Seeking consensus on city's finances

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An upcoming meeting of the Warwick City Council’s finance committee on Wednesday, Oct. 2 at 6 p.m. will become the center stage for an ongoing discussion (or debate, depending on who you ask) regarding the financial health of the city.

Last week’s actuarial reports on pension and other post-employment benefits (OPEB, meaning costs associated with paying retiree healthcare for city and school employees) renewed with vigor a topic that has more layers of complex nuance than can fit within any one newspaper article – and the disparity between those on one side of the spectrum regarding the severity of Warwick’s financial plight from the other is significant.

A city in crisis?

On the far end of one side there are people like Rob Cote, the outspoken Ward 7 resident who for years hasn’t shied away from being a thorn in the city administration and city council’s side on everything from DPW employee benefits to fire trucks left idling during runs to Stop & Shop.

On Tuesday evening Cote – in accordance with the recently convened Warwick Financial Crisis Committee – presided over a public information session at the Warwick Public Library to go over a five-year outlook prepared by Marcum LLP at the behest of the City Council earlier this summer. That report was supposed to be heard in a special council meeting in previous months, but has been pushed off multiple times, which prompted Cote to release the report on his own.

“This affects young families that are considering moving into Warwick and older families that are considering moving out of Warwick,” he said to a full audience at the first session of about 75 people. “It affects all of us.”

Cote reiterated data that came out from last week’s actuarial reports, which revealed that – just on the city side, not counting the school department – the city as of June 30, 2018 has accrued liabilities for just OPEB of about $352 million. That means if the city were to set aside funds to pay off that overall liability in 20 years, it would require an approximately $35 million allotment each year just to fund the city’s healthcare obligations to current employees, retirees and future retirees. For context, the city can raise only about $8 million property tax revenue with a maximum 4 percent tax increase allowable by law.

Some, like Cote and City Council President Steve Merolla, have taken issue with the accuracy of this actuarial projection, contending that their formula includes a calculation that assumes the city is earning 3 percent on investments set aside to fund OPEB – when in reality the city has zero dollars set aside for OPEB and is paying healthcare costs on an annual, pay as you go basis.

If you were to remove that 3 percent calculation, the obligation immediately rises $90 million to around $442 million. Add the school’s projected $52 million in OPEB and they contend the total OPEB liability actually sits at around a half billion dollars.

This philosophy has, in turn, been challenged by Mayor Solomon’s administration – in particular Michael D’Amico, a financial consultant who was brought in by Solomon over the summer and is working for the city on a part-time basis. He argues the actuarial formula includes that provision to account for future inflation, and that the $352 million – while not perfect, and speculative by its design – is more accurate and financially honest, while Cote and Merolla’s stance takes on a more pessimistic view.

Regardless of the back and forth, the overall liability – when lumped in with the city’s pension liability of around $332 million – looms as a troubling number that, to those who say the city is in the midst or at least the beginning stages of a crisis, demonstrates clear writing on the wall.

“We’re in a situation where we didn’t get here overnight,” Cote said. “This was gradual and this situation has proliferated from catastrophic decision failures on the part of the City Council, historically. Successful councils and successful cities don’t have a half a billion debt just on healthcare and another $350 million in debt on pensions. That’s not successful business planning.”

Cote argues that lucrative benefits packages for city employees – with provisions such as lifetime healthcare with no co-pays, healthcare transferring to spouses upon the death of retirees and compounded cost of living adjustments (COLAs) for retirees of the fire department – are the root cause of the debt, and need to be addressed immediately.

“We cannot afford it. Don’t get me wrong. You and I did not negotiate these ridiculous contracts, but we’re obligated to them,” he said. “The point is I am tired of hearing that the city worker deserves this or the city worker deserves that. The city worker deserves only what the community can afford. And we can afford no more. It’s at that point.”

Diving into the five-year report, Cote discussed how it indicates the city is in “red” – or severe – condition when it comes to the “change in overall financial condition of governmental activities,” which takes into consideration things like long-term obligations and the depreciation of city capital investments.

The report also shows the city’s liabilities have far exceeded its assets in the past five years – which is made visible by new accounting standards put forth by the federal government which now requires cities and towns to report the full breadth of their pension and healthcare liabilities.

That change has been dramatic in terms of illustrating the long-term debts of municipalities. For example, prior to the GASB 68 reporting standard which necessitated the full reporting of pension liability, the cumulative deficiency of long-term debt reported by Warwick sat at $64.8 million. After that reporting became mandatory, it jumped to $401.4 million. With the newest update that came in 2017 – which requires the OPEB liability be fully reported – the overall cumulative deficiency for 2018 as reported by Marcum sits at $730.3 million.

