Paying Dues

Why is the Providence pension fund still in trouble?

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When Providence finally negotiated pension reform with its employee unions in April 2013, the deal was hailed as a “landmark” agreement that would spare the city financial disaster.

Four years later, in an interview with WPRI-TV, Mayor Elorza was warning yet again that the pension system was costing the city too much, and proposed selling off the city’s water supply to help pay off pensions. But opinions are divided on the extent of the problem and how best to solve it.

The 2013 deal was supposed to chop $170 million off the unfunded liability through a number of measures, including eliminating higher cost of living adjustments and suspending others for a decade. In 2013, the pension fund was just 31.39 percent funded. In 2015, that figure was 27.1 percent, according to reports by the city’s actuaries.

Gary Sasse, a former fiscal adviser to the Providence City Council and the founding director of the Hassenfeld Institute for Public Leadership at Bryant University, calls such a low level of funding a “crisis.” Unless the city fully addresses the problem, he says, the annual payments into the fund, along with any other attempts to make up the gap, will drain resources away from education, infrastructure, and economic development. Under normal circumstances, Sasse argues, pension funds should be 80 percent funded.

But the head of the Providence firefighters’ union disagrees that the pension fund is in trouble. “We’re in the very beginning of a 30-year plan to repair it,” says Paul Doughty, president of Local 799. “Like any long-term debt, when you begin to pay it off, the needle barely moves at the beginning, and then as you move to the middle you’ll see more modest improvement.”

Tom Sgouros, a local progressive writer and senior researcher at the Haas Institute at the University of California at Berkeley, cautions against reading too much into how much the city owes. “The last dollar of that debt isn’t due until the youngest current employee dies,” Sgouros says.

What really matters, he adds, is whether the ratio of available funds to the amount owed is going up or dipping down. That ratio is supposed to start going up next year. But it will be a slow climb: the system will not be above the recommended 80 percent funding level until 2038, according to the latest available projections. One thing seems certain: the issue of pension funding isn’t going away anytime soon.