Mark, thanks for further exposing this joke of pension reform by Mayor Avedisian, my Warwick Beacon column on this subject.
The Taxpayers' Spin: Reality of pension costs daunting
by Robert Cushman
Apr 14, 2011
With Warwick City Council chambers packed with state and local labor leaders, union workers, administration officials, City Council members and taxpayers all listening to experts from the city’s pension and health care actuarial firms testify on the condition of the plans, I posed one simple question to them all.
Can the city of Warwick continue to fund a budget that pays retirement benefits at required actuarial levels, fund annual health care benefits and cost of living increases for active employees, maintain all other municipal programs and services, and also fund the school budget?
Needless to say, not one person responded, yet the answer was quite obvious after listening to the testimony.
Weeks earlier Councilman Steve Merolla submitted a series of questions to dissect the complicated assumptions and terminology used by the firms when recommending the taxpayer and employee contributions needed to fund each plan and identify the unfunded liabilities.
Merolla’s questions demonstrated that many of the assumptions, including the assumed 8 percent annual return on plan investments, are over optimistic and unrealistic and paint a picture that the plans are funded at levels greater than reported.
The experts reported they “may soon recommend the use of a lower investment return rate in connection with future actuarial valuations.” This would result in higher liabilities and higher required contributions necessary to properly fund the plans. It also would have a direct impact on the city’s ability to maintain all other spending priorities including schools.
General Treasurer Gina Raimondo is questioning the same assumptions for the state plans and was quoted in yesterday’s Providence Journal saying the choice comes down to “whether to accept the recommendations and have our system’s assumptions reflect reality.” She goes on to say, “People deserve the truth. Retirees deserve the truth. State employees deserve the truth. We can’t play games. This is about the truth and trust and good, solid financial analysis based in reality.”
In the city of Warwick it is clear, many city leaders along with the unions don’t want to know the truth. They are either content with masking the problem or are too naïve to realize the consequences of not understanding the problem.
It is imperative that city leaders take the time to perform the proper analysis to determine the estimated cost to fund cumulative retirement benefit costs for all employees and determine the effect this funding will have on all other spending now and in the future.
Warwick union leaders and their members need to get their heads out of the sand and demand the truth. After all, they will feel a direct impact when the time comes when plan funds are depleted and the checks stop arriving.
There is no doubt Warwick will face a real financial crisis in the near future and the attacks from union members directed at those calling for proper disclosure only serves to support the politicians in the city that are willing to ignore the problem.
With the administration ready to testify on the savings associated with the mayor’s pension reform legislation, the experts’ reports confirmed that the city would not realize any significant savings. In four years, a measly $49,000 in pension savings will materialize while taxpayer contributions will increase by approximately $6.5 million. In 12 years, taxpayer pension contributions will more than double from $22 million to over $46 million.
Mayor Scott Avedisian, in his inauguration speech, claimed his reforms “will save roughly $2.4 million a year.” Reports indicated that amount wouldn’t be realized until almost 20 years from now in the year 2030. By that time, taxpayer pension contributions will have risen to over $51 million annually.
Based on future actuarial increases in the cost of health care for active employees, that cost is projected to double in the next 10 years from approximately $12 million to over $24 million. Ten years after that the cost will just about double again to $47.5 million.
Incredibly, the cost to fund retiree employee health care costs over the same periods of time is not known since the health care experts were not asked to prepare that information.
All told, the cumulative benefit unfunded liabilities are currently reported well over $600 million. City and schools should have $45 million in the bank to cover future retiree health care costs. Today they have zero dollars allocated.
To meet required contributions for pension and health care benefits for city employees in the current fiscal year, an additional $14 million in revenue is required, equating to a 12 percent increase in the city budget.
In future years the problem will get worse as pension and health care costs escalate beyond the city’s ability to raise taxes high enough to meet the revenue necessary to make required payments, thereby jeopardizing future benefit payments.
Today, for example, with a maximum tax increase and all funds going to the city budget, administration officials have indicated that approximately $8 million to $9 million could be raised. That’s $5 million to $6 million short of the funds needed to meet funding requirements.
At the end of the meeting, one positive conclusion was evident. Based on the experts’ testimony, my question was answered. Without reforms that immediately cut the costs of employee retirement benefits, the city of Warwick will soon approach insolvency.
Robert Cushman (Cushmanr@cox.net) is a former Warwick City Councilman and former school committee Chairman.
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I'm positive the ProJo's report said the changes would only apply to new hires after July, 2012.
Posted by: dave at April 13, 2011 1:53 PMWarwick Beacon- "By 2049 the three plans are projected to collectively save $8.9 million annually"
Posted by: bobbbbb at April 13, 2011 2:11 PMBy then the budget should be approaching a $billion. So that's a 1% savings.
Marc,
I give you credit for this post. It shows in a non-biased way, that Avedisian's pension reform is about headlines, not saving taxpayers money.
