October 31, 2014
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Mayor downplays Solomon alarm on city finances

Ward 4 Councilman Joseph Solomon has joined the drumbeat of former Ward 1 Councilman Robert Cushman that maintains that the city’s financial condition is worse than the administration would have taxpayers believe.

Mayor Scott Avedisian, however, maintains that the city is on sound financial footing.

Citing declining city assets, as defined in the city audit, Solomon introduced a resolution at Monday’s City Council meeting calling for the creation of a blue ribbon fiscal commission to research the issue and turn around the city’s finances. Solomon said he has the names of people in the private and quasi-public sectors who he feels would “think outside of the box” in coming up with creative ideas, but he would like to see who might step forward to volunteer their services.

In a press release disseminated to news outlets across the state Monday night, Solomon said that the city’s net assets fell from $79.2 million to $61.4 million in the fiscal year ending July 1, 2011. Further, he points out that since 2007, city assets, which he calculated by subtracting liabilities, have fallen by $129.6 million.

“I have repeatedly warned the administration, my colleagues on the City Council, the media and taxpayers that Warwick’s financial condition is deteriorating—and deteriorating fast,” Solomon asserted.

In a press release on Tuesday, Avedisian responded that the net assets reflect the city’s net worth and that has no relationship to the fund balance.

“In fact, the fund financial statements provide a more accurate representation of the city’s cash position and current fund balance,” reads the release. The fund balance, or accumulated surplus, was $5.9 million as of July 1, 2011.

He said the decline in assets is primarily due to two accounting accruals, which are required by the Governmental Accounting Standards Board.

In a telephone interview Tuesday, Solomon said, “we’re not Central Falls, but we’re headed in that direction.”

Solomon’s warning has a familiar ring to what Cushman has been saying.

Cushman has focused his attention on city pension funds and recently testified before the Rhode Island Municipal Pension Study Commission.

In a press release issued following that hearing, Cushman says, "We are clearly in a crisis situation in Warwick, with the lion share of our tax dollars going to fund an unsustainable pension system and employee benefits program. Our city is doing what Providence did years ago, ignoring the problem and kicking the problem down the road until it blows up on someone else's watch. Politicians come and go … but those of us who live here in Warwick are going to be stuck with a huge bill if we don't get serious about addressing this crisis now."

That’s not the way Avedisian sees it.

In an eight-page letter dated May 9 to Rosemary Booth Gallogly, chair of the pension study commission and state director of revenue, Avedisian spells out pension reforms initiated by his administration and enacted prior to General Assembly approval of state pension reforms. He also lists funding rations for the city’s four pension plans that are all above 70 percent, with the exception of the Police/Fire I plan that is at 22.3 percent. The mayor notes that the city is in the 18th year of a 40-year funding plan for that system.

Referencing the information provided by Cushman, Avedisian writes, “however, the information presented during the public comment portion of your meeting also includes the addition of Other Post Employee Benefits (OPEB) into this equation – a move that is solely intended to make the city’s numbers look bad.”

The mayor goes on to say the city has heeded the recommendation of pension professionals and that he believes the actions taken “should show you and your fellow commissioners that we have put together a good, effective plan for this city.”

Cushman, who agrees with Solomon’s conclusion, said Tuesday that the city’s declining assets “all ties in together” and is part of a bigger picture where legacy health and pension benefits promised to employees will outstrip the taxpayers’ ability to pay.

“Every year it is getting higher and higher,” he said of OPEB costs.

Cushman said it is his intent to show the true costs facing the city.

“It is not just the pension problem. You have to include it all, include the OPEB,” he said.

Based on his calculations, Cushman says that only about 35 percent of the city’s total liabilities are funded.

The mayor said the city started accruing the OPEB liability in 2008, as amortized over 30 years as determined by the actuaries. He goes on to say that the city’s actuary recommended continuing with the 40-year plan to address Police/Fire I, even though “technically” it is not in compliance with governmental accounting standards requiring an amortization period not exceeding 30 years.

These two components account for approximately $20 million to $23 million per, the mayor says. “Without these requirements,” Avedisian said, “the city’s net assets would actually be increasing.”

In a follow-up call Tuesday afternoon, Solomon questioned the mayor’s characterization that net assets are not a true indicator of the city’s financial health. Quoting page 7 of the document, he reads, “increases or decreases in the city's net assets are an indicator of whether its financial health is improving or deteriorating, respectively.”

“I don’t want to cross horns with the mayor,” Solomon said. “I want to be a part of a solution to this problem. I want to correct it.”


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