Even with tax hikes, city faces $12.8M deficit

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If the City of Warwick were a family living on a $75,000 household income, it would have an ever-increasing credit card debt of about $240,000 – a gloomy fiscal reality that would prevent the family from addressing the issues presented by their 20-year-old roof, 30-year-old boiler and aging car that shows 175,000 miles on the odometer.

At least that’s how Kyle Connors, assurance director from the Providence accounting firm Marcum LLP, attempted to simplify the complex financial situation that Warwick finds itself in during a long-awaited presentation of a five-year forecast at Warwick City Hall last Wednesday evening – the first of its kind since 2013, according to City Council President Steve Merolla.

“I don’t know if people in the public, in collective bargaining units, in government, agree on where we are,” Merolla said following Connors’ presentation. “Because we get a lot of mixed messages. If we don’t agree on numbers – because numbers don't lie...If we don't know where we are, we can't agree on what to do to get to the next step to make sure that these unsustainable debts don't get to the point where we can't pay them anymore.”

In real dollars, Marcum’s presentation outlined how Warwick can anticipate an approximately $12.8 million cumulative budget deficit over the next five years. However, that number was reached with a long list of assumptions, as any forecast must do.

The forecast assumes that the city will levy a maximum tax increase each of the next five years. This revenue is balanced against salary increases across the board of 2.75 percent, commodities increasing at 2 percent, various services increasing 2.5 percent and healthcare costs increasing 7.27 percent (a number that reflects the average increase seen in Warwick in the past five fiscal years). It also assumes that Warwick will not draw from its rainy day fund in four of the next five years.

Most importantly, however, the forecast essentially captures the city’s financial condition in a type of vacuum, where it assumes there will be no new capital expenses to pay off, no new programs or new expenditures over the next five years.

“We have a vanilla projection based on the assumption that no new programs or services will be developed in the next five years,” said former city councilman and school committee member Bob Cushman after the presentation. “We all know that's totally unrealistic.”

The $12.8 million cumulative deficit also does not factor in what the city’s position would be if it were to put money aside to pay for looming obligations associated with retiree healthcare (other post-employment benefits, or OPEB). Marcum reported that, were the city to hold itself accountable to those annually recommended contribution (ARC) suggestions for OPEB, the five-year deficit would actually be closer to $128 million.

Connors also briefly mentioned that the city’s reported $22.6 million rainy day fund may not be what it seems, as he spoke about uncovering a $7.2 million debt owed to the city within the water department’s enterprise fund. Connors further reported that the water enterprise fund currently has a negative net position, meaning, “If the [city] general fund said we needed $7.2 million, the water fund wouldn't be able to give it to them,” Connors said.

Rising debt and aging assets

Connors made a point to emphasize that in regards to debt, it’s a tale of two cities in Warwick.

Utilizing the analogy of a credit card, Connors spoke about how Warwick’s long-term obligations for its pensions and OPEB costs are a major cause for concern.

While four of the five pension plans in the city are funded at 75 percent or better, the Police/Fire I pension plan hovers around 25 percent funded. And although the city is making the ARC on all its pension plans, this assumes that a rate of return on investment of assets for those plans will continue at 6.9 percent at the least.

“The ARC is being met, and provided the economy does well you'll make interest off assets, but a recession would certainly change that,” Connors said.

And while Warwick’s overall pension funding level of 54 percent is not as bad as some communities, Connors said the truly concerning factor is when you add in the context of the approximately $405.8 million in long-term OPEB liabilities between the school department and city collective bargaining units. All together, Warwick is facing nearly $860 million in long-term liabilities for OPEB and pensions.

As the city is paying its healthcare costs for retirees year to year – a cost of about $12 million in the current budget – the concern is that, likening the payment to a credit card, the city is simply paying the interest on its credit card balance while the overall principle continues to grow. This reality is exacerbated, Merolla added, by the fact that Warwick now has more retired city employees than active employees drawing healthcare and pension benefits.

“Basically, what that means for the average family is that, at the rate you're currently spending, your interest payments are going up 7 percent per year and you're never reducing your principle on your credit card,” Connors said.

In contrast to that picture, Warwick is actually in a healthy place in regards to the amount of debt it has tied up in shorter-term, general obligation bonds, with only about 2.5 percent of the city’s expenditures tied up into paying off such borrowing. Also, with the recent upholding of the city’s AA bond rating by Standard & Poor’s, the city would be in a favorable position to borrow through bonding to address certain capital needs.

