Municipal pensions the second front

As bad as the future looks for Rhode Island’s beleaguered state pension system, the future of plans like the one funding the retirement of 490 of Cranston’s police and firefighters looks even worse.
Closed to new members in 1995, the Cranston plan has assets to cover only 17 percent of a $300 million unfunded liability, far worse than the state system’s 48 percent funding level.
So with local leaders like Cranston’s concluding that measures in a proposed pension-overhaul bill may do more harm to their struggling local plans than good, the fate of those plans has emerged as a contentious second front in the battle over pension reform.
“Instead of reforming the benefit side, they forced cities and towns to fund to a certain level within 10 years,” said Cranston Mayor Allan Fung. “I would have to raise taxes substantially or cut services to meet it.”
Fung, who strongly supports the bill’s central reforms of the state system, is not alone in suggesting the measures designed to help cities and towns don’t get the job done.
Almost immediately after the bill was filed, Providence Mayor Angel Taveras said the plan did not give the capital city the tools it needs to fix its pension issues, which include a public-safety plan that has been singled out as one of the worst-funded in the state.
From Taveras’ perspective, the proposal simply doesn’t go far enough, spokesman David Ortiz said.
And the concerns extend beyond the state’s largest cities.
Coventry has three plans outside the state system that are all precariously ill-funded.
The worst off covers the town’s public-safety workers with only 16.5 percent of the total liability funded.
Coventry Town Manager Thomas Hoover estimates that without help, the public-safety plan will run out of money in 2021, while another plan for nonuniformed town workers will run out of money in 2028.
Like Fung and Taveras, Hoover said the current language in the bill does not help fix Coventry’s local plans and the town would have to raise taxes well beyond the state levy limit to meet the bill’s funding targets.
Of the central elements in the reform bill’s plan for the state-run pension plan, which is estimated to save the state system an immediate $3.2 billion, the most controversial measure is the proposed freeze in annual cost-of-living increases for most retirees. The freeze, which would last an estimated 16 years, would also be responsible for as much as three-quarters of the reduction in the state’s unfunded liability, which is why local leaders want to see similar measures in the independent municipal plans.
In the current legislation, COLAs would only be suspended in municipal plans after each community performed an actuarial study of their plans and then failed to come up with a plan accepted by local unions that meets a series of funding benchmarks.
But along with the COLA freeze, under the current proposal cities and towns would also see a cut in their noneducation state aid as punishment for not reaching the targets.
Fung said this strategy doesn’t work on multiple levels, one being that workers who have already retired are no longer represented by a union, so there is no organization for the city to negotiate with. That’s a particular concern in Cranston, where 435 of the 490 people in the local police and fire plan are already retired.
The other major issue many cities and towns have with the proposed plan is the level of local money that would be needed to meet benchmarks.
Fung said Cranston would need to find $95 million in new revenue, through either cuts or tax increases, to meet the target.
Like most of the local leaders with concerns about the current bill, Fung said he would like to see immediate COLA suspensions extended to local plans through the law.
“What we are asking for is recognition of the dire situation we are facing, and for the same relief and reforms proposed for the state plan to give us a fighting chance,” Fung said.
He noted that both Cranston and Providence have tried to suspend COLA’s without state help in the past, but have had their attempts overturned in court.
To get more favorable terms for independent municipal pensions, many local leaders are pushing for an amendment through the Rhode Island League of Cities and Towns, which has come out in general support of the legislation with a caveat about the municipal provisions.
There are plenty of reasons local leaders, even those concerned with the local-plan language, are supporting the pension-overhaul bill.
If nothing passes, municipalities’ share of funding the state pension system alone is projected to rise from $167 million in fiscal 2012 to $287 million in fiscal 2013. “I am in favor of the municipal plan outlined in the treasurer’s and governor’s pension-reform proposal,” said Warwick Mayor Scott Avedisian, in an e-mail statement that acknowledged the need for further changes to the independent plans down the line. “It is critical that real pension reform takes place on the state level so we can then move forward to address underfunded and poorly performing pension systems in our cities and towns.”
In addition to potentially dividing local leaders, the municipal-plan issue has been one of the primary disagreements between the two major drivers of the plan, Gov. Lincoln D. Chafee and Treasurer Gina Raimondo.
In the run up to launching the bill, Chafee insisted on including at least some plan to deal with the independent local plans, while Raimondo was focused almost exclusively on the state system.
Now that the plan is before lawmakers, Chafee appears more open to amending the bill to help those cities and towns with plans in desperate shape.
“At this point the governor has not seen any proposal, but he is well aware of the mayors’ concerns and understands the need to have certain tools at their disposal,” said Chafee spokeswoman Christine Hunsinger.
On the other hand, Raimondo spokeswoman Joy Fox said the treasurer would not support proposals to immediately freeze municipal-plan COLAs until after the bill is passed and the initial study stages carried out.
“The treasurer’s office believes it is irresponsible to take any definitive action until actuarial studies are completed, which allow for an accurate assessment of the plan viability and local officials and employee representatives are given an opportunity to provide a remedial plan specifically tailored to their local pension systems,” Fox said.
Exactly what lengths local leaders who support the proposed changes to the state system are prepared to go to change the language regarding municipal plans is unclear.
Despite his concerns, Fung said he was not prepared to oppose the bill outright.
Bristol Town Administrator Diane Mederos, who is also serving as Rhode Island League of Cities and Towns president, said the league’s executive board is waiting for a group of large-city mayors to draft a potential amendment to the bill.
“Everyone [recognizes] the need to do better for all of our systems,” Mederos said. “We sink or swim together.” •