, the 38 Studios affair) with strong evidence for their view that it’s never in the interest of a state government – who has a responsibility to all its governments and taxpayers – to let a locality jilt Wall Street. …
Whether one prefers Michigan’s approach or Rhode Island’s, fiscal distress is a state issue, and there are difficult choices to be made which must take into consideration the interests of all state taxpayers and local governments.
• Related: Q&A: Penn Law’s Skeel on RI pensions, bankruptcy and bonds (March 2, 2012)
As I reported back in 2011, the state’s municipalities have promised more than $3 billion in medical coverage to retired public-sector employees – but have set aside almost nothing to cover the costs. On paper, at least, the underfunding is actually worse for retiree health than it is for pension funds.
Detroit’s bankruptcy filing, however, suggests a new option for Rhode Island cities and towns – moving their retirees into the new HealthSource RI insurance marketplace being created under President Obama’s Affordable Care Act. Detroit thinks it will save millions of dollars a year if it does so with its roughly 19,000 retirees. Rahm Emanuel has already announced plans to move Chicago retirees to the exchange there.
“The big benefit to moving workers into the state marketplaces is that it shifts the burden of paying for health care from the city to the federal government,” The Washington Post’s Sarah Kliff notes. “That’s a benefit for the city, at least” – and likely for Rhode Island’s state government, as well.
Here’s a dirty little secret about Rhode Island’s state budget: it’s actually a pretty stable document.
The news media has a bias toward conflict – stability makes lousy copy – and so coverage of this week’s House Finance budget played up its differences from what Gov. Lincoln Chafee proposed back in January. No corporate tax change! $15 million less in local aid! 6,500 off RIte Care!
Each of those policy choices absolutely matter, especially to those who are directly affected by them. And when you’re talking about spending more than $8 billion over 12 months in a place with 1 million people, even relatively small changes can add up to many millions of dollars. The budget is definitely important.
Still, the year-to-year changes in the budget often aren’t as significant as the headlines imply, because much of the spending is effectively on autopilot. This year’s budget will probably be $8,101,600,000; next year’s will probably be $8,216,800,000. That’s $115 million more – a lot of money! – but still only a 1% difference:
Perhaps you are an average Rhode Island citizen. Perhaps you want to look through the full text of the budget House Finance approved last night on a 12-0 vote. So you go find the bill – H5127A. (The A stands for “Sub A,” or the first substitute – aka amended – version of the original bill.)
Alas, all you see is a list of budget articles but not the actual text. Crestfallen, you log off and decide it’s just not worth it to be an active citizen. Instead, you go look at cat videos on BuzzFeed.
Charlie Hunt and Katherine Gregg to the rescue!
Hunt, director of public affairs at the Mayforth Group lobbying firm, and Gregg, State House bureau chief of The Providence Journal, have mastered the strange digital customs of Smith Hill, and they shared with me two ways to read the text of the budget articles – that is, the actual taxing-and-spending legislative language.
Hunt’s method: go to the 2013 House Bill Text page and scroll down to H5127A – you’ll find all 26 budget articles posted as separate PDFs underneath the main PDF, which is just a table of contents. Gregg’s method: go to the House calendar for June 25, the day the budget will be debated next week, and you’ll find links there to all 26 budget article PDFs. Ah, the sweet smell of open government.
Well done, Charlie and Kathy!
Update: Page 4 of the budget’s Article 8 authorizes the hitherto secret “Department of Fluinan Services” to enter into a lease (line 9). It also refers to the “Department of Labor anti Training” (line 6), which may shed some new light on why Rhode Island’s economy is struggling.
• Related: Chafee loses on local aid, corporate tax in House budget (June 18)
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – Rhode Island’s top lawmakers unveiled a proposed state budget Tuesday evening that would boost funding for education significantly without increasing broad-based taxes or fees, though they rejected a proposal by Gov. Lincoln Chafee to lower the corporate tax. It passed the House Finance Committee 12-0.
One big takeaway: Rhode Island gets a significantly smaller share of its revenue from income taxes (19%) than Massachusetts (30%) or Connecticut (27%). They rank fifth- and ninth-highest for income-tax share, while Rhode Island ranks 33rd. Here’s a map showing the comparison:
At the same time, Rhode Island is more reliant on property taxes (46%, or 4th-most nationally) than Connecticut (42%/9th) or Massachusetts (39%/15th), though all the New England states are in the top 15:
• Related: Making the case for property taxes across the pond (Sept. 26, 2011)
By Ted Nesi and Tim White
COVENTRY, R.I. (WPRI) – Elected officials in Coventry have taken an apparently unprecedented step by washing their hands of responsibility for one of their employee pension plans, saying taxpayers have no obligation to come up with enough money to stop it from running out of cash within 12 years.
