A rosy picture of city finances?

S&P upholds 'AA' bond rating

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Last spring, Mayor Joseph Solomon was singing the blues. He estimated that the city’s unreserved fund balance – the rainy day fund – had melted to between $11-$14 million and that the city was facing a structural deficit going into the current fiscal year of $7.4 million.

What a difference five months can make. The 2018 audit put the rainy day fund at $22.6 million, a tad higher that what Mayor Scott Avedisian said it would be when he resigned from office. Indeed, the budget process wasn’t easy and for a time it looked like schools would be forced to eliminate a number of programs, including sports. The school committee was preparing to sue the city for additional funds. But that worked out with the mayor and the council using funds earmarked for road repaving to fund about half of the school cuts and schools maintaining about half of its initial cuts.

Then making it all even brighter, last week S&P Global Ratings affirmed the city’s “AA” rating with a stable outlook on the issuance of a $6.185 million bond issue scheduled to sell through the Rhode Island Health and Educational Building Corporation next week. The money will be used for renovations and improvements to schools and school facilities.

Portions of the seven-page report are glowing, citing the city’s strong economic position and 15 percent growth in value to $10.7 billion (a result of the revaluation), bond debt obligations and measures taken by the administration to improve city-school relations. On the cautionary side, the report notes the cost of funding pensions and the liability of OPEB (other post employment benefits), concluding, “We expect Warwick will likely continue to manage these costs while maintaining stable finances and reserves.”

Mayor Solomon enthusiastically welcomed the news. In a statement issued by his office he said, “The city is pleased with the results of the recent rating review. The positive comments in the rating report support our efforts to stabilize and improve city finances and the cautionary comments provide a blueprint for our continued efforts to improve the city’s credit profile.”

That’s not the way former councilman and chairman of the school committee Robert Cushman or City Council President Steve Merolla see it. For them, the report overlooks the approaching storm clouds.

A read of the report also reveals a rosy picture, which in some cases is supported by less than accurate information.

“Comic book fiction,” Cushman said Tuesday after reading the document. He questioned whether those who wrote the report “sitting in their cubicles” verified information or even visited the city. Had they driven Sandy Lane, drunk water from a system that has outlived half its expected life, known that portions of the sewer system collapsed and looked at OPEB costs, Cushman believes they might have reached a different conclusion.

“Maybe this is great for bond investors,” Cushman said.

One of the authors of the report, Anthony Polanco, who is based in Boston, said Wednesday the report is based on audits and information available from different sources as well as provided by the administration.

“We do depend on information provided by the city,” he said.

Cushman and Merolla point to the lack of consideration given to the city’s infrastructure and a long-term plan to address sewer, water, road and school improvements. Cushman questioned how the report could state the city submits five-year forecasts to the state when, in fact, it is only discussing now a five-year plan.

Polanco said the city has a capital improvement program, which he likened to a long-range plan, albeit one that is limited to future equipment purchases and projects. He noted that water and sewers are enterprise funds and, as such, funding for upgrades and repairs would come from user rates.

“He’s touting this like winning a gold medal at the Olympics,” Cushman said of Solomon’s reaction to the bond rating.

He found it disingenuous that S&P cite the administration’s actions to save money with a 5 percent budget cut in the closing months of the past fiscal year for a total of $5.8 million.

“He re-appropriated that $5.8 million. He spent it. He didn’t save money. He didn’t save anything. This is such a deceptive statement,” Cushman said.

The report references the $5.8 million as an example of the administration’s ability “to manage expenses and mitigate budgetary challenges.”

“The report also did not take into account a structural deficit of $3.8 million in fiscal year 2019 or a structural deficit of $3.5 in fiscal year 2020,” Merolla says in an email.

Merolla lists other omissions from the report, including unfunded healthcare liabilities of $392 million and unfunded pension liabilities of $448 million that he took from 2018 financial statements for the city.

Yet the report reads, “In our view, Warwick debt-and-contingency-liability profile is very strong. Total government-fund debt service [money owed on bond issues] is 2.5 percent of total government-fund expenditures, and net direct debt is 6.9 percent of total government-fund revenue.”

The report cautions that without a plan in place, the unfunded liability of pensions and OPEB “is a credit weakness.”

Cushman is mystified by the report’s observation that the administration “has improved communication and oversight with the school department to identify and mitigate issues and budgetary challenges ahead of time.”

It goes on to list the incorporation of city representatives on the school committee, which has not happened; maintaining and improving access to school financial systems and meeting regularly with school officials on budget status and projections.

Cushman notes, as a councilman, Solomon advocated the need to finance infrastructure improvements and address OPEB costs.

“I want the Joe Solomon who was in the City Council in 2012,” he said, questioning how in seven years “everything is great.”

Comments

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Dexter

Merolla and Cushman have been trying to hype up a false narrative for years. Every single time they are proved wrong. When are the people going to wake up and stop giving them a pulpit to preach “the sky is falling”..... When it’s not at all.

Thursday, September 5
Wake Up

Dexter, the city does not have a plan for addressing liabilities for health care and pensions that totaled more than $800 million at the close of fiscal 2018. What part of that statement isn't alarming? If you're a retiree, I'd be worried.

Thursday, September 5
Dexter

Not a retiree or an employee, I do understand basic finances. 800 million is not due tomorrow, neither is the 128,000 I owe on my house. I have 17 years to pay for it. At some point all of police/fire pension 1 employees will die and that liability will go away. Last week those clowns claimed it was 933 million. Now it’s 800. None of which is due tomorrow. Sorry they are sounding an alarm that isn’t there.

Thursday, September 5
Jimmy

How’s that FBI investigation going.... lol

Thursday, September 5
Hillsgrove Hal

Dexter, the rating report says that there's one pension plan (out of five) that's less than 75% funded -- and will reach 100% in 15 years.