But even with that being the case, the presence of the long-term debt breathing down the city’s neck means that, without some new way to generate income, taking on new capital bond debt would further stress the city’s financial condition in the future when those bills became due.

“So, while they're letting you have the money, at some point you do have to pay it back,” Connors said.

And speaking of capital needs, the Marcum report showed that Warwick’s long-term liabilities have exceeded long-term assets for the past five years, meaning that “at the end of every year for the last five years, your credit card debt has been higher than it was the year before,” Connors said, again using the family financial analogy.

And the city’s capital assets are not in good condition either. Of about $400 million in total governmental infrastructure assets – which includes things like school and municipal buildings, equipment and vehicles – $300 million has depreciated, meaning that the city’s capital assets have, on average, reached 75 percent of their useful lives.

“Seventy-five percent is a pretty significant number,” Connors said, indicating it earned the city a “yellow” rating in the forecast. “Your roof is 20 years old. Your boiler is 30 years old. Your car has 175,000 miles and your furnace needs to be replaced. You keep saying every year that you're going to start for it next year, but you never do.”

What happens next?

While the purpose of the meeting – which had been pushed back  a couple times due to scheduling conflicts after it was originally proposed to be held this summer – was not to provide solutions about what to do to address the problems outlined in the report, that wasn’t to say there weren’t suggestions offered by some in attendance.

Cushman, for example, said at the podium that healthcare and pension costs are the area that needs to be examined, and expressed frustration that certain employee groups in the city receive guaranteed 3 percent cost of living adjustments (COLAs) within their pensions – and that some of those pension plans are worth well over $100,000 a year.

“We have to look at the entire structure of employee retirement benefits and we need to start doing a study first, because when you don't know what you're giving out or you don't know what the benefits are, how can you even propose any kind of changes?” Cushman said. “This is a complicated process here. We need to get all the facts out and then we need to start making decisions.”

At the very least, some members of the council wanted to find areas of consensus following the report.

“I think it's very important for everyone in this city, all of the employees, all of the taxpayers, all of us here in city government, at least admit that we are not on rosy street here,” said Ward 5 Councilman and council finance committee chairman Ed Ladouceur, who also brought up employee pensions as being an issue.

“Everything isn't just hunky dory,” he continued. “We have retirees now that are retiring with pensions of six, seven, eight and nine-thousand dollars a month in pensions. That's not what was going on 10 or 15 years ago, and it's not going to be what's going on 10 or 15 years from now. Because if we don't deal with these day-to-day business issues, and admit that we have a spending problem, and come up with a plan to fix it on everyone’s parts, then yeah, we're certainly going to have some significant issues and eventually the day is going to come where we're not going to be able to fix it.”

Others sought to point out that Warwick was not alone in its financial challenges.

“We just need to stay on top of this. But this is very important to bring this forward,” said Ward 7 Councilman Stephen McAllister. “The City of Warwick is not unique in this situation. We are going to be seeing these issues across the country. Big and small towns are going to be addressing this.”

Comments

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smh

smh

Tuesday, October 8
Dexter

Groundhog Day in the Beacon. Changes are being negotiated. Relax.

Tuesday, October 8
BeaconCommenter

One week its a surplus, then a week later its a deficit. Make up your mind

Tuesday, October 8
incredible

Dexter

You and your boys have no guts.....SHUT UP

Tuesday, October 8
OldButInformed

The City Council has been out of control for forty years. The unfunded retiree benefits are an anchor that will ultimately put the City Of Warwick into receivership. The Democrat “true believers” will scoff at this but it’s only math. The Warwick voters have been putting the same corrupt charlatans into office for decades and the chickens are home to roost.

Tuesday, October 8
Hillsgrove Hal

Comparing a city's finances to a household is fundamentally wrong, and turning a $2.5-million-per-year paper deficit into yet another claim of the sky falling is equally dishonest.

Just as other communities have faced these issues, they have also addressed them without dismantling city services or eliminating union contracts.

City officials should ignore the noise created by angry critics, figure out a responsible plan, and then carry out that plan.

Tuesday, October 8
Not so incredible

Stacia, your not a taxpayer anymore.

Tuesday, October 8
Apollo

You know what bothers me? The assumptions. Seems like worst case scenerios. Also, 1 pension a very old one with few people left in it is the problem. Not the newer ones which are well funded. So, fix the police/fire 1. That should be the brain storming going on It drags the whole system down. Notice the article says Warwick is doing better compared to most other towns and cities in the state Now lets talk politics. A lot can happen in the next 5 years. We could see a new president who knows. Depending on who is elected has a lot to do with the nation-wide health care system. If any democrat gets in we all know what they are saying such as universal health care "free". So OPEB numbers will change again !! The stock market has been record high for 3 years yet estimates of these study is low end returns. If new hires get promised less benefits then that will save money. Key word new.