The report does have green (positive) and yellow (nearing severe) indicators for Warwick as well. For example, the city’s unassigned fund balance sits at the low end of the recommended range, with the city’s balance of $22.6 million in “rainy day fund” money amounting to about 8.6 percent of the city’s overall expenditures. The report recommends having 8-16 percent in this balance.

Also in the green is the city’s debt in regards to bonds, which is hovering around 2.5 percent of the general fund expenditures as of 2018. However, the OPEB and pension liabilities earned a red and yellow/red rating from Marcum respectively – and they cite the actuary’s recommendation of $35 million a year to fund this liability as an indicator of that financially unhealthy fact.

Another important point to note from the report is that they assume a maximum 4 percent tax increase ach of the next five years, and general fund expenditures growing between 3.17 and 4.2 percent each of the next five years, when historically they have been between 1.5 and 2.5 percent. Without funding OPEB, the report indicates Warwick will face a deficit of $760,056 in FY21; a $765,793 gap in FY22; a $1.44 million gap in FY23; a $2.63 million gap in FY24 and a $425,752 deficit in FY25 due to the relief of capital bond obligations.

“There is no solution here,” Cote said, adding that he sees the only way out of the situation is through receivership. “This is simple mathematics.”

The sunny side up philosophy

Mayor Joseph Solomon does not see things the same way as Rob Cote – to put it lightly.

“There are some people who interpret things differently. I see the same term used by a select few – it’s one word – I don’t even repeat it because I think it’s nonsense,” he said during an interview on Wednesday. “We’re not in a crisis.”

Solomon believes that indicators, such as the city’s AA bond rating being upheld by Standard & Poor’s (S&P) earlier this month, and the reports from actuaries and the city’s auditing firm of BlumShapiro indicate something else entirely.

“As far as I’m concerned, I’m very happy with the actuaries, with the S&P bond report, BlumShapiro’s auditing report, the information provided by my finance director – I’m very happy with the current condition of the city and the direction of the city,” he said. “All that information seems to show and tell me that Warwick is on the right track – a positive track – and we’re going to continue on that track.”

Solomon sees the long-term OPEB liability discussion as one that lacks proper context. In states like New York, he mentioned, setting aside money to go into a trust dedicated solely for OPEB liabilities is against the law. He states that he was the one who first proposed putting healthcare for public employees out to the bidding process in 2010, which he said has saved “double digit millions” over the years since.

Solomon cited numbers ran by D’Amico, which showed that over the last several years, healthcare costs in Warwick have increased by an average of around 4 percent. While he doesn’t see this as indicative of a looming financial disaster, Solomon said that the healthcare system as a whole will need to be reexamined.

“Healthcare is also changing, and not just in the city of Warwick but in the state of Rhode Island and on a national level,” he said. “And it has to change. Because healthcare itself is unsustainable going up. We look to other countries and their healthcare systems – you’re going to see a change in healthcare and the approach to the receiving of healthcare.”

While Solomon said he didn’t want to “negotiate through the Beacon” when asked if he would consider adjusting current employee and retiree benefits packages to address the root cause of these liabilities, he did say it was his intent on making things more sustainable by way of “design” through future contracts.

“I think every employee understands that. Whether it be municipal, police or fire, I think everyone is trying to work together to head in that direction of mitigating. It doesn’t benefit anyone in the long run if what you’re promised cannot be delivered,” he said. “I firmly believe that, when you were hired here 10, 15 or 20 years ago and you were promised something, you can’t change the rules. But I think on a going forward basis, by design, you can make things sustainable and you can mitigate the projections.”

Solomon suggested the possibility of adding another tier to the pension system for newly hired employees, one where the contributions required would be different, the time at which a pension could be drawn from would be changed and the length of employment required would be altered.

“All of these things will significantly reduce what the current day snapshot is. What you’re getting right now is a snapshot of what is today,” he said. “We’re not unique. This is all over. I’m not just going to cry ‘Woe is me.’ I’m going to be proactive in working to make it better… That snapshot today is not going to be the picture tomorrow. I’m not of the belief that the picture tomorrow is going to be worse than the snapshot today.”

A good litmus test to gauge Solomon’s dedication to enacting change by way of contractual design could come in the form of the fire department collective bargaining agreement going forward, which has remained unresolved.

The middle ground

While not fully embracing the need for receivership at this point in time as Cote has, Council President Steve Merolla has no misconceptions that the city is in the midst of a dire financial crossroads – where inaction will eventually, inevitably, lead to disaster.

