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.”
Ted Nesi ( email@example.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi
Tim White ( firstname.lastname@example.org ) is the Target 12 investigative reporter for WPRI 12 and Fox Providence. Follow him on Twitter: @white_tim