The town of Coventry has reached a pivotal point in its history. We are faced with a major fiscal hurdle that will define who we are as a town. We face the same challenges here as many other cities across the state, and much of it has to do with pensions unfortunately. What are we to do, raise taxes on the hard working families, or renege on promises made to municipal workers and police officers?
For far too long, some in the town have kicked the can down the road, telling taxpayers their tax levy wont increase on one hand, while granting additional benefits to pensioners, further indebting taxpayers on the other hand. We cannot have it both ways. This is not an attack on anyone, the point of this letter is to simply point out the facts. We have two options; we can do nothing and file for bankruptcy, which would destroy our credit and force us to cut pensions in half like Central Falls, or we can find a solution; together.
Before we discuss potential solutions, it is critical for all to understand how big our issues truly are and how we got here. The General Assembly passed landmark legislation last October in an effort to solve the state pension crisis. Pensions at the state level were only 48% funded, so a new hybrid pension/401(k) plan was introduced, which extended the required years of service for eligibility, froze COLA’s, and reduced the interest return on assets. As a result of the Rhode Island Retirement Securities Act passed by the General Assembly in 2011, all towns who issue independent pension plans were required to perform an actuarial experience study on their various plans in an effort to determine if any of these plans were in “critical status.” The Rhode Island State Pension Plan Commission determined that any plans that are less than 60% funded be officially deemed in “critical status.”
Unfortunately, Coventry is in much worse shape then the state was last year, which was one of the reasons why our credit rating was downgraded twice last year by internationally recognized Moody’s. The 2011 experience study performed by actuaries revealed that our town municipal pension is only 25.3% funded and the police pension is even worse with only 11.3% of its promises actually funded. Making matters worse is the speed in which funds are being depleted. The police plan was 16% funded just a few years ago; and has tacked on an additional $20 million dollar liability since just 2009. The combined unfunded liability between these two plans totals $72,720,000. If that wasn’t bad enough, there is apparently a third retirement plan set up for non-certified school personnel. The party ultimately responsible for funding the plan is under dispute between the town, school committee, board of trustees and union as to who should be funding the plan. Regardless of who is at fault, there is an additional $24 million in unfunded benefits floating around.
Compounding this problem is the fact that the towns funding percentage of the annual required contribution has gone down the last three years. The town fulfilled 74% of its obligation to the police plan in 2009, but was down to only 69% in 2011. The percentages of contributions that have been made toward the town municipal plan are even more ominous. Coventry paid 89% of its requirement in 2009 versus only 49% last year. The amount of benefits being paid out each year continues to increase while our funding levels have not. The COLA’s approved in 2010 will only enhance the problem. The math is simple; the pension plans are running out of money and require greater contributions, to do so requires higher taxes, taxes that many of our families cannot afford.
The police officers and other town employees are not at fault for this massive shortfall. They paid their required contributions based on benefits bargained for in their contracts, which were ultimately accepted by our elected leaders. Regardless of who is at fault, this whole problem is a tough pill to swallow for many families not employed by the town. Many of us struggle to keep the roof over our family’s head and put food in their stomachs, let alone save up enough money to adequately fund our own retirement. Most will not complain about having to pay taxes in order to fund the integral services provided by the town, but many do have a problem with paying the generous retirement packages and healthcare benefits afforded to town employees.
So what are our options? Do we raise taxes on the 35,000+ residents in town, or do we cut the benefits promised to the 697 employees counting on them? The Coventry Republican Town Committee believes that a fundamental overhaul of the system is required in order to protect all parties. If contributing to Social Security, Medicare and a 401(k) is good enough for the taxpayers, then why not is it not good enough for our municipal workers and police officers?
I will leave you with one final piece of information to ponder in attempt to show how unrealistic our pension obligations are and to show you, the taxpayer, how much money we can save if everyone were to go to a 401(k). Right now taxpayers are required to guarantee that our pensioners get a 7% return on their investments, regardless of what the economy does. Here’s where it gets interesting, the 7% return you’re guaranteeing is based on the full amount of money that should be in the pension fund. So, lets just use the police fund. There should be $67,351,000 in this account. At a 7% return, we are responsible for ensuring a contribution of over $4,700,000 this year (This does not include past returns/shortfalls). Unfortunately, there is only $7,598,000 actually in the fund. So, in order to meet the required annual contribution, the police fund investments would have to earn over 62% THIS YEAR!
Good luck making that kind of return on your 401(k). Now, if the police were to go to a 401(k), the town could match 100% of our officer’s contributions, and it would only cost the taxpayer a total of $273,097!!! With all the talk at the federal level about income equality and people paying their fair share, when it comes to pensions, I completely agree.