Councilmen defend use of pension to plug deficit

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Warwick City Council members on Monday morning fired back at criticism of the reported plan – brokered by a mediator and described by Mayor Solomon last week – which involves using $4 million from a school pension account in order to close the Warwick School Department’s projected deficit for the current fiscal year (which ends June 30).

City Council President Steve Merolla (Ward 9) and Council Finance Committee chair and Ward 5 Councilman Ed Ladouceur provided their side of the story following articles that published when the mediation award was decided last Monday – which Merolla said, in and of itself, was a surprise.

“I wasn’t expecting the story to come out,” he said. “I didn’t know anybody was talking about it, to tell you the truth, because we had just met and discussed what had occurred.”

The city and the schools had been meeting in binding mediation sessions since the school committee voted in early February to withdraw a pending lawsuit that sought an additional $4.9 million from the city to close their budgetary gap, alleging that the city had under-funded the district’s school system for many years, which resulted in unattainable financial situations stemming from things like contractual salary increases and declining enrollment.

Last week, that mediation finally came to an end, although the mediator’s award has not been publicly released at this time, and the school department has indicated it is still awaiting the report before commenting more specifically on the plan.

According to Merolla, mediator Vincent Ragosta – the Providence attorney who helped broker a deal between the Warwick Teachers’ Union and the school department last year regarding their collective bargaining expiration – got all sides to agree to a plan to take money from the Warwick Independent School Employees (WISE) Union pension account in order to fill the budget hole, which they assessed as being funded beyond the recommended contribution for multiple years.

However, on Monday school finance director Anthony Ferrucci indicated that not all parties were actually in agreement about the proposed arrangement.

“I can only speak for myself. I said I understood the decision, and I did understand it. I did not say I agreed to it,” Ferrucci said. “There were no actuaries in the room, and I assume there is further review underway.”

Over-funded pensions?

Actuarial reports obtained by the Beacon, and confirmed by Ladouceur as discussed during multiple mediation sessions, showed that between 2014 and the current year (to date), the school department paid $4,107,400 above the recommended contribution set by the actuary – also known as the annual required contribution (ARC), which is utilized to keep a private corporation or public entity on track to adequately fund a pension plan over the years.

Merolla and Ladouceur placed the lack of money to provide services, such as janitorial staff to clean buildings (and also leading to an inability to hold after-school programming) and the de-funding of the Mentor Rhode Island program, squarely on the school department's shoulders due to their over-funding of the pension throughout the years.

“It was really disheartening because we were in a situation where they were making discretionary payments to pension plans above and beyond the ARC,” Merolla said. “Meanwhile, there wasn’t enough money to clean the bathrooms and kids were getting sick.”

Ladouceur rebuked criticism levied against Mayor Solomon that likened the move to “raiding” the WISE pension fund.

“The reality is that Ferrucci over-funded the pension account with taxpayer dollars. This withdrawal is not going to affect their pension. If someone retires tomorrow, they’re going to retire with the same amount because we’re talking about over-funded pensions,” he said. “He knowingly and willingly over-funded that pension beyond the ARC requirements at the detriment of the students, of the teachers, of the staff and of the taxpayers.”

Ladouceur and Merolla took further issue with Superintendent Philip Thornton’s and Ferrucci’s comments in the Providence Journal last week that indicated they were unsure about the legality or possibility of taking money from the pension fund.

“Ferrucci has said that he’s withdrawn money before from that trust. That’s the representation that he made to everyone at the mediation session, including the mediator, attorney Vin Ragosta,” Merolla said. “He said that he’s done it in the past and it hasn’t been a problem.”

A letter sent to city officials from the Auditor General further declared that the office was unsure about how the specifics of withdrawing money from a pension fund would work, which posed as troubling to Merolla.

“What’s concerning to me is if he [Ferrucci] has done it in the past, what has he done it for and are we now going to be faced with penalties for something that he’s done in the past?” he said.

Again, Ferrucci did not agree with this interpretation that he stated he had utilized pension funds for other purposes before.

“I was asked if there was fees associated with selling investments to create cash in the fund,” Ferrucci said, to which he replied there was not.