Tuesday, October 8
Tom Shaw

I just started following this blog and I noticed HILLSGROVE HAL always has a comment but last week he was called out for being a no show at a council meeting where he would have to identify himself.

IF Hillsgrove Hal has all the answers, why is he afraid to show ?

Tuesday, October 8
Apollo

who cares who is who lol. We all know who the villians are, the squad. Why show up like the squad members? why waste time when no one listens to them anyways lol. They are wasting their time

Tuesday, October 8
Samuel

Now Stacia is Tom Shaw. What a dunce

Tuesday, October 8
Jimmy

If Merolla thinks he can just pass an ordinance to change a COLA on a 93% funded pension plan he has a long fight ahead.

Tuesday, October 8
Apollo

Right on Jimmy !

Tuesday, October 8
Warwick_Resident1998

There is a plan already in place to get police/fire 1 adequately funded. So no worries there.

And I agree with Jimmy. Obviously the administration didn’t learn from the last grievance it lost. They cannot legislate terms that need to be collectively bargained for.

And Stacia...who cares if the guy won’t go to council meetings. We’ve all seen Mr. Cote try and doxx posters on this blog. Who needs the aggravation?

Tuesday, October 8
Norm88

No Thomas Shaw found in as a property owner in Warwick???

Wednesday, October 9
Hillsgrove Hal

Apollo and Warwick_Resident1998, it's pretty clear that these noisy critics don't have legitimate points to make.

Both of you made valid points and pointed to information that objective financial experts have provided to the city, and drawn logical conclusions from that information.

The city is in decent financial shape. None of the future liabilities are due today, nor are they urgent enough to justify unilaterally cutting existing pension benefits or any of the other doomsday scenarios that the noisy critics want.

Like WR98, I think the council and city unions can negotiate future contracts that lower the burden on city taxpayers -- but their success hinges on dealing honestly with each other.

That means the city council needs to drop this "strategy" (if you can call it that) of crying poverty and portraying the unions as lazy and greedy in the midst of the city's fiscal troubles.

The idea of the city being on the verge of collapse has already been proven wrong, for one thing. That certainly will not help the council's position when it's time to negotiate new contracts.

And as far as the costs we're paying now for contracts negotiated in the past, we can not forget that Solomon, Merolla, and Ladouceur are among the people who actually approved those contracts and the budgets that funded them.

As long as they keep trying to distract from that truth, city officials shouldn't expect to be taken seriously when they go looking for union concessions.

Wednesday, October 9
Tom Shaw

Hillsgrove Hal

All the answers but no guts to show up.

Wednesday, October 9
Inconsistent Hillsgrove Hal

"I take the same issue with Solomon; barely eight months ago, he was predicting exploding deficits and blaming everything on the last guy -- and now he's looking to borrow $16 million for roads.

It's also worth noting that in the last two budgets -- Solomon's last as council president and first as mayor -- he and the council put money into paving, only to withdraw it.

City officials need to put a coherent strategy together, instead of lurching in one direction and then another when it comes to the city's finances.

They are simply not acting like people who are responsible for a $300+ million budget".

BUT WE DON"T HAVE A FISCAL CRISIS HAL????

Wednesday, October 9
Tom Shaw

Inconsistent Hillsgrove Hal

Don't you know Hillsgrove Hal was a member of the Avedisian administration. Dexter, Apollo and Jimmy are members of WFD

Wednesday, October 9
Apollo

The only thing to show up to is union meetings. That's where all the valuable information is shared and real talk takes places. Not city hall where politics pollutes the arena as does the squad members.

Wednesday, October 9
Inconsistent Hillsgrove Hal

Tom: It's does seem like he is an insider political hack profiting off of all the conflicted deals he helped broken. No average everyday citizen would have that much knowledge. Who knows, he could even be the king pin man himself.

Wednesday, October 9
Hillsgrove Hal

Apollo, there are many places where people can get accurate information; I will take your word about union meetings. Average, everyday citizens can also use the internet, city records, and other resources to find what they need to know without having the information skewed by noisy critics.

It doesn't take any special insight or insider information to look at this council and this mayor and understand that they are not unified in how to deal with the city's current situation, and must find a way to work together and address it.

Wednesday, October 9
Tom Shaw

Hillsgrove Hal

You had the chance to confront the noisy critics at the city council last week but I noted watching the proceedings the other day on the city website, YOU DIDN'T HAVE THE GUTS TO SHOW UP.