The decision about retirement funding for the town’s 349 non-teacher school workers and retirees has shocked members of a state commission tasked with overseeing local pension plans, and they’ve summoned Coventry leaders to a special meeting in Providence next week to defend it.
“There really seems to be a lack of leadership in terms of somebody assuming responsibility,” Rosemary Booth Gallogly, the Chafee administration’s revenue director and chairwoman of the pension commission, told Target 12. She said she’s never heard of a municipal government taking such a position.
“I don’t think they recognize the implications for those employees and recognize that they really do have a duty to their employees and retirees to figure something out,” Gallogly said.
Coventry Town Council President Gary Cote and his four colleagues did not respond to multiple messages from Target 12 requesting an interview about their handling of the pension plans. Democrats took control of the council in the 2010 election.
All told, Coventry’s three local pension plans – one for police, one for municipal employees, and one for non-teacher school personnel – have racked up a $121 million liability for promised benefits, with less than $23 million saved to pay the bill. In fact, just two years ago the newly elected Town Council voted to sweeten police officers’ pension benefits, adding roughly $9 million to the tab in one fell swoop.
Benefit payments set to double
The pension plan for Coventry schools’ support personnel was created in 1977 by the School Committee and the town teachers’ union. It has less than $11 million in assets to cover a $35 million liability and is on track to run out of money to pay retirees by 2025, according to actuarial projections.
The pension plan paid retirees nearly $1.4 million in benefits in 2011-12, and the tab is set to double over the next decade. The School Committee contributed $600,630 to the plan that year, far less than the $2.4 million its actuary said was required. Eligible employees put 8% of their paychecks in, for a total of $364,300 in 2011-12.
A resolution passed by the Town Council in December and supported by the School Committee argues the town is only responsible for depositing a set percentage of money into the pension plan – according to its contract, 12.75% of payroll – and not for depositing the amount required annually to ensure adequate funding of benefits. Most towns try to pay that amount, which is determined by an actuary.
“Looking at the trust documents, this is a defined-benefit plan,” Gallogly said. “They’re treating it as if it were a defined-contribution plan.”
‘We do not have a legal responsibility’
According to Coventry Town Manager Thomas Hoover, however, the legality of the town’s unusual policy was affirmed by attorney Vincent Ragosta Jr., who is an assistant town solicitor.
Full funding for the pension plan “was not promised by the town, and from what the school committee is telling us, they did not promise it,” Hoover said. “Certainly we care about our employees, but we also have to look out for the wellbeing of 35,000-plus citizens.” He said officials will restate their case May 30 during the public meeting with the state pension commission at the R.I. Department of Administration building across from the State House.
As evidence, the council points to a statement in the 1977 document creating the pension plan that says “[n]either the Administrator, the Employer [n]or the Union in any way guarantees the Plan funds from loss or depreciation, [n]or guarantees payment to any person.” They also note that a 2003 collective bargaining agreement altered the language to say the School Committee only “shall provide a contribution to a pension plan.”
Commission members aren’t convinced so far, and they lambasted Coventry officials about the issue at a meeting on April 1. Mark Dingley, a top aide to Treasurer Gina Raimondo who serves on the panel, said the town has a legal responsibility as an employer to address the financial health of the pension plan regardless of the contract language.
Hoover told Target 12: “We totally disagree with that. Our legal counsel has opined on that and indicated that clearly we do not have a legal responsibility for that liability.” He argued the commission is looking at the pension plan “one-dimensionally” by focusing on just the employees and not the taxpayers.
‘The employees be damned, then’
Richard Licht, Chafee’s director of administration and another member of the pension committee, asked a Coventry representative at the meeting: “I just hear, ‘We’re writing a check for 12.75%; see ya later.’ Is that your position?” After hearing the town’s argument, Licht said: “The employees be damned, then.”
Ted Przybyla, the former Scituate treasurer who became Coventry’s finance director in 2010, told the panel he couldn’t discuss the plan. “It is the position of this community that this is not the responsibility of the town of Coventry, and that the plan is the responsibility of the trustees,” he said, referring to a board of two School Committee members and two union representatives charged with overseeing the pension plan.
Gallogly emphasized that having the town take responsibility for the schools’ non-teacher pension plan doesn’t necessarily mean taxpayers will have to cover the whole $35 million unfunded liability. She noted that other Rhode Island communities are negotiating benefit reductions with their workers and retirees to make the payments more manageable.
