Is it Time for the State to Cut Funding to Woonsocket?

A couple of loud fiscal alarm bells sounded in Woonsocket over the last ten days as we were all glued to convention coverage and moose-burgers. A week ago Friday, Fitch Ratings downgraded Woonsocket’s General Obligation Bonds. Courtesy iStockAnalyst:

In the course of routine surveillance, Fitch Ratings has downgraded the rating on Woonsocket, RI’s approximately $119 million of outstanding general obligation (GO) bonds to ‘A-‘ from ‘A’. The Rating Outlook has been revised to Negative from Stable.

And on Tuesday, Richard Lepine, the only financial professional on the Woonsocket Pension Board, quit. From the Valley Breeze.

… he neither agreed with the direction of the fund nor does he believe others sharing authority over the fund are listening to his warnings.
As of June 30 of this year, the pension fund for retired police and fire personnel was an estimated $12 million short of the approximate $90 million value it was required to maintain by state law, or face payments back into it to keep it fully funded.
The shortfall meant an estimated $16 million loss from the previous year as the stock market tumbled, but an actuarial “smoothing method” for the fund meant it was only $2.1 million “short” and still had time to catch up before the city would be on the hook for much larger payments a few years down the road, according to the city’s actuary, Dennis Jacobs.
Estimates based on the new mortality tables the city will likely be required to use now have the fund short of full funding by about $17 million, and could require more significant payments.
Lepine said in his letter that the city should start making larger payments than the required $500,000 installments recommended by Jacobs based on the $2.1 million figure, and agreed to by other board members, to avoid an even more significant shortfall down the road.
My 21 years of experience as an investment adviser leaves me with little confidence that these proposed minimal payments will be nearly enough to solve our funding shortfall, and that the greater risk to the city is that the unfunded liability may grow over the next few years to a perilous and unmanageable figure,” Lepine said in his letter …

“Smoothing method”? Is that a euphemism for “Do nothing and hope it all goes away”?
In his editorial this week, the Valley Breeze’s Tom Ward does not mince words.

The money is running out much faster than it should, and it’s clear that Mayor Menard is angry with Lepine for blowing the whistle on this mess to the City Council. Every city retiree who depends on those funds owes Lepine a debt of gratitude for speaking the truth.
The bottom line is that Menard is smart enough to know there’s a problem, but likely was hoping to paper over the shortage of money that wouldn’t come to light until after she left office. Let the next poor slob clean up her mess.
An honorable mayor would thank Lepine. Instead, he’s made an outcast. That’s Menard’s “my way or the highway” style of leadership. The truth be damned – protect the boss at all costs.
Too late. I urge the City Council to keep a close eye on the mess a compliant Pension Board doesn’t care to address.

These developments follow upon the damning audit released in March. And of course, all of this follows upon the colorful tenure of Mayor Susan Menard (yes, she’s still in office; she changed her mind), whose dubious fiscal methods include but are by no means limited to no-bid motorcycles, no bid copy machines, hidden cameras, campaign contributions from the (prior) city auditor and the expenditure of legal fees on an ultimately unsuccessful bid to prevent the City Council from questioning city employees. [As to the last item, why has she been so anxious to keep them silent?] Oh, and Woonsocket’s 2006 School Superintendent made the Providence Journal’s list of 100 highest paid municipal employees: Ms. Maureen Macera was the third highest paid muncipal employee in the state that year.
I point out such little items because Rhode Island taxpayers are the source for seventy five cents of every budget dollar spent in Woonsocket. Tom Ward is correct that the City Council needs to keep an eye on the Pension Board. But as the guardian of our hard earned tax dollars, the Rhode Island General Assembly needs to start looking much more closely at Woonsocket City Hall. Regardless of whatever hidden cameras may be set up.

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George Elbow
George Elbow
13 years ago

Woonsocket’s pension mess is symtomatic of the entire state.
RI has the first or second largest Public Employee Pension shortfall in the nation at $5 Billion.
Rocket scientest snake-oil salesman will tell you to ignore reality, ignore what is going on the market(which is down over 20% this year), ignore the massive deficits.
For example, Bob Walsh & his ilk will tell you that, magically, using “Walshian Assumptions” the whole mess will right itself in 22 short years! LOL.
Unfortunately, there are people out there that buy into his BS, as opposed to demanding to know why the taxpayers should be providing Public Employees with GAURANTEED benefits in return for minimal contributions and minimal years of service, particularly when history has proven via massive deficits that these Ponzi-scheme plans are UNFAIR and UNSUSTAINABLE.
In fact, we don’t need to see what is happening to the State pensions to know this, as we need only look at GM, Ford, Chrysler, US Steel, etc.
Sadly, it is almost hopeless when you consider that even intelligent people like Andrew buy into the Walshian Nanny-state Entitlement nonsense.
It would be helpful if guys like Mr. Lepine would also educate and explain to the great unwashed that the real reason for the shortfall is the nutty Guaranteed benefits that are doled out to young retirees, coupled with meager contributions from employees that have ZERO risk.
Interestingly, the individual that ran against Menard the last two elections was a 42 year-young retired police officer collecting a Pension and free medical benefits. In other words, her opponent was a walking, talking poster child for Pension Reform. Not suprisingly, her opponent, who was previously in the General Assembly, voted against Pension Reform.

