Budget Commission To Attempt Pension Payback Over 30 years

Law currently calls for unfunded liability to be paid off in five years.


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.

Sly January 24, 2013 at 12:30 PM
No one cares how many people leave this city.(That's what I meant to say,sorry)
Nelson Aldrich January 24, 2013 at 01:39 PM
Even with a reciever....a bankruptcy would be that in name only.Under state law, bondholders (investment banks?) would be off the hook.Public employees and taxpayers would be left to pick up the pieces.All parties involved should share the pain but bond ratings (future borrowing) reign supreme. Everyone is waiting for a magical "recovery" which is not coming.See any decent jobs being created here?Until i see evidence to the contrary i'll stay negative."HOPE" is not a strategy and debt is slavery.
Mike Kind January 24, 2013 at 04:51 PM
Mr. Aldrich, although you are correct, bankruptcy would allow for restructuring of all pensions and employment contracts to a more affordable level. Under the current circumstance, the city is furnishing a lower than acceptable level of service (other than in public safety, where we are very well served) at a very high tax rate. Our schools are not performing well, and there is no motivation for a young family to buy a house here. In my opinion, education would be a good place to start. Even if it's a sacrifice, good schools and low real estate prices would attract the future taxpayers we so desperately need. I would not give the WED one more cent, however, until they can demonstrate that they can accurately account to us for their expenditures.
Novan for Life January 25, 2013 at 01:59 AM
With all due respect mike the bulk of pension liabilities lie on the municipal side not WED. Regarding expenditures they have been along with the help of RIDE this city has failed its pension obligations for to long and now where screwed. $42 million behind in pension plus payments sit at $10 plus million, on top of that the city has $250 million in debt whats to be done about that huh mike?
Mike Kind January 25, 2013 at 07:58 PM
Novan, I did not attribute the pension problem to the WED. In fact, I want to see them funded better to help rebuild our city. My comment refers to the fact that the WED has, in the recent past, been unable to properly account for their funds.


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