Ferrucci reiterated on Monday that paying in excess of the actuary’s recommendations was sound fiscal management of a pension fund, as the goal should be to get them as funded as possible – a point of view also shared by the Auditor General – and that even when you over-contribute above the recommended amount, that still doesn’t always reduce your overall unfunded liability. He explained further that the mortality tables – the life expectancy charts that dictate how long the average retiree will live, which in turn dictates how many years a pension must be funded for – are likely to be updated in the near future, which will present even more of a need to stay ahead of the curve.

“What expert do they [city officials] have on record that states that 92 out of 100 percent is more than enough? What expert would go before you and say that being 92 percent funded is over-funded? I don’t see 92 percent as being over-funded, I see it as being short,” Ferrucci said, adding that the General Treasurer’s most recent report lists pensions funds at 65 percent funded as being in “critical” condition. “Is that what we should subscribe to do? To go from well-funded, one of the top four plans in the state, to go to a position where maybe in a few years we’re critical?”

However, Merolla likened this to a mix-up of priorities.

“We can always pre-pay our mortgage, but not if we don’t have enough to keep the lights on and the electric bill paid,” he said. “That’s what the school department did here. They said they were going to overpay other bills at the expense of the students, the staff and the parents.”

Ferrucci took issue with the assessment from Ladouceur that the school department “hid” the over-contributions in what he likened to an “offshore account,” as they are included in public actuarial reports that are analyzed by the city’s accountants when preparing the annual audit of the city’s overall financial situation.

“The information on what has transpired here for the last five years is known to everybody…We’ve never been cited for doing that practice.” Ferrucci said. “If there were any concerns, their CPAs should have raised a concern three or four or five years ago – and they didn’t, probably because back then it was deemed okay.”

Still, Merolla expressed frustration at how the process to get certain financial information from the schools has proved difficult.

“It’s always a moving target,” he said. “It makes it very difficult to judge the accuracy, the veracity and the credibility of numbers when you can’t get straight answers.”

As for the criticism received by Council 94, the union body that includes WISE as part of its cohorts, Ladouceur said their anger was placed in the wrong direction.

“The WISE Union should be ripping mad that they had people out of work laid off because the school department said ‘We can’t pay you and we can’t clean schools.’ They shouldn’t be mad at the mayor or the city council for what happened in this mediation, not at all,” he said. “As a matter of fact, they should be mad that the schools had this little offshore account at the detriment of all those things. I think they have a misunderstanding.”

Jim Cenerini, legislative affairs and political action coordinator for Council 94, did not respond to a request for comment on this piece by press deadline on Monday.

Comments

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Ben Dover

Hey Magnolia; If this is such a good idea to fill a budget hole, start by using the Mayor's and city council pension fund first...See how that works first.

Tuesday, May 7
Hillsgrove Hal

Looks like responsibly budgeting for employee pensions is no longer a priority with this city council -- all their bluster won't cover the problems they created with the city budget, and which they are now trying to correct by taking money from the schools.

There's nothing in their responses that show Merolla and Ladouceur care about anything except blaming other people for their own mismanagement.

Tuesday, May 7
John Stark

In Normal America, employees are transitioning by the hundreds of thousands from a defined benefit pension plan to a defined contribution plan. It is broadly recognized that taxpayers appreciate the work of their public servants, but should not be on the financial hook for the entire life expectancy of said servants. Further, it is recognized that defined benefit plans are simply not sustainable, long term. Instead of rearranging the pension deck chairs, perhaps a true Captain could alter the course of the retirement planning ship with a transition to a defined contribution plan that employees would own, carry to another job in public or private service, and invest as they see fit with named beneficiaries. Such a move would require a scintilla of political courage, and a belief that individuals, not government, are the best stewards of their own money. I won't hold my breath.

Tuesday, May 7
wwkvoter

This is still tantamount to raiding one's own 401K to pay the electric bill instead of getting rid of the jacuzzi to lower it.

(Not that we have any jacuzzi's in the city budget, but the concept is the same, you dont use savings to pay short term ongoing expenses!)

Now I will go up and read the article not that I need to as the headline covers it.

Tuesday, May 7
Fed up

As they condemn Mr. Ferrucci, they ignore the fact that the city side is in peril. Partly due to the incompetence of the city council from years of kicking the can down the road and failing to do the minimal of due diligence. They continue to throw bombs at the school side but as of this date cannot release the 5 year plan, will not acknowledge that the guy in the corner office is a complete failure to date, and have done nothing to stop the bleeding at all. The next few weeks will be interesting, however, expect anything but transparency.