“Don’t just listen to members of the public, don’t just listen to Steve Merolla, listen to the actuary who wrote the report,” he said, referencing Edward Echeverria, senior actuary at Danziger & Markhoff LLP, who presented the city’s OPEB liability report last week and said: “I agree that these [healthcare] plans are not sustainable, and yours is no exception.”

Merolla confirmed the scheduling of the meeting on Oct. 2 to go over Marcum’s report, which will be open to the public for discussion. He said the goal of the meeting should be to find an area agreement among the varying levels of concern regarding the city’s finances.

“So, to me, this meeting hopefully will have everyone reach a consensus of where we are now, so that we can have the debate as to how to fix where we're going,” he said. “Because if it's not sustainable, you have to implement changes. To me, that's been part of the problem for years now. Which is everyone's interpretation of the urgency of the situation.”

Further, Merolla hopes the meeting will bring about consensus in terms of what initial steps can be taken to address the problems at hand. He mentioned changes being made to new hires’ healthcare and pension benefits as being a ripe area for compromise and agreement.

“If you're an employee, I would be screaming fund it [the OPEB and pension obligations], and if you're a taxpayer, you say at a minimum that you can't afford this for any new employees and you have to look at the structure going forward,” he said.

But in terms of whether or not the financial situation of the city warrants a crisis – Merolla sits firmly on one end of the spectrum.

“This will bring the ship down. This philosophy that the titanic was unsinkable is absolutely wrong,” he said. “I'm wondering what the urgency is, today, to fix it. It's a win, win for everybody to fix it.”

Comments

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Dexter

So thankful that Rob C. Could donate his time and experience in the financial world to point out the problems. Oh wait he’s a dive instructor. Makes sense then. Let’s look at his claims,

THE FBI WAS INVESTING THE WFD. FALSE.

THE WFD WAS SCHEMING TO DEFRAUD THE TAXPAYERS, FALSE

THE WFD OWED MILLIONS BACK TO THE CITY. FALSE.

All of these lies have been proven false. Why would anyone believe this guy.

Thursday, September 26
realitybitesiknow

Hey guys and gals. No matter what your position is on this whole thing. At some point in the future its just not going to exist as it is now because the money wont be there. Spin it however you like but the truth is reality bites!

Thursday, September 26
Apollo

FAKE NEWS. Cote should go work for CNN.

What does Cote gain from this? fame, recognition, some one to offer him a job ?

Thursday, September 26
Sidelines

Fat Joe the expert lawyer evidently doesn't understand that there is no statute of limitation on public corruption.

Thursday, September 26
whatever

Apollo

Do you have a fetish of Rob Cote? You troll this blog constantly talking about him.

What Rob said about the greedy WFD is true.

Thursday, September 26
Joe K

Interesting how this story shares the front page with another story about how the city of Warwick leads the state in home sales. People are buying in Warwick because they get more for their tax money than other cites or towns.

Thursday, September 26
Robert

Discussion or debate that’s the question. A debate means facts and truths will be argued. A discussion is a dialogue reaching consensus. Consensus has nothing to do with facts or truths but is what consensus means (with feelings). So we want a debate where folks aren’t afraid to be alienated. Can a politician ever tell truth without fear?

Friday, September 27
bill123

There can be no “consensus on city finances” without some form of disclosure or report on the fiscal year ending June 2019, which should be the primary focus of attention. The entire matter appears to be proceeding as if the entire prior fiscal year never happened. The technique is called smoke and mirrors.

Friday, September 27
bill123

And if the city officials are letting this slide, and continue to push out-dated information as “new”, then this constitutes a fraud on the people, as far as I’m concerned.

Friday, September 27
get the facts

Joe K

You failed to mention Warwick was rated one of the worst cities in the country to retire by Wallethub recently.

https://wallethub.com/edu/best-places-to-retire/6165/

Friday, September 27
Realtor guy

The reason that so many homes are selling in Warwick is because there is a mass exodus of families in Warwick. People are accepting low bids on property just to get out. You would be surprised at the average income of people moving in. There will be lots of foreclosures on the way.

Friday, September 27
Realtor guy

The reason that so many homes are selling in Warwick is because there is a mass exodus of families in Warwick. People are accepting low bids on property just to get out. You would be surprised at the average income of people moving in. There will be lots of foreclosures on the way.

Friday, September 27
Joe k

Funny realtor guy, the real estate transactions show otherwise in the paper each week.

Friday, September 27
Hillsgrove Hal

Does anyone else think it's curious that Merolla is crying 'wolf' after 20 years on the council? He and Solomon have had numerous chances to deal with this situation -- and they have both failed.