The pension plan’s trustees already reduced its benefits last September under an August 2011 agreement with the union. Hoover said the Town Council and the School Committee are willing to sit down with the trustees and discuss how to fix it, but the town will not increase its funding above the current level of roughly $600,000 a year.
“We believe we have to follow the contract, just like we believe the employees need to follow the contract,” he said. “We have paid what has been required contractually.”
New council gave union COLA
The issue with school personnel isn’t the only pension problem in Coventry, a rural town of 34,884 whose financial troubles are already in the headlines as one of its local fire districts fights to stay open.
Coventry’s pension plan for police officers is just 11% funded, with less than $8 million saved to cover a $67 million liability. The town contributed $2.3 million to the plan in 2010-11, less than half the money its actuary said was required.
One reason for the police plan’s problems: in January 2011, the new Town Council added $9 million to its unfunded liability by approving a new collective bargaining agreement with the police union that awarded officers hired since 1994 an annual cost-of-living adjustment (COLA) to increase their pension benefits.
The police union’s previous pact explicitly excluded officers hired since 1994 from receiving COLAs, but the language was removed when the council approved the new agreement in 2011, according to documents reviewed by Target 12.
Hoover acknowledged adding the police COLA carried a significant cost and suggested the total amount wasn’t known when the council approved it. He said officials awarded the COLA partly to avoid binding arbitration with the police. “All things considered, I think this settlement was a much better position financially than what we estimated we would come out with in arbitration,” he said.
‘The money was just not there’
Glen Shibley, a Republican who served on the Coventry Town Council before winning a General Assembly seat in 2010, told Target 12 last year that the previous council had been ready to go to arbitration rather than award the COLA.
“I don’t want to point fingers or make accusations, not having the specifics, but I tell you, we just shook our heads on the outside looking in when this current council decided to go ahead and give the police and the other unions COLAs, because we knew the money was just not there – it wouldn’t be there,” Shibley told Target 12.
“You go to arbitration, it’s a gamble, but we were ready to make that gamble knowing the economic situation – not only Rhode Island’s, but the country’s,” he said.
“You could get an arbitrator who could have given more but I think, again, any arbitrator worth his or her salt would realize this coming tidal wave that we find ourselves deep in the mire of,” added Shibley, who was defeated in November by Democrat Leonidas Raptakis.
‘Tantamount to deficit financing’
Coventry’s third local pension plan – for municipal workers – is in somewhat better condition but is only 28% funded, with $4.4 million saved to cover a $15.7 million liability, according to its actuary.
Coventry has 127 current and former officers in the police pension plan, and 211 current and former municipal employees in their pension plan. Other town employees are in the state-run pension system or get 401k-style retirement benefits.
“They’re not in good shape and they’re desperately in need of a remediation plan,” Gallogly said. Failing to stabilize them could make it harder for Coventry to sell bonds, she warned. Hoover said the council has approved plans to change benefits and increase funding that will improve the police and municipal plans.
Analysts from Moody’s Investors Service criticized Coventry’s management of its pension plans last year when they announced they were keeping a negative outlook on the town’s bond rating.
“Moody’s believes that the choice to underfund the [pension contributions] is tantamount to deficit financing and demonstrates an unwillingness to make meaningful progress toward addressing the pension liability in a sustainable fashion,” the analysts wrote in a March 2012 note to investors. “The increased use of this practice is likely to bring negative pressure to the rating.” Moody’s has previously criticized Coventry’s “long history of underfunding.”
Town fears binding arbitration
Even if Coventry resolves its pension funding problems, the town won’t be completely out of the woods. The town also provides full health coverage to some retired employees and their families until age 65, as well as dental coverage until death.
Coventry has accumulated a $12.5 million unfunded liability for retiree benefits and doesn’t set aside money in advance for them, operating on a pay-as-you-go basis, according to its most recent audit.
Hoover said police officers in Coventry don’t receive retiree health benefits, which was another reason the council agreed to give them a COLA to avoid going before an arbitrator.
“If we went to arbitration, I can’t say where I would end up when we do comparisons with other cities and towns,” he said. “We were very concerned about that.”
Treasurer Gina Raimondo has a message for members of Congress: don’t tax municipal bonds.
Raimondo and 41 of her fellow state treasurers sent a letter [pdf] last week to the top Republican and Democrat on the U.S. House Ways and Means Committee, emphasizing “the importance of maintaining the current tax exemption for municipal bond interest” as they consider plans to overhaul the U.S. tax code.
The letter was organized by the National Association of State Treasurers, which describes itself as “a bipartisan organization of state treasurers and other finance officials with similar duties.” The group said tax-free municipal bonds save states and municipalities an average of 25% to 30% on interest costs.