All talk and no action.

Wednesday, October 9
Cat

So much childishness going on right now in the comments. My question to Tom Shaw is, if you don't know who Hal is, how do you know he WASN'T there? On the other hand, since we don't know who Tom Shaw is, how do we know he WAS there? Bottom line, no one cares. The comment section has become a three ring circus. Where did all the adults go?

Wednesday, October 9
Warwick_Resident1998

Cat,

The adults are still here. Most of us have learned to filter out the hysterical screeching that the squad (and their various usernames) engages in.

Don't be fooled by a vocal minority and their twisted data.

Wednesday, October 9
Hillsgrove Hal

Cat, I understand the frustration.

I think there are adults on this website; we're the ones trying to figure out just what our city officials are doing, and learning about the city's fiscal condition by reading the same information that city officials have. And if our conclusions differ from the city council president, we point to the facts that support our conclusion.

Just speaking for myself, I'm not going to let these childish commenters drown out the honest debate we should be having.

Wednesday, October 9
Tom Shaw

Isn't it amazing.....the hot air still emanates from Cat, Hillsgrove Hal again. They keep playing to Apollo, Dexter and Jimmy etc.

Neither show at city council meeting to debate their ridiculous suppositions with the city council and actual taxpayers.

I guess if I was part of the Avedisian team I wouldn't show up either.

Avedisian and his boys left the city with $500 million debt and his promoters can defend the facts.

Wednesday, October 9
Joe K

Council chambers is not ( intentionally) the place for idiots to argue . You’ve all had your 15 minutes of fame and done very little more than make fools of yourselves. Calling each other names and looking for confrontation. Grow up. What’s next a fist fight after school?

Wednesday, October 9
Cat

Tom Shaw,

I was in middle school and high school when Avedesian was in office. I don't know who you think you are speaking to but it isn't who you think it is. You are quite frankly delusional. You are no where near as intelligent as you give yourself credit.

Wednesday, October 9
Scott58

When are the 1st group of firemen going to prison for overtime and sick time fraud?

Wednesday, October 9
Jimmy

Scott, that is a question you should ask Council Pres Merolla and Rob Cote, they both made up a fake story about the FBI and the department. WHERE IS TGE FBI ROB? Lol. Scott (probably Stacia) as she has 20 sign names is just part of the idiot group.

Wednesday, October 9
Apollo

Cat welcome back to the discussions. Glad you agree with us and not the squad. All they do is insult people, make in-direct threats, bully, slander, broadcast fake news and so forth. The educated citizens know what's up and stay informed. I still maintain the numbers, charts and graphs can be and are manipulated to support their biased opinons. Any one that took a statistics class in college knows this. By changing variables just the slightest can increase numbers substancially. One example is time frames. Second example is estimating low end numbers such as interest rates lower than what could be realized. Third, no one has a crystal ball on health care. Fourth, under estimating increased tax revenue from the ever expanding businesses in the city.

Wednesday, October 9
Scott58

Jimmy, hopefully you'll be the first to go. It will be similar to hanging around the firehouse; nothing to do but eat and sleep. Maybe if you are a model inmate they'll let you have a cat so you can practice getting it out of a tree.

Thursday, October 10
Patient Man

Any chance posts can focus on the content of the posts? Not who wrote it. Jimmy, the Captain & Bob Cushman seem like the 3 partisan advocates that make good points. Most just go after the people posting. At least when Hilsgrove Hal goes after me it's because he disagrees with what I wrote.

Thursday, October 10
Scott58

Patient Man, no chance!

Thursday, October 10
Jimmy

Patient man,

I just want one question answered from the “squad”? Not saying your included but they never answer it. WHERE IS THE FBI? With the ludicris allegations thrown around and a false claim, I just want to know where they are. Why is the city negotiating a new contact without changing any of the alleged violation. Why because it’s a false claim. I will never stop refuting FALSE allegations. Stacia is in another world, her and her 75 screen names.

Thursday, October 10
perky

then why are we paying for school sports

Thursday, October 10
Scott58

Jimmy, Be careful what it is you wish for. The FBI just shows up, they aren't going to announce it to you first!

Thursday, October 10
Jimmy

Scott, I already stated 100 times I WISH the FBI had come in, then they could prove you all wrong. You’ve been saying for over a year now, WATCH OUT THEY JUST SHOW UP.... lol it’s been over a year a no one has been interviewed. Guess what Stacia/Scott/incredible/etc. no one will be... you have been proven to be a lying fool.