Tuesday, May 7
PaulHuff

The very fact that the members if the city council think that this is acceptable is the very reason that this city is in the financial situation it is in. They apparently don't know what they are doing.

The school department did the right thing by trying to get this fund to 100%, now the city is going to raid it? How is 92% acceptable when it could be 100%? What happens in 20 years if the projected solvency of the fund lowers? Will the retiree's have to take a reduction in benefits like has happened in other communities due to funds not being funded properly?

How about if I sent in 92% of my tax bill...would that be acceptable to the city?

This is an irresponsible course of action.

Tuesday, May 7
can't believe it

Do I see the old Scottie playbook being used here. Blame the school dept. for all the financial ills in Warwick thus taking focus off the city side of the budget.

Ladoceur and the city council have done nothing to address the legacy cost (unfunded pension ans health care) that is destroying the taxpayers. Healthcare cost will probably consume over 20% of the max. tax this year and the city council has done nothing about it.

The proposed fire contract is a disgrace. It time for the city council to draw the line and vote it down and demand a new contract that cuts drastically the fire dept benefits.

Wednesday, May 8
Hillsgrove Hal

can't believe it, I thought we were supposed to be getting new management with Solomon -- but as you say, he's using the same playbook as the last guy.

Like you, I'm tired of him and the council pointing fingers everywhere else but toward themselves.

They are responsible for this mess, and no amount of blaming the school department will fix it.

Wednesday, May 8
Cat

Why change the playbook of it worked for the past 18 years? Blaming the guy who came before you isn't a new phenomenon. Ronald Reagan blamed Jimmy Carter for the poor economy he inherited, just as Bill Clinton blamed the first President Bush and the younger Mr. Bush then blamed Mr. Clinton.

At some point, you have to stop looking backwards and start to look forward. Take responsibility for the missed opportunities or poor decisions in the past and try to correct them for the future. I don't see an awful lot of that going on right now. I hope time will tell if they can overcome this narrative and create a new one. If not, I don't really see Solomon getting a second term.

Wednesday, May 8
can't believe it

Solomon big mistake was not showing the taxpayers what a fiscal mess Scottie left him. Solomon's advisers were totally wrong with their advise ....not blaming Scottie....and Solomon will live to regret it. It will probably cost him a second term.

Wednesday, May 8
wwkvoter

considering the ill-prepared losers that have run for mayor, it's a scary thought if solomon gets blown out for looking like he is pussy footing and mealy mouthing the situation. he needs to toughen up. not mean, but tough. not sure he has it tho...

Wednesday, May 8
Phillipdrummond

Solomon is a POS. Anyone who thinks it's a nice birthday present in response to finding out they would be able to raid a pension is not fit to be mayor. The citizens of Warwick need to get their heads out of their butts and take an interest in how the city is governed. The fact that they think it's a great idea to steal money out of a pension to fill the gaps that they created is abhorrent and I hope they all go down in defeat.

Thursday, May 9
ThatGuyInRI

Prediction:

At a future date, when the pension is underfunded, as ALWAYS happens. This will somehow be spun as the fault of the teachers and their greedy unions. Since it's their fault, their pensions will be reduced.

oh wait, the state already did this. Way to go Warwick, learning from the best theives around, your state government.

Thursday, May 9
Hillsgrove Hal

can't believe it, not sure what you've been reading, but every time Solomon talks about city finances, he brings up the "prior administration" and tries to blame Avedisian for everything -- while ignoring his own time on the city council and total failure to prevent the current problems.

If Solomon loses in next year's election, it will be because he continues to attack Avedisian instead of actually getting to work and fixing the problems he had a hand in creating.

Thursday, May 9
Patient Man

That guy in RI,

They aren't raiding the teachers pension It's WISE's pension

Thursday, May 9
SaltyJake

Mayor and city council members: Don't come to the taxpayers in a few years crying about unfunded liability and asking for tax hikes to fix the problem YOU CREATED. Another piss-poor decision by the Solomon administration.

Friday, May 10
Ben Dover

"and all of king Jabba's mouses and very few men, don't have a clue how to restore Warwick's finances again." HINT:

Chapter 9 and be done with this mess....

Friday, May 10