“The tax-exempt bond market has worked effectively for over a century,” Virginia State Treasurer Manju Ganeriwala, the association’s president, said in a statement. “Let’s not dismantle something that works.”
Raimondo, a Democrat, is considering a run for governor in 2014. Here’s her signature on the letter:
• Update: Fox, Raimondo pitch $70M loan fund for repairs (March 21)
The Rhode Island Clean Water Finance Agency’s motto declares, “Clean Water for Rhode Island is Our Only Business.” But that won’t be true for much longer if Treasurer Gina Raimondo and House Speaker Gordon Fox have their way.
Raimondo and Fox will hold a press conference Thursday morning where they’ll propose adding a new Municipal Road and Bridge Revolving Fund to the water agency’s portfolio of programs. They’ll be joined by Senate President Teresa Paiva Weed and municipal leaders, making this as close to a sure thing as any new legislative proposal can be.
So, you ask, what is the R.I. Clean Water Finance Agency?
The short answer: RICWFA is a quasi-public state agency, similar to better-known entities like the R.I. Economic Development Corporation and the R.I. Airport Corporation. While the Clean Water Finance Agency has a relatively low profile, it plays a key part in financing the maintenance of Rhode Island’s water system. Its basic role is to provide subsidized and low-interest loans to local governments that they use to fund water-infrastructure projects of all sizes.
By Ted Nesi
WOONSOCKET, R.I. (WPRI) – Officials in Woonsocket on Monday asked the cash-strapped city’s retirees to agree to give up annual increases in their city-managed pensions and move to Medicare or else risk pushing the city into bankruptcy.
• Related: Woonsocket’s problems include debt, botched 2002 pension fix (June 14)
The House Fiscal Office crunched the numbers on how much state aid Governor Chafee wants to give the cities and towns in his proposed 2013-14 budget: $80.3 million, up from a proposed $71.4 million this year (excluding K-12). That’s a healthy bump, but it’s still way less than municipalities were getting in 2006-07:
In theory the cities and towns could have made up for all the money they lost when the General Assembly axed the car tax reimbursement by immediately hiking drivers’ tax bills, but in practice that probably would have caused a mass revolt, so this was where the rubber met the road when a huge economic downturn collided with a requirement that governments balance their budgets.
In nominal dollars, House Fiscal says lawmakers hiked non-school aid to municipalities from $35 million in 1989-90 to $106 million in 1999-2000 and $202 million in 2004-05, then slashed it to $60 million in 2010-11. What the General Assembly giveth, the General Assembly taketh away.
Update: State aid to school districts, on the other hand, has climbed steadily over the past two decades except for a dip during 2008-09 and 2009-10 (with the much-discussed new funding formula taking effect in 2011-12):
Last week’s Target 12 investigation of Scituate’s absentee pension board has sparked a renewed conversation about how the state should handle its troubled locally run pension plans. “There is a concerning set of facts that you’re hearing about in Scituate,” Treasurer Gina Raimondo said on Newsmakers Friday. But, she continued, local officials need to negotiate with organized labor if they want to go into the state-run system (MERS).
Josh Barro, a columnist for Bloomberg View and longtime friend-of-Nesi’s-Notes, also sees a lesson in the Scituate investigation – most municipalities are just not equipped to handle the complicated task of managing a pension fund:
In most states, public employee pension systems are run either by the state government alone or by the state and a handful of the largest cities. For example, New York City is the only municipality in New York state with its own plans; all other cities and counties participate in two large statewide funds.
Pension systems are complicated, and overseeing them properly takes time and expertise. This is a heavy lift for municipalities overseeing small pension plans. …
Of the 110 statewide pension systems covered by the Public Funds Survey, the worst-funded is the Illinois State Employees’ Retirement System, with a funding ratio of 35.5 percent. Sixteen of Rhode Island’s 36 local plans are worse funded than Illinois SERS. …
The more promising long-term fix, floated by some Rhode Island lawmakers including State Treasurer Gina Raimondo, is to close municipal pension plans and have one pension system for municipal workers overseen by the state government.
• Related: Raimondo: Move 36 local pension plans into state-run system (Jan. 30, 2012)
By Ted Nesi and Tim White
SCITUATE, R.I. (WPRI) – Police officers in Scituate are criticizing a plan crafted by town officials that would make officers pay more money for less generous pensions in order to help close an $8 million shortfall that opened up over the last decade.