And now they're on opposite sides of this issue, with Merolla predicting financial collapse over OPEB (which the recent bond report says could be fully funded in 16 years at its current payment rate, but Merolla seems to ignore that part), and Solomon declaring there's no problem at all (after sounding the alarm just seven months ago when bashing his predecessor seemed like a good idea).

Here's an article that includes the bond rating report, including the note about Police I and Fire being funded 100% by 2035: https://warwickpost.com/city-bond-rating-stays-stable-new-bonds-given-aa-designation/

The city is meeting its obligations. It is not on the verge of fiscal collapse. Maintaining its status costs money.

Merolla should just come right out and say that he opposes paying union benefits that were negotiated in the past (by him, among others), and paying higher taxes to fund them, instead of misleading people.

And maybe people are moving out of the city because Merolla, Solomon, and their longtime council colleagues just imposed two huge tax increases in successive years and can't get their stories straight.

Friday, September 27
davebarry

I agree future contracts will have to be tough. Especially the WFD. Good times are over. Also, have they gotten rid of the componding 3% colas yet? I think the Police did. Lots of cities/towns have frozen colas entirely. W. Warwick and Providence have had 10 year freezes. Still underfunded.

Tax payers must demand tight contracts moving forward or Warwick will be taxed to death. We won't survive the next big recession.

Friday, September 27
Apollo

Whatever , it seems Cote is the one with the fetish with Warwick affairs. Whom else would I talk about but the squad members. You may be part of the squad yourself I don't know.

Friday, September 27
incredible

Hillsgrove Hal

Glad to see you are still the lead apologist for Avedisian. Considering you have all the answers kindly answer the following :

Will you be attending the meeting on Wednesday night so you can identify yourself and be subjected to questioning by the council

Tell us if you live in Warwick and if so how much did your taxes go up this year

What is your relationship with Avedisian ?

Hillsgrove Hal it's now time to put up or shut up.

Saturday, September 28
Planez

The "thinker"? Dante he is not . . .

Saturday, September 28
Hillsgrove Hal

Incredible, I have stated on many occasions that I blame all of the city officials -- Avedisian included -- for the current situation. However, Avedisian is gone and Solomon and Merolla are in charge.

Until you acknowledge those facts, and the others that I have presented, I owe you no further explanation about anything.

Monday, September 30
incredible

Hillsgrove Hal

You still haven't answered the question....

Will you be at this Wednesday's meeting and articulate your answers to Warwick fiscal plight?

It's time to put up or shut up.

Monday, September 30
Hillsgrove Hal

Incredible, I'm under no obligation to answer your demands or accusations.

Find someone else to bother. I'm done replying to you.

Monday, September 30
the raven never left

long time Beacon readers probably can remember a character called Creekee Raven who would post the same sort of materiel and had all the answers. However when the time came for them to man up and speak before the city council they run like a chicken when someone challenged them to put up or shut up.

Why would they do that? I can only speculate that they were once a loyal supporter of the former administration or maybe even worked for the former mayor and now is reaping the rewards of these unsustainable benefits.

Monday, September 30
Warwick_Resident1998

Instead of debating the points being made, several here decide to attack the messenger as opposed to the message.

There can be no consensus as long as Merolla, Cushman and Cote et al continue to falsely claim the city is on the brink of financial disaster.

I put more credence in the opinion of professional financial analysts as opposed to these hobbyists who skew their stats to embolden their “chicken little” predictions.

Monday, September 30
FASTFRED WARD 4

Does it really matter. some really name calling pointing fingers like Washington. I see somebody going to the plate. just slow down. But its to late . you can have 500 business come into the city. If your not in bed by 9pm . were do you go . Prov . no thanks EG were the swingers hang . just all calm down . JOEY has a good hand on things. Let This Play out.

Tuesday, October 1
Hillsgrove Hal

the raven never left, I do not know what you're talking about.

It's clear you don't either.

Tuesday, October 1
Apollo

Warwick_Resident1998

Their nickname is the squad just like aoc etc...

Tuesday, October 1
Hillsgrove Hal

Warwick_Resident1998, that's the point I've been trying to make this whole time, that I consider the professional financial experts' judgments to be far more valuable than these predictions of imminent financial collapse.

Their judgment is, as you and I have both stated, that Warwick is in decent financial shape.

And as you and I have said, it could get better if current city officials stopped misleading people and got to work addressing the long-term concerns that those financial experts have identified.

These facts will not change just because a few angry Beacon commenters don't want to accept it.