It also pegged the total liability for city and school pensions at $352 million (not $800 million).

Here's an article that -- unlike the one above -- includes the actual rating report: https://warwickpost.com/city-bond-rating-stays-stable-new-bonds-given-aa-designation/

Page 7 is where the $352 million figure is stated.

I think you and I can agree that the word of financial professionals is much more credible than that of angry complainers.

Thursday, September 5
say it aint so

I heard on the radio today that the report which the council delayed releasing (isnt it public record?) states that even with maximum tax increases allowed by law, we'll be 125 Million in the hole in five years. That we cant possibly pay increasing "blue cross for life" due to increases blue cross always has every year and the huge amount owed.

Thats what was on the radio report today. Who can credibly dispute that? I'd love for it not to be true

Thursday, September 5
800 milllion

The $800 million total liability includes OPEB liability. But what is another $400 milllion.

Everything is great, School sports are back. Now go back to bed. Joe’s has everything under control

Thursday, September 5
Say it ain't so

Am I the only one who had to look twice and check to see it wasn't Avedisian quoted in article? Joe is certainly sounding more and more like him every day.

There must be something in the air in the mayor's office.

If Solomon was still councilman he would laughing at this report. Where has the real Joe gone? What a disappointment.

Friday, September 6
Warwick_Resident1998

Merolla and Cushman’s agenda is obvious. Their years of misstating the situation have been refuted. I’m glad that Solomon has distanced himself from Merolla and is sounding more reasonable.

Friday, September 6
Not my Analyst

Cushman will be organizing snickers and Twix bars at the front counter rather than analyzing CVSs finances after this debacle.

Friday, September 6
VoWarwick2017

Regardless of the amount of time to pay for the bloated pension liabilities there is real concern there - but I will also say that I feel like this report is not painting a picture of reality.

If there were no financial issues then why all the drama with the school department? Why are roads like Sandy Lane maintained so poorly? Why are the parks not maintained? Why is the urban blight of Post Road, Warwick Ave, and West Shore Road spreading so fast? Just looking around at Warwick it does not look like a city with a bright financial future.

Friday, September 6
Honestinfo

I don’t care what anyone says, I’m waiting to hear from the great Robbie Robbie Robbie!

Friday, September 6
Hillsgrove Hal

800 million, that additional $400 million figure is, as Dexter said, not due tomorrow. And the ratings report said that the city continues to fund OPEB on a pay-as-you-go basis every year.

The city is not in any immediate danger of receivership, missing payroll, or failing to meet its annual obligations.

There are still issues, and the outside reports (the audit and the rating report), state those very clearly.

If they want to address those issues, now's their chance. They don't have a mayor from the other party to blame if they fail.

But it's dishonest and irresponsible for Merolla to suggest that those issues put the city on the edge of a fiscal cliff, and ignore his own role on the council for the last 20 years.

And for the people complaining about Solomon, maybe he finally realized -- especially after being so wrong about the FY18 audit and the city reserves -- that crying 'wolf' stops being effective when he's in the mayor's office.

Friday, September 6
Ben Dover

I'm glad Professors Ladaro, Seigel and Laffer have all weighed in on this matter...I will sleep much better at night...Pass the calamari....

Friday, September 6
More like Poindexter

I bet if Dexter's $177,000 home mortgage increased by $35,000 each year after still making all of his annually payments he would think he has a huge financial problem.

Well that's exactly what is happening in Warwick. Not only is the city paying tens of millions of dollars each year to cover for these expenses, the liabilities our increases tens of millions of dollars each year.

And what does that mean? Well for the non-poindexters, it means that the minimum required amount of dollars to pay keeps on increasing each year to the point where we have little to nothing left to repair our roads, fix our building and spend money on municipal and educational service we desire. And or yea, have the ability top but a new fire truck when needed rather than a 20 year old that just blew up.

Friday, September 6
Beacon Editorial nail it

"Perhaps the most crystallizing piece from the summary is the comparison that equated the city of Warwick to a family with a household income of $75,000 a year. That family would have about $15,000 in secured debt, which could be accurately accounted for. However, it would also have about $240,000 in unsecured debt akin to a high-interest credit card, with no certainty about how that debt can be realistically paid off".

"These numbers reflect the city’s ballooning liability for healthcare and retirement benefits (to date, an approximately $840 million obligation), which truly sits at the center of this whole financial debate. Were the city to adequately fund just its healthcare benefits for retirees as they are currently written up, it would take $34 million a year – an impossible figure. As anyone who has experienced a high level of debt before, making minimum monthly payments on such a sum to get by – or to “pay as you go” as the report calls it – will only exacerbate the situation, as accrued interest in the long run will outpace the contributions, resulting in an ever-increasing principle".

Friday, September 6
Joe k

It would seem the city needs to find out why the healthcare costs have increased and continue to do so. It is not the employees fault that the cost continues to go up . As it is the increase in copay eats up whatever contractual raises were agreed upon or worse when there’s no raise yet copays increase meaning now the employee takes home even less . Whether they live in and pay taxes in Warwick or not they still have to pay their bills and taxes.

Friday, September 6
About time

Joe K

It's about time city workers start living in the real world. City workers work 7 hrs a day, get 5 wks vacation after 10 yrs. and the list goes on.

Their benefits are second to none.

This is one taxpayers who will not shed a tear when the city workers have to pay more fore their benefits I'll scream it's about time.

Sunday, September 8
stacia for mayor?

is stacia going to run for mayor again? where is she? last i knew she got married, thats about it...

Tuesday, September 10
Patient Man

What does AA bond rating mean? Is it good? Sounds good but are there AAAAAAAAAA rated bonds?

Wednesday, September 11