Town leaders including the newly elected treasurer, Sharon Johnson, are grappling with how to fix one of Rhode Island’s worst-funded local pension plans. A Target 12 investigation Monday revealed the Scituate Police Pension Board met just once over the past 12 years as the shortfall soared from less than $2 million to more than $8 million.
Active police officers, retirees and taxpayers in Scituate will all have to share the burden to fix the seven-figure problem, Johnson told Target 12 on Tuesday, saying she expects the town council will be forced to raise taxes.
“I think to be fair and balanced, as our president says, you really need to have all three step up and make some sacrifices and say we are all part of this and we all need to solve it,” Johnson said. “It can’t just be on one part of the equation.”
A funding improvement plan that Scituate submitted to state officials proposes a series of changes to the plan, but they won’t take effect unless the police union agrees to them. Patrolman Todd Rich, the union’s president, said his members are open to concessions but are frustrated with the initial proposal.
“All officers put in the requirements throughout the years,” Rich told Target 12. “Without fail, payment was made. Unfortunately, the town didn’t make their payments for whatever reason. Now they realize they have to pay to make that work. The town doesn’t want to make those payments. Now they are asking for us to compromise.”
The town and the police union will probably be forced into binding arbitration to resolve the pension dispute, Rich said.
The Scituate Police Pension Board is made up of five members: the treasurer, two town councilors and two officers appointed by Rich’s police union. He acknowledged his members might have been better off if the board had held more than one meeting between the middle of 1999 and July 2011.
“Unfortunately, the officers trusted the town was doing their responsibility,” he said. “We made payments every week in our paycheck. We assumed and trusted the town was taking care of their end and making sure the system was healthy.”
The 2011 state pension law required towns with underfunded local pension plans to come up with proposals to fix them. Scituate officials want to reduce police retirees’ cost-of-living adjustments from 3% to 2%; base benefits on an officer’s average final salary over five years instead of one; and hike their paycheck contributions from 10% to 12%.
Rich emphasized that the police union’s members are open to all three of those changes, but said there are two other significant issues related to retirement benefits where the officers and the town aren’t on the same page. He declined to disclose the two issues.
The proposed changes would reduce the Scituate police plan’s shortfall from $8.7 million to just under $8 million, actuaries at The Angell Pension Group estimated in November. Oddly, the proposal would actually reduce the town’s pension contribution from $768,968 to $694,165 but increase how much the officers put in from $95,108 to $114,129.
Over the years Scituate taxpayers have consistently put less money into the police pension fund than actuaries said was necessary, which is one of the reasons its funding level had fallen to 28% as of July 2011.
“The town is trying to make up all of the shortfall on our backs,” Rich said. “They are trying to put all the problems of the plan on the weight of the officers.” He said the local police have agreed to previous pension changes and also received no pay raises in their last contract.
Johnson said she hopes town officials and the police union can come to an agreement. “The current plan is unsustainable,” she said. A 2011 study by the Rhode Island Auditor General’s office found Scituate’s pension funding was the third-lowest in the state.
“There are going to be a lot of hard choices as to what you can do in the town, as far as funding things that you might like,” Johnson said. “You have to make some very hard choices. But definitely it can be solved.”
Johnson said the Scituate Police Pension Board is scheduled to hold a public meeting in March and will continue to meet regularly after that.
“It’s a pension board – they need to meet regularly, at least quarterly if not bimonthly or monthly,” she said. “You need to meet to discuss the problems.” But, she added, “It’s a funding problem. The pension board really can’t fund it. They can only suggest.”
The board’s other four members are Town Council Vice President David Hanna, Town Councilor William Hurry, and police union appointees Richard Parenti and Donald Delaere.
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – City officials have asked the General Assembly to increase municipal aid to Providence by between $4 and $5 million to help cover the city’s remaining structural deficit, Director of Administration Michael D’Amico said Monday.
By Ted Nesi and Tim White
SCITUATE, R.I. (WPRI) – The officials charged with overseeing Scituate’s troubled police pension plan held next to no meetings for more than a decade as the plan’s cash shortfall quadrupled to $8 million, a Target 12 investigation has discovered.
Between the middle of 1999 and July 2011 – a time period that spanned the Clinton, Bush and Obama administrations – the Scituate Police Pension Board held exactly one meeting, on May 8, 2006, where members discussed collective bargaining but not the health of the plan, according to records obtained by Target 12 and confirmed by local officials.
Over that same 12-year stretch the police pension plan’s unfunded liability – the shortfall between benefits owed to officers and the assets set aside to pay them – soared from just under $2 million to more than $8 million, leaving the plan only 28% funded, an analysis of Scituate’s municipal audits reveals.
