The “crazies,” as the administration has dubbed those who have adamantly argue the city is headed for a financial train wreck, have a good point – how can Warwick continue to meet all its operating costs and continue to pay both the health and retirement benefits of its retirees?
Indeed, the generosity and the negligence of prior administrations that failed to adequately fund one particular pension plan – Police/Fire I that currently has 53 active members and about 400 retirees – is costing the city a lot of money. To meet the unfunded liability of the now closed plan, the city adopted a 40-year plan in 1992 that has put taxpayers putting aside a larger and larger chunk of revenues each year for the next 23 years. The city has faithfully followed that plan and this year will set aside $14.3 million just to cover the pension costs of that single plan. Next year, the amount increases to $14.8 million, and by 2022 it will be more than $29 million.
This is not news. Those costs and the projection that the pension faces a $242 million unfunded liability was released by the city’s actuary in the spring of 2011. Actually, it wasn’t news then either, as prior reports cast a similar picture.
But things can change, as witnessed in the last two years.
In response to the market’s performance and what that did for pension investments, the state lowered its projected pension investment returns from 8 to 7.5 percent. The city did the same. The immediate impact was an increase in municipal and employee contributions to existing plans.
In the case of the Police/Fire I plan, contracts of acting members of the police and fire forces can have a dramatic effect on the ultimate cost of the plan. The fact that police and fire won’t receive a pay raise for the next three years means that retiree benefits won’t increase during that period either. The projected savings of this and prior lower-than-estimated pay increases amount to a whopping $20 million reduction in the taxpayers’ bill.
As both these situations illustrate, a slight change in the assumptions, like a ship changing course by only a couple of degrees, can make a tremendous difference by the end of the trip.
Ironically, Warwick’s diligence in recognizing its pension obligations and putting a plan in place will have taxpayers paying more than its sister communities that are now in financial crisis. The only way for them to avoid bankruptcy is to renege on promises made to active and former municipal employees. Warwick hasn’t taken that course, nor does it plan to. That says a lot for this community.
However, the way we’re headed, more and more dollars will go into pension payments rather than taxpayers’ pockets, or spending them on city services. It’s expensive to be responsible.
Former Councilman Robert Cushman pointed out, in a blog comment on this issue, that eliminating the link between current pay raises and benefit increases in the Police/Fire I plan would save tens of millions. He’s right; changes in the benefits – even slight changes – can alter the eventual payout.
Mayor Scott Avedisian is also right that the city should not be adjusting its outlook every time the markets take a dip or goes bullish run or the city negotiates a contract. Bi-annual assessments of its pension plans and adjustments on the basis of those findings are prudent.
Nonetheless, the administration should also focus on the long-range impact. Adjustments in the benefits package of the Police/Fire I plan may seem like sacrilege, but that could be the difference between a populace that can afford to pay for retiree benefits and no plan.
Is it so crazy to make some adjustments in the course now when the outcome could be so significant?