The Budget Commission reviewed an initial 5-year budget plan Tuesday, voting to analyze it to see how taking 30 years to pay the $42 million unfunded pension liability instead of five would affect the numbers.
One thing was certain to members: Woonsocket can't afford to pay it off in five.
Any change to the 5-year plan will have to be followed up by a change to state law, said Jennifer Findlay, CPA and state-appointed financial advisor to the Budget Commission from the Division of Municipal Finance.
During the meeting, Findlay explained that state law requires, in the event the city falls behind on its payments to pensions, that they make it up in five years.
From the 2011 report, Pension and OPEB Plans Administered by Rhode Island Municipalities: "The City of Woonsocket issued a $90 million pension obligation bond in fiscal 2003 to fund the actuarially determined pension obligation for the Police (pre 7/1/80) and Fire (pre 7/1/85) pension fund. Beginning in fiscal 2008, the portfolio losses generated an unfunded actuarial accrued liability and therefore, annual required contributions have been computed. The actuarially calculated annual required contribution is based on a 30-year amortization of the unfunded accrued liability. This methodology is in accordance with GASB requirements; however, as long as the bonds are still outstanding, Rhode Island Public Law 2002, Chapter 10 (which authorized the City to issue the pension obligation bonds) requires that the unfunded liability be amortized over five years."
In the city was behind $42 million, said Woonsocket Finance Director Thomas Bruce.
"As you can see, this is a worst-case scenario," Findlay said Tuesday. She pointed to the line on pensions, which requires a $10,974,000 payment in FY 2013 to start (See page 2, attached pdf). Findlay said the city currently pays about $3 million annually on pensions, so the additional amount required in FY2013 would be about $7,974,000.
"My main problem is the payments on pensions," said Commission member Peder Schaefer.
"It creates what I would call an unattainable goal at every level," said City Council President John Ward. He noted that with the pension payments paid in only five years, there is no amount of cost savings that will balance the city's books.
The baseline 5-year projection printout distributed to the public at the meeting was created using a comprehensive Excel document accounting for every element of the city's budget, Findlay said.
Should officials need to see what a change in revenue or cost of supplies will do to the city's budget, she said, the change can be made and officials can instantly tell what that will do to the bottom line.
Steve Coleman, the second state-appointed financial advisor to the Budget Commission from the Division of Municipal Finance, worked together with Bruce for the last two months to finish the document, Findlay said.
During the meeting, Findlay said the document could be used to identify savings and as a tool for the city's representatives to the General Assembly to add credibility to the numbers they present when asking for the state's support.
The Commission voted to assess how the payments spread out over the next 30 years instead of five would affect the plan. To actually make those payments over that period, they'll need to get the law changed as well — something Ward suggested the Commission start working on.
"We should also take the time to ask the same General Assembly that authorized us to borrow the money to approve, ammend it," he said, to allow them to legally ammortize the liability accordingly.