When considering whether to move to a city or town, potential residents most often look at the quality of the school system as the key determinant. An educated buyer, according to state Auditor General Ernest Almonte, will add another criteria: the unfunded liability.
While the state is certainly facing a pension crisis that threatens to derail its economy, cities and towns are looking at an even worse problem, Almonte told the joint House and Senate Finance Committees as hearings on the pension reform proposed by Gov. Lincoln Chafee and General Treasurer Gina Raimondo continued Tuesday.
Municipal employees and retirees who are not part of the state Municipal Employee Retirement System face an even larger unfunded liability than those who are part of the state system. For example, in Cranston, the unfunded portion of the pension totals more than $500,000 per employee, he said.
(Read about Johnston Mayor Joseph Polisena's take on the state pension proposal.)
The state pension reform proposal includes a portion to deal with failing municipal pensions. The legislation would require cities and towns to go back to the bargaining table with unions to find a way to fund the pensions. They would have to achieve 80 percent funding or 50 percent improvement over their current funding level within the next 10 years. Most municipalities are funded below 60 percent, according to Richard Licht, director of the state Department of Administration. The state deems 20 plans to be at-risk and estimates $2.1 billion in non-MERS pensions alone is unfunded.
"It's not the employees' fault. It's the municipalities that haven't funded the system," Licht said. "All we want to do is find a pathway to a solution. How can anyone say there isn't a legitmiate public purpose in securing the pension system."
That pathway would require municipalities to come up with a plan to fund their pension systems and present it to the state Solvency Review Board, according to Marybeth Gallogly, director of the state Department of Revenue. Failing to do so would result in the loss of state aid and the suspension of Cost Of Living Adjustments for retirees.
"I have a deep concern that local pension funds are not secure at all," Gallogly said. "It is our obligation to act so this doesn't happen again."
While most municipalities agree, some feel the state-mandated reform doesn't go far enough. Cranston Mayor Allan Fung and Providence Mayor Angel Taveres urged the Legislature to amend the package so it goes further, suspending COLAs for municipalities from the start. Without suspending the automatic annual raises for retirees, he said, Cranston would need to come up with an additional $95 million in new revenue over the next 10 years just to reach the funding mandates the legislation lays out.
"It would force dramatic increases for my taxpayers in Cranston," Fung told the committee. "We can't keep going back to them to pay for these legacy promises. I need your help in recognizing the dire straits Cranston and other municipalities are in. There is an urgency upon all of us to reform."
Suspending the COLA would be a big help to the city, Fung said. Eliminating it for 10 years would immediately eliminate $50 million from the city's unfunded liability, he said. A 15-year suspension would knock $60 million off the liability, he said. The pension reform bill calls for a 19-year suspension of COLAs for state retirees, but does not address those outside the state pension system.
Providence is in even worse shape, Taveres said. Over 10 years under the pension reform plan, the capital city would would be on the hook for an additional $170 million, he said. Taveres proposed amending the legislation to suspend COLAs for up to 19 years, require municipal pensions to be no more generous than the state system requires, and move more employees into the state system.
"We want an opportunity, like the state, to suspend the COLAs on critical plans," Taveres said. "By passing an amended bill, we can start the process of fixing our city."
Police and fire unions have voiced their opposition to the reform plan, focusing much of their criticism on any suspension of the COLA. Paul Reed, speaking on behalf of the state firefighters union, called the plan "an attack on collective bargaining," though he said the unions would be willing to return to the negotiating table to seek a solution.
Treasurer Raimondo is expected to address the joint committee today, after the public testimony portion, which is expected to last into the evening.