Mike
Mike
13 years ago

The state should eliminate ALL state aid to any municipality that doesn’t switch to 401k’s and institute 62 as a minimum retirement age-55 for police/fire. End of story.

George Elbow
George Elbow
13 years ago

Mike –
I second the emotion, I mean, motion!
While they are at it, they should mandate that anyone (including members of the GA) receiving Taxpayer funded healthcare contribute at least 30% of the cost of that healthcare.

Andrew
Andrew(@carroll-andrew-morse)
Editor
13 years ago

George,
Isn’t magic that makes either a defined-benefit pension plan or a 401(k) plan work. It’s compound interest. Both a defined benefit can produce a similar retirement income stream, if they are similarly funded. If you’re saying that a DB plan based on a 13%-of-salary total annual contribution absolutely cannot be made to work as a retirement plan without some crushingly big extra payments from an outside source, then the same thing is true of a 401(k).
You continuing insistence that DB plans are inherently flawed from a fiscal perspective lets Mayor Menard and her crew off the hook for how far they’ve gone out of their way to mess up the situation in Woonsocket.

George Elbow
George Elbow
13 years ago

Andrew,
We all understand the power of compounding interest.
But, you need principal to compound and you need to have consistent returns(i.e. compounding rates).
The main issue I and others have with the DB plans, particularly the ones doled out to public employees, is that the employee bears ZERO risk on the potential lack of returns or lost principal.
And when you have ZERO risk, you should expect minimal paybacks, not 75% or more of your highest five salary years, before age 60, that grow automatically by 3% per year starting in year 3.
And my issue with your Pension Simulation is that you didn’t bother to clearly demonstrate what the Employee actually contributes (which is about 9-10% of their pay) and what they actually receive as a result of those minimal contributions.
The massive delta has got to be made up by UNCERTAIN returns (which in today’s market are NOT happening) and Taxpayer contributions.
And for those that will argue that the state should have put more money in long ago, I say, our taxes are already too high!
I’m not letting Menard off the hook. I’m simply pointing out that we are doing what we usually do, which is not addressing the root cause of the problem, which are UNSUSTAINABLE pay & benefits.
I don’t care if Paul Volker or Herbert Hoover were mayor, the results, given the nutty pension benefits that are doled out to 42 year young retirees who bear no risk and have no concept of the cost, would be about the same.

James L
James L
13 years ago

It is more than ridiculous that the rest of us pay 75% of Woonsocket’s debt and at the same time, Susan “Truck Driver Mouth” Menard stays popular with the biddies and bluehairs by not raising taxes while in office. How do you pay for cost of living increases without a tax increase? Taking from everyone else, that’s how. And now to hear that even that has been mismanaged? It’s time to stick it to the people who have kept her in office and drop the state funding to at most 50% or even less.
Even worse is Central Falls! Woonsocket looks like a bargain at 75% when you see that the state pays 100% of their school system. Are you kidding me? Where is the local pride? I guess if you’re used to sucking off the welfare system personally, you have no problem with your school system doing the same. I’d be embarrassed to be in office in Central Falls and take 100% of that funding from the rest of the state. Why should the rest of us pay for them? At least make them kick in *something*!!

Mike
Mike
13 years ago

I believe the figure for Woonsocket schools is not 75% but over 90%. Someone I’m sure has the exact number. It is not much under 90% for the pathetic “public” schools run by that corrupt, lisping, mincing freak of nature in “the capital city”.

rhody
rhody
13 years ago

Just another example of the Dem good ‘ol boys at the Statehouse taking care of Sue.

Mike
Mike
13 years ago

Don’t crow Rhody-they take care of your corrupt freak of nature in Prov. too.
By the way-Thursday’s headline is CICCILINE GETS PRISON FOR CORRUPTION.
Governor?
LOL

George Elbow
George Elbow
13 years ago

What is the common denominator with respect to the massive state aid provided to Providence, Woonsocket and Central Falls?
Answer: State Aid to Education
Indeed, the majority of the State aid going to Woonsocket is to fund their top notch School System. LOL.
Perhaps if a few more people got serious about taking down the sign that was posted at our state borders by the Nanny-staters that reads: “Give us your tired, your poor, your huddled masses yearning to live on the public tit, the wretched refuse of your teeming shores….”, we’d not only save money, but we’d improve our schools and have money left over to fix our roads and bridges.
Granted, the price we’d pay is that the Teachers’ Union would have to do with a few less dues paying members and the poverty pimps would have to find real jobs, but it seems to be a small & fair price to pay.
And if Rhody or someone else wants some of Woonsocket’s or CF’s state aid, I am sure their Mayors would gladly hand over the state-aid, along with the wonderful students that go along with that state aid. You know, the students that result from the welfare magnet policies put in place by the unholy alliance of Unions & Social Welfare activists, along with their wholly owned subsidiary, the General Assembly.
Rhody & Co., are you ready to make that deal? My guess is the answer is no …or should be no if you value your kid’s education.

Duffy
Duffy
13 years ago

Funny.. The Providence journal just ran a story on this yesterday. Good job to this site for being so far ahead of the game. Also funny is how the Mayor of Woonsocket and her cronies are trying to dipell all of this as a minor issue of no consequence. Looks like the house of cards is starting to shake and unfortunately the rest of us throughout the state will likely have to pick up the pieces with more state aid.

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