Pensions Top List for Rhode Island Cities
Liabilities Run to Combined $2B
Thursday, January 5, 2012
By Paul
Burton
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Rhode Island two months ago overhauled its public employee pension system,
but its work is far from over.
The new law only applies to the state-run pensions. Help at the municipal
level is unfinished. Cities and towns, facing a combined unfunded pension
liability of about $2 billion and looking to restructure the 36 locally
administered pension plans, will lobby state lawmakers for enabling
legislation.
The General Assembly reconvened Tuesday.
Hovering ominously over the state is a December report by Moody’s Investors
Service that said its local governments face heightened credit pressure and
possibly more downgrades.
“Every city and town is living day by day. Several communities are in
difficult financial straits. Moody’s gave us a very stern warning about what we
may face if challenges are not met,” said Cranston Mayor Allan Fung, a vice president of the Rhode Island League of Cities
and Towns and chairman of its legislative committee.
Central Falls, which has a population of 19,000 and is under receivership,
filed for Chapter 9 bankruptcy protection last August, citing an $80 million
unfunded pension liability.
East Providence, just placed under a budget review commission, is in the
second step of state intervention.
On Thursday, Gov. Lincoln Chafee will host a meeting in Providence of mayors and city managers of the
state’s 39 municipalities. Pensions figure to top the agenda.
Local officials say the ability to cut pensions is necessary to keep from
raising taxes and sharply cutting services.
The pension bill Chafee signed in November creates a hybrid plan that
merges conventional public defined-benefit pension plans with 401(k)-style
plans.
The new law also includes a suspension of cost-of-living adjustment
increases for retirees until plans are replenished, and raises the retirement
age for employees not yet eligible for retirement.
Chafee and General Treasurer Gina Raimondo said
the measure will help save the state billions of dollars.
“It was just a first step toward getting Rhode Island’s fiscal house in order. As I
said at the time, that legislation doesn’t address the whole problem,” said
Chafee, a former mayor of Warwick.
Lawmakers last year stopped short of passing enabling legislation for
localities, citing the many nuances of local plans. In addition, municipal
pension plans are subject to collective bargaining, which adds legal
complexity.
“We’re not asking for the state to come in and provide a cure-all. We’re
looking for the legal grounds and the tools to do our jobs,” said Pawtucket
Mayor Donald Grebien, who took office a year ago.
Pawtucket, whose collective bargaining agreements with five unions expire in June,
has a $138 million pension shortfall, according to Grebien,
while its fire and police funded ratio is at 30%. The mayor estimates that
local changes, if they parallel the state’s package, could help reduce the
unfunded pension liability in his city by about $30 million.
Pawtucket, which borders Central Falls, received a four-notch downgrade
from Moody’s in January to Baa2 from A1, leaving it still at an
investment-grade level. Three weeks ago, Fitch Ratings revised its outlook on
the city’s general obligation bonds to stable from negative, while affirming a
BBB-minus rating.
According to Grebien, Pawtucket embarked on a five-year plan that
has whittled a $12 million deficit down to $2 million.
“Each community’s bond rating affects the state’s,”
he said.
Cranston was not among
the nine Rhode Island
cities that Moody’s downgraded in 2011. But Fung
still called pensions “a very dire problem” for his city.
Cranston’s unfunded pension liability stands at $256 million, slightly exceeding his
city’s annual budget of $245 million. Its funding ratio for fire and police
retirees, according to Fung, is roughly 17%.
Fung, who served on Raimondo’s
12-member pension overhaul advisory panel last year, expects further pushback
from public sector unions.
“Yes, a promise is a promise. Central Falls kept its promises — all the way
to bankruptcy court,” he said.
An auditor general’s report in September said 24 local pension plans spread
across 17 municipalities were “at risk,” all with funded ratios of less than
75%.
Eighteen plans measured in at less than 50%.
Moody’s rates the state’s general obligation bonds Aa2, while Fitch and
Standard & Poor’s each assign a AA.
http://www.bondbuyer.com/issues/121_3/rhode-island-pensions-1034865-1.html