City Council President Steve McAllister and Mayor Frank Picozzi consider the plan aired Monday evening before the council finance committee as a realistic means of addressing a $395 …
City Council President Steve McAllister and Mayor Frank Picozzi consider the plan aired Monday evening before the council finance committee as a realistic means of addressing a $395 million unfunded liability that has haunted city administrations for years.
In laymen’s terms, Joseph Newton of GRS Consulting, the City’s actuary, proposed a 30-year savings plan to meet the future costs of health care benefits, called OPEB, for municipal employees. Newton further identified resources to fund the plan in the upcoming budget and what would be required to keep the fund on course in the years ahead.
Newton’s visit and his view of city finances had been portrayed by McAllister as playing a critical role in assessing the advisability of moving ahead with the release of $350 million in voter approved bonds for the construction of new high schools.
On Tuesday Picozzi made clear the new schools and funding OPEB are entirely separate. The mayor is happy to have a plan that will require the introduction and approval of two ordinances.
Another school study
As for releasing bond funds for the schools, the mayor said he and McAllister agree an independent study needs to be done of projected costs. School department architects conducted a “peer review,” which found that with “value engineering” the schools could be built in this environment of inflated costs for $350 million. Picozzi wants an independent review.
Additionally, the mayor said he will meet this week with House Speaker K. Joseph Shekarchi on legislation that would extend the deadline for reimbursements of state funding from the Rhode Island Department of Education as well as a provision to release those funds during construction which would save the city in borrowing costs.
McAllister thought an independent study could be paid out of the council budget for professional services and could be completed in a reasonably short period. He sees the matter coming before the council in April for approval of an RFP or request for proposals.
“I want to be sure the city can build the schools,” he said. “I want them,” he said of the consultants, “to review it and tell us this is still possible.”
Study limited to OPEB
As quickly became evident Monday night from the questioning of Ward5 Councilman Ed Ladouceur and members of the public including Robert Cushman, Robert Cote, Michele Komar, Richard Langseth and Barry Cook, Newton hadn’t been directed nor did he look beyond a plan for the city to cope with forthcoming OPEB costs. Newton said he hadn’t taken into consideration other pension and OPEB costs, nor had he looked at the possible impact on taxes which would have required budget projections and debt payments.
The disclosure brought Ladouceur back to his ongoing call for a 5-year plan projecting municipal costs and revenues. He also talked his efforts to have retirees co-pay for their health care that date back four years. Had that happened he said the city would have saved $5 million a year.
“We’re not looking at the big picture,” said Komar. She said taxpayers bear the risk of not doing so and elected officials have the duty of watching out for the taxpayers.
What would happen if 20 percent of the cost of health care was shifted to the retiree? Newton hadn’t looked at that variable. His report was restricted to the facts as they are known today.
As Cote revealed in his questioning, Newton's projections were not based on the latest information.
“There was no consideration of what’s happened in financial markets in the last nine months,” he said. Newton agreed that is correct, pointing out that projected returns on an OPEB trust are long term and are adjusted for market fluctuations.
City Finance Director Peder Schaefer summarized Newton's proposal in an email following the meeting this way:
“He confirmed that three of the City’s pension funds are in healthy condition with funding levels between 78% and 84%. While the grandfathered police and fire one plan is less healthy, the number of beneficiaries is declining. He believes the fire and police funding plan can now be modified to free up dollars to initiate significant contributions to pre fund other post-employment health benefits (OPEB). He also identified a new funding stream from the municipal plan beginning in 2026 and discussed other resources identified by the city including accumulated medical insurance reserves and employee contributions for post-employment healthcare.”
In a follow up phone call, Schaefer said he and the city solicitor will be working of ordinances the city would need to pass and the mayor to approve to implement the OPEB plan. He pointed out that there are four potential sources of revenue to fund the plan: a reduction in contributions to the Fire/Police I closed pension plan as the number of benefactors have declined due to deaths, an amortized decline in the Municipal Employees Pension Fund that will occur in 2028, 2% pay contribution to the OPEB Trust from city employees should the Police and municipal employees start contributing in 2025. Firefighters agreed to that provision provided the other unions follow suit. The fourth is a $6 million windfall from health insurance reserves that Schaefer suggests be put into the OPEB trust. He explained that the city is required to set aside funds for health coverage. He reasons that due to the pandemic, when so many medical procedures were postponed, the reserve grew beyond the required level.
“You got to wonder if there are going to be such opportunities to address unfunded OPEB,” he said.
He also pointed out that an OPEB Trust and plan to take on an unfunded liability of $395 million will play well with bond rating agencies that would translate into city borrowing costs.
At Monday’s meeting the council approved the Warwick Sewer Authority request to increase its authority to issue revenue bonds from $7 million to $30 million. The money, to be paid back through user fees, will allow the authority to move ahead with the restoration of a forced main that runs from the Cedar Swamp pumping station, across a portion of airport property to a site on Airport Road. A bypass for the line, black pipes running along Airport Road has been in place for months. The project came to a halt when bids for the work came in at $14 million or more than three times projected costs.