October 21, 2014
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LETTERS
Results speak for themselves

To the Editor:

Your June 11 article, “Returns on city pension plans outperform state plan,” was good and welcomed news. It stated that the rates of return on all of the city’s pension funds for the past year ranged from 12.6 percent for Fire II to 12.9 percent for Municipal. For the 10-year period, the results for the pensions ran from 8.3 percent to 8.4 percent. I put more reliance on the 10-year results because pensions are by nature long-term investment vehicles. I also looked to the 10-year because the results include the 2008-2009 stock market debacle.

I thought of all of the times former Councilman Bob Cushman, Ward 4 Councilman Solomon and Ward 9 Councilman Merolla have attacked the mayor and his reliance on a 7.5 percent rate of return target for the city pensions’ funds. As a note, 7.5 percent is also the rate of return used by the state. “Not facing reality” was one of the kinder things that was said on their attacks on the mayor.

To me, planning on 7.5 percent and getting between 8.3 percent to 8.4 percent looks like awfully prudent management by the mayor.

A bell went off in my head and I got a hold of an article in the Beacon that was published May 24, 2012, almost exactly a year ago. The title was “Fiscal warning from researcher puzzles mayor.” The article discussed a paper written by Eileen Norcross of the Mercatus Center at George Mason University.  She was scathing on her analysis of the Warwick pension, stated that only a risk free return of 2.4 percent should be used in evaluating pensions and that the city needed to triple its annual contributions to the pensions by $39 million to a total of $51 million. Can you imagine what that would have done to our tax rate?

Fortunately, no one paid her any attention.

Well, wait a minute. Cushman, Solomon and Merolla did, as they used Norcross’ paper to bolster their argument that the mayor is “not facing reality.” Unbelievably, Councilman Merolla made the comment that lowering the expected rate of return saved the city money. That’s like having a CD paying 5 percent roll over at 1 percent and congratulating yourself.

I see the mayor attacked all the time by certain members of the council. I think that we need to look back over time to see how the attacks square with reality. Clearly, these people’s hysterical attacks on the mayor’s management of the city’s pensions would have seriously hurt this city if they had been listened to.

The mayor has done a good job of administering the city’s pensions. The passage of time proves that.

Let’s keep that in mind the next time the mayor is attacked. 

Joseph H. Weaver

Ward 8 Republican Leader

Warwick


Comments
4 comments on this item

The real problem is that the men whose names you cite are jealous of pensions. Merolla in particular cannot stand the idea that cops and firemen get checks for the rest of their lives. After the crash of 2008, many were pitted against the unions, jealousy turned to anger and calls for ending pensions were everywhere. The real problem with the pensions was the city not funding them. Fortunately, Warwick woke up and began to do the right thing decades ago. Now the newer pensions are considered fully funded. As long as the city has management that funds the pension (unlike Cranston and Providence) we'll be ok.

Yo, Mr. Weaver; I notice you leave out a rather important part of this story....What is the total number of dollars owed that comprise the unfunded liabilities in ALL municipal pension funds that are the obligation of the City of Warwick?? Number two, while you continue to look through your rose colored glasses, ( I do hope these numbers are true) then why is the SEC finally being dragged by the hair by Congress to start looking at State and municipal pension funds, and no DETROIT is just another very large symptom of a very large problem? After Bernie Madoff, when it comes to numbers, call me very suspicious of the folks generating the numbers and reports. Want proof...Remember when Sundlun was being sworn in as Governor and learned the credit union problem was a financial disaster, and the promised $100+ State budget surplus was really a $200M financial hole? I will take the long view as time will tell. Meanwhile, if I was vested in any pension system in this State as a municipal or State worker, I'd have my magnifying glass out.

Mr. Weaver the pension debate shouldn’t be political.

And it’s not only about rate of returns on investments. There are plenty of other factors that are equally important and since we have incurred extraordinary returns, it still has not resolved the real issues associated with these costs.

The fact is the pension returns have not been close to what Warwick has expected over the years leading to increasing unfunded liabilities and on top of that the percentage of the budget consumed by these costs is increasing at an unsustainable rate.

For example, if I had $100 invested back in 2008 and with the market crash lost 40 percent of the value, it would take almost ten years with sustained compounded returns of 7.5 percent to get back to the original $100. That hasn’t happen.

Oh and with all the great news on pension funds returns, how did the retiree healthcare fund perform?

Oh that's right we don't have a retiree healthcare fund. It’s funding ration is ZERO! We keep increasing taxes to pay for that raising cost each year. It's liabilities are over $300 million. Add in the pensions and bonded debt and Warwick has over a BILLION DOLLARS in outstanding liabilities.

How is all this debt effecting the future of Warwick? I have an answer to that below.

With schools being level funded and all municipal employees not getting raises and paying more for healthcare, why was another tax increase necessary?

You really need to study the budgetary trends and the implications these costs are having on all other programs and service in the city before you make another attempt to justify the path this city is on and the political leaders whose past decisions are responsible.

Mayor Avedisian and most of the city council members past and present haven’t done anything different then the political leaders across this state, both Democrats and Republicans and the past leader in Detroit iwho ran that city nto the ground.

I am extending an Olive branch here. Please take a look at the analysis I have performed regarding municipal spending over the last ten years from official city budget documents and then let me know if you believe Warwick’s fiscal house is in order.

If you interested in really understanding what is going on fiscally in the city I would love to have a respectful conversation with you.

Copy and paste this link in your browser:

https://docs.google.com/file/d/0B6P1sIPd4PTdTkI5WF9NM1pjVXM/edit?usp=sharing

Why do public sector pensions still exist for new hires in the first place? It is time long past to transition to a defined contribution plan. Mr. Cushman, with respect, very few investment accounts are not above 2008 levels. The market peaked in October 2007 and troughed in March 2009. However, most well-managed portfolios exceeded October 2007 levels about a year ago.

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