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Merolla asks why debt policy doesn’t include pension liability

How much should the city borrow and what’s considered a reasonable amount of debt?

Those are questions often raised during budget hearings or when considering issuing bonds whether to build a fire station or expand sewers to new neighborhoods.

And what about ongoing purchases, such as the regular replacement of police cruisers, sanitation trucks and rescues? How should they be paid for?

And there are other costly projects.

Maintenance of city buildings and roads can be especially costly. The city will soon be undertaking renovations to the City Hall tower at a cost of about $700,000. And if the city were to repave all of the roads needing it, that could run into the multi-millions over several years. Should they be paid for with operating funds, or should the city borrow and add to its debt?

Those are some of the questions the administration aims to answer with a debt policy that is now before the City Council.

But Ward 9 Councilman Steve Merolla argues the policy fails to take into consideration 95 percent of the city’s debt – its unfunded pension liability and post employment benefits, including health care for retirees.

“I thought it was ridiculous to have a debt policy that excludes our biggest debts,” Merolla said yesterday. As it now stands, Merolla said he wouldn’t be voting to adopt the policy.

Ernest Zmyslinski, city finance director, said what the administration is proposing is “basically a best practice” policy. He said Karen Grande, the city’s bond counsel, drafted the policy and that rating agencies like to see that municipalities have implemented debt policies.

The resolution notes the city is without an established policy on debt, adding that, “in this time of uncertain economic conditions it is especially important that the city maintain a strong and prudent fiscal position to protect the interest of all taxpayers.”

In an overview, the city administration states that debt “is an equitable means of financing projects and represents an important means of meeting fiscal responsibilities.”

In addition, it says the primary objective of the policy is to create guidelines for use of different forms of debt; procedures to minimize debt service and issuance costs; retain the highest practical credit ratings and provide full and complete financial disclosure and reporting.

Merolla speculates the state is pressuring the city to implement a debt policy and that’s why it has come up at this time. He said the policy proposed by the administration “came out of nowhere.”

“I don’t think throwing something down on a piece of paper because you need a debt policy makes sense,” he said. He questioned Grande’s expertise in the debt policies, adding that he favors putting out a request for proposals (RFP) and retaining an expert in the field to develop a plan.

“There are certain areas of expertise beyond our knowledge. I think we need to find someone who has expertise in that area,” he said.

Merolla acknowledged that would involve costs that haven’t been budgeted – a debt, in other words – but he feels it would be worth it. He would like to see a committee formed that would review proposals and return to the council with a recommendation.

In addition to not covering pension obligations and other post employment benefits, the policy now before the council does not include loans payable (HUD Section 108 loans) and arbitrage liability.


Comments
3 comments on this item

Debt should only be issued to finance capital improvements like schools, libraries, sewers, and large municipal buildings and other large one time expenses. And bonds should only be issued by a vote from the taxpayers.

Road maintenance, new vehicles and other regular expenses should come out of the cities operating budget. If any of those morons at city hall read this, it should be a really short meeting.

Pension and OPEB (Other Post Employment Benefits - lifetime healthcare) liabilities, in order words debt are over $600,000,000. Councilman Merolla is right any policy that excludes this debt is worthless. My speculation is that the administration and most council members don't want such a policy because it would expose the fact that in the near future the city will be hard pressed to pay (through annual property tax increases) all this debt while maintaining every other city and school budgeted program and service, employee raises, sewer projects, and all other capital improvments.

Gee, you would think the local paper would do something to expose the governments deception. In 10 years John Howell's name will be mud around here. It's sad, he seems to really like Warwick.

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