The city administration has had “internal talks” about changing retiree benefits, including the cost of living adjustments (COLAs), Mark Carruolo, the mayor’s chief of staff said at Monday’s City Council budget hearing.
The disclosure came during a discussion of pension costs and in response to former Ward 1 Councilman Robert Cushman. Cushman has consistently argued the city can’t sustain the “legacy” costs of pensions and retiree health care. He provided council members with three pages of graphs showing the trends of municipal and school spending and how, since 2004, more than 50 percent of new revenues raised by taxes – a total of $15.9 million – flowed into retiree pension and health care costs.
To break the cycle, Cushman argued COLAs for police and firefighter retirees should not be linked to the salaries of active members of the two departments.
“It can’t be done,” said Carruolo. “It’s a legally binding pension.”
Carruolo went on to point out that no group represents retirees and that the unions of the active employees can’t negotiate on behalf of retirees.
While Providence and Cranston have revised retiree benefits to reduce future costs, Warwick hasn’t.
Cushman pressed that, unless action is taken, a greater and greater percentage of city expenditures will go into paying for pensions and retiree health care. Of the $282 million budget the council approved Monday, $26.2 million will pay for pensions and $7.3 million will pay for retiree health care.
Pension and retiree health care costs were not issues unique to Monday’s hearing.
Last Wednesday, Ward 9 Councilman Steve Merolla argued that, like active employees, retirees should co-pay for health insurance. Were retirees co-paying at the same level of active employees, he pointed out, taxpayers would save about $1.6 million annually. Retired schoolteachers, administrators and employees have a co-pay, but city retirees don’t. School health care retiree costs total $1.3 million, according to the School Department’s director of business affairs, Anthony Ferrucci.
In addition, many police and firefighters retire in their 50s, meaning the city is carrying the full cost of health care until they reach 65. At that point, they go on Medicare, but city costs don’t end because it picks up the cost to equate to the benefits of Blue Cross coverage provided to active employees. In addition, their pension payments increase as active members of the force win pay increases.
Cushman wanted to know if there was a way out.
“You didn’t create the plan, I didn’t create the plan. The plan is the plan,” a frustrated Personnel Director Oscar Shelton finally told Cushman.
In later testimony, Rob Cote, who launched the taxpayers’ car revolt two years ago in response to the reduction of the automobile exemption, called for a defined contribution pension system. He suggested that pension payments shouldn’t kick in until a certain age. Without naming the person, Cote said he knows of a city retiree who during his employment paid $22,000 into the pension system, but since retirement has been paid $950,000.
“People are taxed enough in the city,” Cote argued. “I don’t think it is reasonable to retire at 45. My kids and their kids are going to pay.”
He said defined pension benefit plans have bankrupted cities.
Changes in benefits could dramatically change the cost to future taxpayers.
“Have you approached retirees as a group … said, we need to talk?” asked Cushman.
Carruolo broke the awkward silence that followed.
“We have had talks internally,” Carruolo said.
To go further, he said, could jeopardize those talks.
Mayor Scott Avedisian likewise said yesterday there have been discussions but didn’t elaborate.
Cushman also wanted to know if the city has a five-year budget projection. Carruolo said the city does forecasts. He said the forecast includes projections on the cost of wage contracts along with pay increases. Avedisian said yesterday that the city has been doing the forecasts for as long as he has been mayor.
Cushman’s study of the budget showed an increasing amount of local tax dollars flowing into the city side of the budget.
While that is the case, Avedisian pointed to a statewide study showing that Warwick provides a greater percentage of overall school funding than other communities. At $118.6 million [what the mayor recommended in school funding], city funding represents 75 percent of his proposed $156.6 million school budget.
Cushman said that city pension costs have doubled in 10 years and that actuarial reports predict they will double again within 10 years. He put pension liabilities at about $600 million. His study says that the actuarial liability for retiree health care is $240 million.
“That’s not sustainable,” Cushman reasoned.
“I hope you agree to cut COLAs because if we don’t, we’re in big trouble.”