Thursday, October 10
Scott58

Jiminy Cricket,

After the FBI wraps up their investigation and guys go to jail, we will privatize the fire department to save the Warwick taxpayers millions of dollars.

Even an all volunteer department would be better than what we have now.

We’ll supply the cat and ladder; knowing that there are plenty of trees in City Park to train on.

Thursday, October 10
Jimmy

Now that’s funny...

Thursday, October 10
Scott58

Thanks Jimmy, I do what I can.

Thursday, October 10
Apollo

Stacia, James Comey is on the case lmao.

What medium sized city is all volunteer? I'll await your answer.

Ladders and cats lol. What number divorce are you on? 3? Living off alimony much. Especially the rich one that lives out west.

Thursday, October 10
Daydreambeliever

Sadly this section has gotten childish but let me state a fact which means truth and there should be no rebuttal from some commenters.

The Warwick Fire Department let me emphasize Warwick Fire Department does not respond to cats in trees. That was something we did back when I was on the job.

They abolished that back in 1990 (almost 30 years ago) so knock it off and grow up please.

Thursday, October 10
Former Warwick City Councilor

I was interviewed by two federal agent, who came to my home to discuss the actions of the president of one of the city unions.

Thursday, October 10
Jimmy

Last I checked calling for a boycott of an employer was not a federal crime. So nice made up story.

Thursday, October 10
Tom Shaw

Jimmy

You think it's totally appropriate for a union thug aka Bill Lloyd to call for a boycott of a company because someone questioned the ridiculous WFD benefits.

The greedy WFD is a disgrace

Thursday, October 10
Jimmy

I don’t, but it’s certainly not illegal. Very bad decision to do it in my opinion.

Thursday, October 10
Apollo

Boycotts are fine !!!!!! When a business doesn't serve Trump supporters and kicks them out you better believe the boycott is on ! No different here. You put down city employees or a union and you're going to loose lots of business from friends and family members and get bad reviews. It's legal and it's a peaceful protest.

Thursday, October 10
Apollo

WFD isn't greedy and it's a well respected, highly trained, highly educated, professional group of men and women who have saved countless lives and saved numerous properties. Majority of the population agrees and loves out first responders who risk life and limb to serve and protect others. The disrespect from the squad members is deplorable. The squad members driven by greed and self interests will not discredit such an organization.

Thursday, October 10
Apollo

It's not just local chapters either. Union workers stick togeather nation-wide. It's what the nation has been built on and goes back many decades in time. Thousands upon thousands of union members both active and retired. Banded togeather against the tyranny of unjust classifications. A handful of people such as cushman, cote, stacia, to name a few are not going to win this battle. Their legacy has already been established.

Thursday, October 10
Apollo

In America we choose how and where we spend our money and conduct our business. If a certain business goes against an individuals values and beliefs than why would that person want to spend their hard earned money at that business? Common sense right. Natural for a person to go where they feel welcomed and appreciated as a customer. So if a business doesn't like the police or fire dept. or military or a city worker, or Donald Trump than that business will loose business and hopefully won't last as poetic justice. I laugh when a business thinks they should get involved in politics or make a statement etc. Stay neutral and stay in business. Other wise that business will loose so much money like some places have experienced by treating Trump supporters poorly.

Thursday, October 10
Scott58

Daywetdreamer:

I have recently witnessed the WFD rescuing a cat from a tree. That’s a fact which means truth.

Now please go get a cat out of a tree; after your 4th donut run of course!

Saturday, October 12
Daydreambeliever

Show me a pic jack off and I'm retired douchebag !

Sunday, October 13
Ben Dover

Meanwhile, back at the topic at hand, Warwick's precarious financial situation...$ 860M in long term liabilities for pensions and OPEB costs is all hyperbole? $12,8M deficit while borrowing $16.4M for road repairs, (short term, and short money, that might get 20 miles done), what about long term?

The population is shrinking, the schools are in real trouble both in terms of academics and infrastructure...another $100M for an archaic water system that is obsolete, outstanding bond payments and those approved not put out to market....Is there a master plan, ANYWHERE, to start to deal with this debacle?

It took decades to get to this mess, it will take decades to unwind it with less people and less businesses...Financial discipline in this State is an oxymoron and without spending cuts I have no idea how you fix this mess..

.OK, you can now resort to name calling, that ought to help....

Monday, October 14
Apollo

Ben Dover looks across America that's every where with old pipes. Again, tallying up OPEB 5, 10, 20 years is unrealistic. Even the Mayor said certains variables may change lowering those numbers.

Monday, October 14