Mediator recommends using WISE pension funds to close school budget gap

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This article has been updated from the version that ran in print on May 2, 2019.

The Warwick School Department’s lingering deficit for the current fiscal year, which sits in the neighborhood of $4 million, has reportedly been solved – but to the detriment to the Warwick Independent School Employees (WISE) Union, their representatives say.

Confirmed by Mayor Joseph Solomon on Wednesday, mediation between the city and the schools regarding how that budget gap would be solved – and how much money would the city be on the hook for to help achieve that – concluded on Monday with a result that brought him much happiness.

The deal brokered by mediator Vincent Ragosta Jr. and allegedly agreed to by both sides was that the city wouldn’t need to kick in any extra money, and the budget hole would be filled with $4 million from the Warwick School Committee Employee Retirement Plan.

“Their shortfall was resolved internally by internal funding, and the issue citywide has been resolved at no additional tax dollars on the city side,” Solomon said during a phone interview, who celebrated his birthday on Tuesday. “Best birthday present I could have ever had.”

Solomon said that it came out through mediation that the pension plan – that funds retirement for the WISE Union members, which include staff such as maintenance and janitorial employees – was “over-funded,” though he did not have a definite answer for how over-funded it was.

“There were a lot of numbers flying across during our discussion, but the ultimate result is there was funding over the arc contribution for several years and that the school department and the city realizes that because of the over-funding, those funds could be utilized to suffice the gap that existed this year,” he said.

The annual report on all locally-administered pension plans in the state from General Treasurer Seth Magaziner’s office, released earlier this week, showed that the pension plan had a funded ratio of 105.8 percent and was valued at more than $42 million as of July 2016. However, this figure reportedly only represents all current pension eligible employees and one-time payments that would be owed to employees to compensate them for their contributions into the fund if the city suddenly went bankrupt and was forced to pay out money from the fund.

The actuarial report from last year, supplied by School finance director Anthony Ferrucci, showed that the long-term pension plan – which takes into consideration employees who will become eligible as their careers advance, as well as other things like life expectancy – was funded at 92.95 percent as of July 1, 2018 (up from 89.27 percent in 2017) and had a total asset worth of just over $53 million (up from $48.7 million the year before).

The report shows how the schools regularly contribute more to the pension plan than the minimum recommended by the actuary, and Ferrucci explained this is a standard practice to responsibly fund a pension plan – otherwise you risk never decreasing the growing liability or, worse, going backwards in a bad year. Between 2016 and 2018, the schools put about $1.5 million more into the pension plan than the actuary recommended, but that only increased the funding ratio by about 5 percent, from 87.92 percent to 92.95 percent.

The concern from taking money from the pension plan now to cover a budget deficit is, in part, that it builds a structural deficit, Ferrucci said. This money cannot be relied on next year, and another budget deficit is more than likely at this point, based on the ask of $8.5 million from the city in the school’s new budget.

Further, Ferrucci said that the use of pension funds could have an adverse affect on the actuarial arc for contributing to the fund – and put the schools significantly behind in their projections to be able to adequately fund the plan going forward.

No hard feelings, but some taken

Solomon denied any assumed wrongdoing on the part of the school department, and brushed off the possibility that they were “hiding” possible sources of funds to close their budget gap.

“Since I’ve taken office, I’ve always tried to maintain a positive outlook,” he said. “It wouldn’t benefit anyone to be disingenuous or hide things intentionally. Sometimes you get overwhelmed with the facts before you or the duties before you. I’d like to remain positive. I wouldn’t like to make any allegation of that sort.”

Representatives for the WISE Union and Council 94 American Federation of State, County, and Municipal Employees, AFL-CIO issued a strong rebuke of the decision on Wednesday afternoon.

“I am deeply concerned about the city of Warwick’s intention to divert $4 million dollars from the Warwick School Committee Employee Pension Plan,” said WISE Union president Mary Townsend. “As a Pension Plan Board member, I have not been presented with a plan or an actuarial study to determine the impact on our retirement system. My members and I have worked hard to ensure that our retirement plan has stayed healthy.”

John Burns, Senior Staff Representative for the WISE Union, mentioned the Treasurer’s report and how the pension plan received strong marks for its financial health. He said this decision will jeopardize that health.

“Now it appears we are repeating the same type of behavior that has led other public employee plans into dangerous fiscal waters,” Burns said in the release.

Council 94 President J. Michael Downey took particular issue with Solomon’s chipper demeanor regarding the decision.

“I object to Warwick’s Mayor calling a decision to take money out of a pension fund the best birthday gift he has ever received,” Downey said. “While the plan may be well funded currently, removing funds already deposited to a pension plan raises a host of legal and ethical issues. A pension plan is not a piggy bank. We urge Mayor Solomon to reconsider. Council 94 will now examine and pursue all options available to prevent an ill-advised raid of the Warwick School Committee Employee Pension Plan.”

(With reports from John Howell)

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Hillsgrove Hal

So, this is Mayor Solomon's plan for returning Warwick to "tranquil waters" -- withdrawing employee-paid pension contributions to fill a school funding gap he created by not fully funding the school department during his time on the city council.

All he's done is push the real problems down the road and cover them up with one-time financial tricks -- while accusing Avedisian of the same thing.

Oh, but we can all rest easier knowing that this meant he had a good birthday.

Thursday, May 2
Patient Man

If they're willing to take money out of the pensions when times are supposedly booming, what will they do in a recession?

Thursday, May 2
wwkvoter

They will take even more. This would be a BAD precedent. It's theft.

Thursday, May 2
Can't believe it

The WISE union shouldn't receive pensions. Their jobs should be privatized and this discussion would end.

Friday, May 3
Patient Man

Can't believe it,

Agreed & many other jobs should be privatized. Defined pension benefits have crushed the finances of so many states, cities & towns. If we didn't have DBP's relationships between taxpayers & employees would be a lot better. Let's hope Gina grows a set & veto's the two labor bills at the end of the GA session.

Friday, May 3
wwkvoter

Whether they someday might "privatize" those jobs doesnt change that it's wrong to take the current employee's retirement to plug a one year budget!

Friday, May 3
Ben Dover

WRONG WRONG WRONG! You will end up creating a bigger problem...401K pension funds have done outstanding in the last 2+ years after flat lining for 8...How have our municipal and state pension funds done in the last 2 years? Who are the fund managers? How have they performed on rate of return? Raiding pension funds is such a breech of financial trust and responsibility it should be criminal. This is not the way to go.

The other side of the coin to all of this is this insane legislation being passed, thanks in part to the Warwick delegation at the Smith Hill casino that makes all of this financial mess worse for cities and towns. If you are not careful, you will back Mayor's (excluding Jabba the Hut who is engaged in parlor games) and town managers to as a group file chapter 9...Then what? You most certainly get a haircut, just like Central falls.

These are YOUR elected officials who have created this mess over decades while telling you the Titanic is unsinkable...Raiding pension money...crazy! The State is a mess, go after the judges pension fund, how you like them apples?

Friday, May 3
PaulHuff

So they want to raid the fund to pay for a deficit they created. I wonder in 20 years if they will blame the retirees if the fund isn't solvent llike they do with the funds that they didn't adequately contribute to in the past.

This is a bad idea.

Saturday, May 4