The mayor of Cranston, R.I., will try and sell retirees on pension reductions this week, saying such cuts are a better alternative for them than a city bankruptcy.
“We are not Central Falls, but we certainly can get there in a short period if we do not address this pension crisis,” Mayor Allan Fung said Tuesday, invoking the Rhode Island city that filed for bankruptcy last year in an interview ahead of Thursday’s night’s special City Council meeting on his proposal to reduce pension benefits for retirees.
“The time to act is now, not until we’re really in a crisis stage,” he said. “My pitch to retirees is that they can negotiate with someone who can be reasonable, or we can have a more drastic scenario, like Central Falls.”
Central Falls filed for bankruptcy protection last year, citing an $80 million pension shortfall. While in bankruptcy, receiver Robert Flanders cut pension benefits by as much as 55%. Central Falls’ exit from Chapter 9 is expected to become official this week.
Fung is asking the Cranston council to freeze guaranteed annual cost-of-living adjustment, or COLA, raises for fire and police retirees for 10 years and cap such increases at 3% compounded after the freeze ends.
Cranston’s pension plans are only 17.8% funded, according to an actuarial report that Buck Consultants conducted last December. An updated study may find that level even lower. The Pew Center for the States considers 80% an acceptable threshold.
Fung introduced his proposal to retirees last month, but few showed. He expects a bigger turnout Thursday.
The city’s defined benefit pension plan is available to police and fire personnel hired before July 1, 1995. Of the 483 participants in the local pension plan, only 54 are active employees, according to Fung.
Moody’s Investors Service in March cut Cranston’s general obligation bond rating to A2 with a negative outlook. Fitch Ratings and Standard & Poor’s each assign A ratings and stable outlooks. “The city’s unfunded pension liabilities are very large and represent significant long-term fixed costs for the city,” S&P wrote in a March commentary.
“I know that all three major rating agencies are interested in what we do with pensions,” Fung said. “I talked about it when we met with the retirees and I plan to bring it up again before the council on Thursday.”
According to Fung, Cranston has boosted revenue by increasing residential and commercial property taxes and various fees; aggressively pursuing delinquent taxes; and negotiating an agreement for payments in lieu of taxes with Johnson & Wales University.
Rhode Island in 2011 passed pension overhaul at the state level.
In addition to Central Falls, Providence Mayor Angel Taveras worked out a landmark agreement with city workers and retirees.