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Why 3 zeros make for a big plus

Three zeros.

Those two words have been used to describe the police, fire and municipal employee contracts unanimously approved Monday by the City Council.

The zeros refer to the pay raises city workers won’t see over the next three years. In addition, the unions agreed to virtually double their health care co-pay to about 20 percent of the cost.

Skeptics are looking for a “give-me,” something, somewhere in the contracts that the unions got for what they gave away. They aren’t finding the give-me because the real strength of these agreements is in job security and community stability.

What has become clear in the past two years – first with Gina Raimondo’s battle call for state pension reform, which started with her campaign for general treasurer, and Central Falls’ filing for bankruptcy underscoring the woes of other cities and towns – is that state and local governments gave away too much to sustain business as usual operations. Something had to change, or it would all collapse.

Warwick is not a distressed community. It has a robust tax base, a good mix of residential, commercial and retail properties. It does have a meager surplus compared to what bond rating agencies recommend, but it has a surplus and, over the last decade, the administration has been extremely cautious about incurring additional debt. Also, taxpayers have had to consistently underwrite escalating costs. Taxes have not gone down or even remained static.

Why?

The administration is quick to blame the loss of state aid. And yes, that has cut a huge hole – in excess of $20 million – in city revenues. At this point state aid, other than for schools, has been virtually wiped off the ledger. On the expense side, costs have been growing, most notably in pensions.

Of the city’s four major pension plans, the Police/Fire I is only about 22 percent funded compared to the other plans that are at levels of 70 percent or greater. It is a closed plan and the city adopted 18 years ago a 40-year plan to meet its obligation, which this year alone amounts to $14.2 million. Costs of the plan are driven by retiree benefits that increase with raises for active members of the two forces. Thus, with no pay increases over the next three years, the unfunded liability of that plan, now at $242.1 million, is projected to drop by $22 million based on the assumption of 3.75 percent pay increases a year. An additional $10 million in projected liability will similarly be erased from the three other pension plans.

Going forward, this reduces the tax burden and acts to ensure the city can deliver on pension promises. The increase in health care co-pay, which brings the shared cost more in line with other municipalities, further eases the impact on taxes.

As was said Monday by council members, the administration and even administration critics, the unions have taken a giant step in ensuring the city’s financial stability. It is also a step toward preserving city jobs and pensions that concern the unions.

We commend Mayor Scott Avedisian, his staff and the unions for reaching an agreement after protracted and sometimes contentious talks. They kept the important issues in focus. The zeroes of those contracts add up to big pluses for the taxpayers and city employees.


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