Scott Avedisian has been using the city treasury to buy union support at the polls for over 1 decade now. That means he gets all the support of the public sector workers who usually vote Democrat, plus he gets the support of Republicans who either don't pay attention, or make excuses for him because he's a registered Republican.
I've always wondered how long this liberal would get away with this act. Hopefully its catching up to him finally.
Posted by: Rasputin at April 13, 2011 5:57 PMMark, thanks for further exposing this joke of pension reform by Mayor Avedisian, my Warwick Beacon column on this subject.
The Taxpayers' Spin: Reality of pension costs daunting
by Robert Cushman
Apr 14, 2011
With Warwick City Council chambers packed with state and local labor leaders, union workers, administration officials, City Council members and taxpayers all listening to experts from the city’s pension and health care actuarial firms testify on the condition of the plans, I posed one simple question to them all.
Can the city of Warwick continue to fund a budget that pays retirement benefits at required actuarial levels, fund annual health care benefits and cost of living increases for active employees, maintain all other municipal programs and services, and also fund the school budget?
Needless to say, not one person responded, yet the answer was quite obvious after listening to the testimony.
Weeks earlier Councilman Steve Merolla submitted a series of questions to dissect the complicated assumptions and terminology used by the firms when recommending the taxpayer and employee contributions needed to fund each plan and identify the unfunded liabilities.
Merolla’s questions demonstrated that many of the assumptions, including the assumed 8 percent annual return on plan investments, are over optimistic and unrealistic and paint a picture that the plans are funded at levels greater than reported.
The experts reported they “may soon recommend the use of a lower investment return rate in connection with future actuarial valuations.” This would result in higher liabilities and higher required contributions necessary to properly fund the plans. It also would have a direct impact on the city’s ability to maintain all other spending priorities including schools.
General Treasurer Gina Raimondo is questioning the same assumptions for the state plans and was quoted in yesterday’s Providence Journal saying the choice comes down to “whether to accept the recommendations and have our system’s assumptions reflect reality.” She goes on to say, “People deserve the truth. Retirees deserve the truth. State employees deserve the truth. We can’t play games. This is about the truth and trust and good, solid financial analysis based in reality.”
In the city of Warwick it is clear, many city leaders along with the unions don’t want to know the truth. They are either content with masking the problem or are too naïve to realize the consequences of not understanding the problem.
It is imperative that city leaders take the time to perform the proper analysis to determine the estimated cost to fund cumulative retirement benefit costs for all employees and determine the effect this funding will have on all other spending now and in the future.
Warwick union leaders and their members need to get their heads out of the sand and demand the truth. After all, they will feel a direct impact when the time comes when plan funds are depleted and the checks stop arriving.
There is no doubt Warwick will face a real financial crisis in the near future and the attacks from union members directed at those calling for proper disclosure only serves to support the politicians in the city that are willing to ignore the problem.
With the administration ready to testify on the savings associated with the mayor’s pension reform legislation, the experts’ reports confirmed that the city would not realize any significant savings. In four years, a measly $49,000 in pension savings will materialize while taxpayer contributions will increase by approximately $6.5 million. In 12 years, taxpayer pension contributions will more than double from $22 million to over $46 million.
Mayor Scott Avedisian, in his inauguration speech, claimed his reforms “will save roughly $2.4 million a year.” Reports indicated that amount wouldn’t be realized until almost 20 years from now in the year 2030. By that time, taxpayer pension contributions will have risen to over $51 million annually.
Based on future actuarial increases in the cost of health care for active employees, that cost is projected to double in the next 10 years from approximately $12 million to over $24 million. Ten years after that the cost will just about double again to $47.5 million.
Incredibly, the cost to fund retiree employee health care costs over the same periods of time is not known since the health care experts were not asked to prepare that information.
All told, the cumulative benefit unfunded liabilities are currently reported well over $600 million. City and schools should have $45 million in the bank to cover future retiree health care costs. Today they have zero dollars allocated.
To meet required contributions for pension and health care benefits for city employees in the current fiscal year, an additional $14 million in revenue is required, equating to a 12 percent increase in the city budget.
In future years the problem will get worse as pension and health care costs escalate beyond the city’s ability to raise taxes high enough to meet the revenue necessary to make required payments, thereby jeopardizing future benefit payments.
Today, for example, with a maximum tax increase and all funds going to the city budget, administration officials have indicated that approximately $8 million to $9 million could be raised. That’s $5 million to $6 million short of the funds needed to meet funding requirements.
At the end of the meeting, one positive conclusion was evident. Based on the experts’ testimony, my question was answered. Without reforms that immediately cut the costs of employee retirement benefits, the city of Warwick will soon approach insolvency.
Robert Cushman (Cushmanr@cox.net) is a former Warwick City Councilman and former school committee Chairman.
Posted by: Bob Cushman at May 23, 2011 12:09 PM