The $8.2 million unfunded liability in the police pension plan is equal to nearly a third of Scituate’s $26.8 million town budget last year. A 2011 study by the Rhode Island Auditor General’s office found Scituate’s pension funding was the third-lowest in the state.
The chairman of the Scituate Police Pension Board throughout its 12-year hiatus was Theodore Przybyla, a Republican who was the elected treasurer there from 1996 until last November, when he lost his bid for an eighth term to Democrat Sharon Johnson.
Chairman unaware if board met
When Target 12 first asked whether it was true the pension board had met only once between 1999 and 2011, Przybyla didn’t know the answer despite the fact that he was its chairman.
“Karen, is the meeting question correct. Ten years without a meeting seems unlikely,” Przybyla replied in an email apparently meant for the deputy treasurer, Karen Beattie, but instead sent to Target 12. Beattie later confirmed that there was no evidence the pension board had met more than once during those years.
Przybyla refused multiple requests for an interview to discuss his oversight of the plan. Target 12 finally tracked him down in the parking lot of Coventry Town Hall, where he works as the finance director. Przybyla again refused to answer questions, saying the unexpected interview was “not appropriate” and then disappearing into town hall.
In an email sent the next morning, Przybyla said questions about the pension plan should be directed to Johnson, who replaced him as treasurer in January. He said members of the town council are responsible for dealing with the pension plan, not the treasurer and the pension board, and that he’d provided the council with documents and other information that discussed its finances.
Przybyla will get a pension
Przybyla argued the pension board’s primary role is to approve applications for disability pensions. Legally, however, that’s not the case: Target 12 confirmed that the Scituate Police Pension Board is the entity with fiduciary responsibility for the police pension plan.
The board “is responsible for the overall administration of the plan pursuant to the terms of the plan,” Beattie, the deputy treasurer, told Target 12 in an email. “In that capacity, the committee exercises control and discretion of the plan and has a fiduciary responsibility to the plan. This would be a fiduciary responsibility in the respective official capacities of the committee members.”
Przybyla’s contention that the board is only responsible for disability applications also contradicts its actions once he started holding meetings again on July 20, 2011. Minutes show the board received a briefing that day from the investment firms that manage the plan, who warned them about the funding shortfall and convinced them to lower their investment return forecast from 8.25% to 7.5% a year.
From 1997 to 2007 Scituate’s set its expected return on investments even higher, at 9%. A higher projected rate reduces how much money a town must deposit into the plan, saving money up front but increasing the risk of a shortfall if investments don’t perform. The plan’s actual rate of return from 1999 to 2011 was 4.57% a year.
Ironically, Przybyla himself will receive a pension for his service overseeing the town plan: a state official confirmed he earned 13 years’ worth of pension credit during his time as Scituate’s elected treasurer. However, his pension will be funded out of the healthier state-run system for municipalities.
Lawmaker: Town residents ‘shocked’
State Rep. Michael Marcello, a longtime critic of Scituate leaders’ pension decisions, said many town residents are only now realizing the scale of the problem. “I think most people were probably shocked that Scituate – which prides itself in being a fiscally conservative community – had such a huge unfunded liability, one of the worst in the state,” Marcello, D-Scituate, told Target 12.
Scituate officials have been overly optimistic about the pension plan for years. Przybyla’s predecessor, Brian Blanche, dismissed concerns raised in 1997 when he finished a 10-year stint as treasurer.
The problem “is not half as bad as it looks on paper,” Blanche, a Republican, told The Providence Journal at the time. “People seem to be a bit alarmed about it, but they shouldn’t be, because I don’t think it’s in that bad shape.” The shortfall then was $1.8 million, or $6.4 million less than it is today.
The situation exemplifies why Rhode Island officials from Gov. Lincoln Chafee on down have serious concerns about the 36 pension plans that are managed independently by cities and towns without direct state oversight. The General Assembly has largely ignored proposals backed by Chafee and most mayors to authorize the suspension of cost-of-living increases for retirees in the plans.
Town fails to deposit enough
Scituate created its locally run police pension plan in October 1981; before that date the town’s police officers were part of the state-run Municipal Employees Retirement System, which is in far better financial shape. The local plan provides officers with an annual pension worth 60% of their base pay after 25 years of work. It currently has 33 members, 12 of whom are retired.
Marcello said he was “shocked and disappointed” to learn the board failed to meet for so long. “If you’re not meeting for 10 years, I think the natural assumption is everything is OK, there is no need to meet,” he said. “And obviously now we know that is untrue. Things were pretty bad.”
A key part of the problem: Scituate consistently puts less money into its pension plan than experts say it should.