Tuesday, October 1
Patient Man

Anybody know where the money for city infrastructure is going to come from?

Tuesday, October 1
the raven never left

the old screen name is creekee raven. Corrente got one thing right!

Tuesday, October 1
wwkvoter

Realtor guy, just what is the "average income of people moving in" that you mention? Where can that data be found on an official source? What WAS the "average income of people moving in" before whenever this fiscal issue drove that down (according to you) and finally, why are home sales prices still strong if you say people are accepting low bids? Something not adding up with your post.

Wednesday, October 2
Apollo

wwkvoter good questions!

Does income matter? They bought the house !

Price ot homes in't controlled by fairy news or fake news.

Opeb is like the national debt. Just a number.

Wednesday, October 2
Hillsgrove Hal

the raven never left, again, I have no idea who or what you are talking about.

I started commenting on this site earlier this year after cancelling my subscription.

Corrente had several comments deleted after claiming he knew my identity and was apparently banned because he was wrong.

That makes you wrong, too.

But whether you admit it or not, I don't care. I'm done replying to you.

Wednesday, October 2
John Stark

It seems to me that Rob Cote presents facts that others find rather inconvenient, and would just as soon avoid discussing publicly. The response from his critics is to belittle Cote's profession and his character. That's how you know which side is losing a debate. As someone with lengthy experience in the financial world, allow me to offer the following question: "Is the present level of municipal spending, in all areas, sustainable or efficient?"

Wednesday, October 2
Dexter

John there is no debate. I’ve talked with many within city hall that simple let him talk knowing he’s full Of hot air. He’s not credible and we all know it.

Wednesday, October 2
Stop Bullying Citizens

John Stark as to your question about sustainable, I believe that the actuaries said it is not. Which is the whole argument that Cote and Cushman and many others have been trying to make all along (with much pushback to silence them I should add) Did I get that wrong?

I have no dog in this just want Warwick to be fiscally sound. There is a LOT of bullying and I think more people notice than these amateur thuggery types would want to realize.

Wednesday, October 2
Patient Man

Go back and look at the rhetoric coming from Central Falls union members & retirees before bankruptcy. Some constantly argued that everything was fine and dismissively told taxpayers to pay their taxes so they could enjoy their retirement in Florida. We see similar levels of dismissive post here.

Nobody should be more concerned about Warwick's solvency than the retirees & future retirees in the pension system. Why don't the public sector employees & retirees hire an actuarial firm to conduct an assessment for them?

See what a CPA you pay says about the soundness of your retirement plans.

Thursday, October 3
Apollo

Comparing C.F. and Warwick is comical. No comparison. By the way the 3 active pension systems are 80 to 100% funded. Just have to close the chapter on the police and firefighter 1 vintage plans.

Thursday, October 3
John Stark

Dexter: If your arbiter-of-choice is "many within city hall", I believe you've lent considerable credibility to Mr. Cote's arguments. The longer those in the public sector (to include those "within city hall") cling to the archaic notion of a defined benefit plan, the more painful it will be when those plans are forced to convert, or pay out in lump sums. The dreaded private sector began to figure this out about 30 years ago. I guess I care less whether Cote's 'air' is hot or cold, only that it is accurate. And when government employees launch personal attacks, I know the recipient is on the right track.

Thursday, October 3
Apollo

John Stark many companies still have pension plans. Usually those with unions of course as the greedy business sector would rather not pay employees any thing. 401k's stink lets face it.

Thursday, October 3
Apollo

John Starks I'm not a democrat but a republican but I will say this. For every billion dollars earned an employee at General Motors makes 1,000. That's the private sector you speak of. Screw the employees mentality unless you're the 1%. This is why people like you and the squad are so critized. You want to screw over the people that are just trying to earn a living like every one else. Trying to take away food out of childrens mouths. Thinking it's only retirees in Florida. Well those retirees did their time. Earned every penny. But the true story is the money wasted at the school admin by poor leadership

Thursday, October 3
Apollo

"many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay."

So, I'm not any one but an informed citizen but if I were the rank and file and people were messing with my pension I'd be like I want more per hour to off set loosing benefits that are meant to off set wages. Tack on several dollars per hourly wage or salary. Problem solved everyone is happy.

Thursday, October 3
Apollo

You don't close down a bunch of schools then ask for more money. The school admin and comittee need to be thrown out and new thinkers and leaders need to be brought in. Just like Providence, Warwick is heading in that direction with the mess with the school system. We all know it but hate to admit.

Thursday, October 3
FAST FRED WARD 4

is it me or is cote feeding something in the picture.

Friday, October 4