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Little clarity in city's big picture

January 22, 2013

WOONSOCKET – If you were thinking the much-anticipated five-year plan was going to help you figure out how much the city wants to raise your taxes or cut employee benefits to erase the gallons of red ink in its budget forecasts, think again.
A plan was one thing the five-page grid of numbers unveiled by the Budget Commission Tuesday was not. No roadmap to solvency, no prescriptive advice for how to erase a municipal deficit on track to nudge the $15 million mark by the end of the fiscal year, with little relief in sight through 2017.
Chairman William Sequino promptly apologized if it seemed the document didn’t live up to the billing. The document was always supposed to be nothing more than a “baseline projection” of the city’s finances without any changes in revenues or expenses.
“Somehow the language was misconstrued,” he explained.
Jennifer Findlay, an aide to the commission who works for the state Department of Revenue, said the figures are a long-range forecast of the city’s financial condition without a supplemental tax bill, cuts in employee benefits, new taxes for non-profits, interception of state income tax returns, or any of the other fiscal remedies under consideration by the commission.
“This is a worst-case scenario,” she said. “This is with no changes whatsoever to the current situation.”
As such, the document didn’t break a whole lot of new ground. The commission has been saying for months that the city is on track to spin out a deficit of $14.6 million by June 30, though it has also floated two big ideas for trimming that figure: a supplemental tax bill that would require the approval of the state lawmakers and putting all city workers on one health plan.
Assuming the tax levy increases every year by 4 percent – the maximum allowed by law – the projections released Tuesday show the deficit will peak out in fiscal year 2015 at close to $15 million and won’t decline significantly until 2017, to around $10.7 million. That’s when the state’s new school aid formula gains momentum, easing the fiscal strain at the Woonsocket Education Department, which is driving much of the deficit spending.
Attending the commission meeting as a spectator, Council Vice President Dan Gendron seemed confused by the lack of fiscal guidance that he was expecting from the plan.
“I didn’t see a five-year plan,” Gendron said from the lectern in Harris Hall. “I saw a doesn’t say anything about a plan that will correct us or direct us to a better place.”
Sequino said the panel will continue working to develop such a plan, but he wouldn’t predict how long it would take. As a baseline projection, he said the document is still vital even if the city falls into receivership because “the receiver would have to go through the same process we are going through now.”
Despite the limited scope of the document, it nevertheless became the springboard for some sharp criticism by Commissioner Peder Schaefer on the issue of the city’s unfunded pension liability. He argued vociferously that the city is exaggerating the problem by insisting that the payoff schedule on the debt, or amortization rate, be squeezed into just five years instead of the remaining life of the plan, which is about 26 years.
By doing that, the projection suggests that the city will incur a debt of roughly $11 million annually from 2014 to 2017 in order to satisfy the unfunded liability even though the real cost is closer to $3.7 million a year if the amortization period is stretched out for the life of the plan.
Schaefer charged that the projections were deliberately rigged to make the problem look worse than it is and enable officials to brag about what a good job they did when it’s fixed.
“This is an old trick,” he said. “You’re trying to make it look as bad as possible.”
The elected officials who serve on the commission, Council President John Ward and Mayor Leo T. Fontaine, said the amortization rate was compressed into five years because that’s what the law requires the city to do. While no state official or agency has tried to hold the city to account for failing to abide by the law to date, when the city sought permission from state lawmakers roughly a decade ago to float a bond to fund the pension system, the legislature’s consent came with strings attached.
In the enabling legislation that provided the city with the unique power to borrow money from a bank – $90 million – to fully fund the pension system, the legislature decreed that the city would be on the hook if the system ever accumulated an actuarial liability, and that the shortfall must be eliminated within five years. Standard accounting principles do not set such a rigorous standard, the mayor observed, but that is nevertheless what the legislature intended when it allowed the city to obtain a so-called pension obligation bond, or POB.
Thanks to the bond, “The pension system was fully funded at one point,” the mayor said. The proceeds of the bond were invested in the stock market, which crashed during the recession. Now the pension system, which covers about 250 retired firefighters and police officers, has an unfunded liability of around $45 million.
Still, Ward called the amortization figures in the baseline projections “useless as a measuring device for what’s obtainable” and he supported Schaefer’s motion to adjust the figures in a follow-up report. The motion passed on a 5-0 vote.

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