Actuaries called for a $456,939 deposit in 2005-06; the town put in $413,118. They called for a $673,360 deposit in 2011-12; the town put in $356,611. In other words, Scituate’s pension contribution actually went down when the amount it was supposed to contribute went up.
The Scituate Police Pension Board is made up of five people: the treasurer, two members of the town council and two police officers appointed by their union. Its current members are Treasurer Johnson, Town Council Vice President David Hanna, Town Councilor William Hurry, and police union appointees Richard Parenti and Donald Delaere.
Retirees, taxpayers face risks
The board finally set a regular meeting schedule last May and is now discussing how to fix the plan’s funding problem. An improvement plan filed with the state suggests reducing cost-of-living increases for future retirees, cutting the value of the pension benefit and boosting employee contributions. The proposal would get the funding level above 60% by 2029, the town says.
The biggest police pension in Scituate goes to former Capt. Steven Bremges, who retired in 2006 and now works in security at Brown University. His pension was $4,003 a month as of last July, according to records obtained by Target 12. Most of the retired officers received between $2,000 and $3,300 a month.
It’s projected the police pension fund will run out of money by 2027 if Scituate continues its current funding policy, according to a forecast provided to Przybyla last March by The Angell Pension Group, an actuarial firm. At that point the annual cost to Scituate taxpayers would jump from less than $400,000 to almost $1.2 million.
“For the retirees, I think they have a real concern that there isn’t enough money to fund the benefits that they were promised,” Marcello said. “For taxpayers the message is look out, because the money will have to be paid in some form or fashion, and it’s going to come right out of their property tax bills.”
The question of whether Rhode Island’s local pension boards are handling their fiduciary responsibilities adequately has been raised repeatedly by Treasurer Gina Raimondo since she took office in 2011. At a workshop for municipal officials she organized last year, Raimondo recommended that the local boards get a lawyer to provide them with fiduciary training.
Raimondo: ‘It’s the basics’
The treasurer and her aides have emphasized that members of pension boards must act solely in the best interests of the pension plans’ members, even if doing so could cause larger budget problems for their communities.
“It’s the basics,” Raimondo told WPRI.com after the workshop. “A lot of people said, ‘I don’t know who’s on my board. Maybe we should have fiduciary training.’ It’s about good pension governance.”
Raimondo, Marcello and other officials have suggested the state should consider moving all the local pension plans into the state system, though there’s no formal proposal on the table for handling such a transition. The 2011 state pension law required municipalities with independent pension plans to conduct new studies of their financial health and then deliver improvement plans if a plan’s funding level is below 60%.
“I think it’s an issue we probably need to address at the state level, too,” Marcello said. “There are a lot of local pension plans that are administered by boards such as these. The question is, are they capable to have the talent to do the job which they are charged to do?”
Another $4 million for retiree health
The Scituate Police Pension Board has had other problems over the last year.
The town’s deputy public works director was forced to resign after it was revealed he was collecting a pension and a municipal salary simultaneously, which is against local rules. He began collecting the pension during the period when the board wasn’t meeting.
Attorney General Peter Kilmartin’s office also found the pension board violated the state’s public records law by failing to keep or file meeting minutes and refusing to fulfill records requests.
The police pension plan isn’t Scituate’s only long-term financial challenge.
The town also has a $4.4 million liability for its retirees’ health insurance and has saved nothing to cover it. The town budget for the 2012-13 fiscal year includes $100,000 to begin addressing that second shortfall.
Rhode Islanders pay the 13th-highest state and local taxes in the country compared with their incomes, according to the latest analysis of Census data by the Massachusetts Budget and Policy Center.
The $6.9 billion in state and local taxes paid by Rhode Islanders in 2009-10 totaled 11.1% of their personal income, up slightly from 11.0% the prior year, the analysis shows. Just 12 other states took more of their residents’ income in state and local taxes, according to the group.
The national average was 10.6% of income, and Massachusetts ranked 25th at 10.2% of income, the analysis shows. Three other New England states – Maine, Vermont and Connecticut – took more of their residents’ incomes in taxes than Rhode Island did, while New Hampshire took the least.
The left-leaning Massachusetts think tank said it looks at taxes as a share of personal income rather than per capita because it “allows for a meaningful comparison among states.” Another group, the right-leaning Tax Foundation, ranks Rhode Island’s tax burden higher after making adjustments to the data.
• Related: Charts: Regressive RI taxes getting (slightly) more progressive (Jan. 30)
(chart: Massachusetts Budget and Policy Center modified by WPRI.com)
For more than a decade, state and local taxes in Rhode Island have been among the nation’s most regressive – meaning they’re structured to take a larger share of income from the poor than they do from the wealthy.
That said, a WPRI.com analysis of the last decade’s “Who Pays?” studies from the Institute on Taxation and Economic Policy shows the richest Rhode Islanders are paying slightly more of their incomes in state and local taxes than they were in 2002, while the poorest are paying a bit less.
That doesn’t necessarily contradict progressives’ argument that wealthier Rhode Islanders have gotten a tax cut: the studies show the share of income paid by the top 1% in income taxes fell from 5.8% in 2002 to 4.8% in 2013. But that reduction was offset by an increase in how much the top 1% paid in property taxes, which rose from 2% to 3.1%. Here’s how the tax mix for the top 1% has changed over the last decade:
The Institute on Taxation and Economic Policy is out with its latest look at how much of their incomes different Rhode Islanders pay in state and local taxes, and the big headline hasn’t changed: the state’s tax structure takes almost twice as much from the poorest 20% of residents as it does from the top 1%.
Rhode Island families making less than $18,000 a year will pay 12.1% of their 2010 income in state and local taxes under current law, according to the study by ITEP, a Washington-based research group that is affiliated with the labor-backed nonprofit Citizens for Tax Justice.
At the other end of the spectrum, Rhode Island families making $378,000 or more a year will pay 6.4% of their 2010 income in state and local taxes when the federal deduction for those taxes is taken into account. An analysis by WPRI.com of ITEP’s reports shows that since 2002, state and local taxes have gone up or stayed steady for the top 60% of taxpayers while decreasing slightly for the bottom 40%:
(The 2010 income for the lowest 20% was less than $16,000; for second 20%, $16,000-$27,000; for middle 20%, $27,000-$42,000; for fourth 20%, $42,000-$72,000; for the next 15%, $72,000-$141,000; for the next 4%, $141,000-$328,000; and for the top 1%, $328,000 or more.)
Rhode Island is among 10 states that levy the highest taxes on the poor and is the only New England state in that group, according to the study. It is also one of only three states in the U.S. where the Earned Income Tax Credit isn’t fully refundable, which means Rhode Island families with no income tax liability cannot receive the benefit of the credit, the study says.
Here’s a rare silver lining to Rhode Island municipalities’ financial troubles: it’s made so much news that a two-day conference on distressed communities is coming to the capital city.
The financial newspaper The Bond Buyer will hold its 2nd Annual Distressed Municipalities Conference on March 18 and 19 at the Omni Providence Hotel (formerly the Westin). Treasurer Gina Raimondo, who received an award at a Bond Buyer dinner in December, is one of the headliners.
Bond Buyer publisher Michael Stanton told WPRI.com its major events are usually held within the Northeast Corridor, where institutional investors are concentrated, and in places that are geographically accessible to government leaders.
Moody’s Investors Service is criticizing Providence leaders – and, implicitly, Superior Court Judge Sarah Taft-Carter – for running a $15 million operating deficit during the 2011-12 fiscal year, but softened its criticism based on other steps the Taveras administration has taken.
“The shortfall is credit negative as the city’s financial position has weakened considerably over the past four years,” Moody’s analyst Vito Galluccio wrote in a note to investors. “However, its balanced budget for [fiscal] 2013 indicates some progress toward restoring fiscal stability.”
Galluccio cited two big drivers of the $15 million operating deficit: Taft-Carter’s mathematically flawed ruling last year that the city didn’t need to move its retirees to Medicare, and various types of tax revenue failing to meet the city’s projections. The deficit would have been even larger if the city hadn’t shorted its 2012 contribution to the Providence pension fund by $5.4 million, he said.
“The 2012 results follow several years of operating deficits that have left the city in a precarious financial position,” Galluccio said. He blamed the fiscal crisis on a $125 million reduction in state aid during former Mayor David Cicilline’s second term and “rapidly growing expenditures related to employee salaries and benefits.”
Well, in the end Providence didn’t file for bankruptcy – an outcome that loomed as a very real possibility last winter when the city’s cash flow crisis was most acute (and a confused Judge Taft-Carter made things worse). The final audit shows Providence finished fiscal 2011-12 with an $11.4 million deficit.
The Taveras administration acknowledges the city budget still has a built-in $4 million structural deficit, though that’s way down from the $110 million shortfall his fiscal review panel originally found. So how did the mayor eliminate 96% of the structural deficit? Here’s a chart from the city with their breakdown:
(“Revenue enhancements” has to be one of my least favorite bits of political spin. I don’t expect press shops to switch to “Job-killing tax hikes,” but what about plain old “Revenue increases”?)