NEW YORK - Providence, R.I., Mayor Angel Taveras, who last year likened his city’s finances to a Category 5 hurricane, sees a horizon after announcing a tentative agreement with three major unions over cuts in pension benefits, a compromise he expects will avert a long legal fight and keep Rhode Island’s capital out of bankruptcy court.
That horizon, he added, includes a better reception in the capital markets.
“We expect a positive response, assuming it’s approved,” Taveras said in an interview Wednesday night after revealing a plan that he said would save about $18 million annually — $14 million and $4 million, respectively, from pension and health-care cuts.
“There will be a lot of questions from the rating agencies and details we’ll have to provide. But if you look at Moody’s and what they’ve been saying, and even Standard & Poor’s — concerns about legal challenges — they’ll get the sense that we’re serious about structural changes.”
The city expects to reduce its unfunded pension liability by as much as $170 million through this agreement. According to new data from the state’s revenue office, Providence has a 32.3% pension funding level, placing it “in critical status.”
All three major bond rating agencies downgraded Providence’s GO debt this spring. Standard & Poor’s earlier this month dropped it to BBB from BBB-plus, while in March, Fitch Ratings lowered it to BBB from A, and Moody’s Investors Service revised it to Baa1 from A3.
Highlighting the complex pension agreement is the suspension of all cost-of-living adjustments, or COLAs, for 10 years, although families of city employees killed in the line of duty will be exempt, and 5% and 6% compounded COLAs are permanently eliminated. Providence last month passed pension cuts that would have suspended COLAs indefinitely.
In fiscal 2023, COLAs will be reinstated only for retirees with less than 150% of the state median income — now $82,353 — or less than the salary of an incumbent employee of the same rank as the retiree at the time of retirement — whichever is lower.
In health care, retirees 65 and older will move onto Medicare, an action that state Superior Court Judge Sarah Taft-Carter ruled in February the city could not take unilaterally.
The City Council, the three major Providence unions — police, fire and Laborers’ International Union Local 1033 — and Taft-Carter must approve the deal.
Retirees, whom unions do not represent, are expected to form a class similar to class-action plaintiffs, to vote on the proposed changes.
The truce consumed nearly four months of negotiation and legal mediation.
“This is not an easy agreement,” said Taveras. “It was not like everyone left the table and said, 'We’re all set here.’ Suspending COLAs for 10 years was difficult. Eliminating 5% and 6% was difficult. But people looked at the bigger picture. They needed to get over their anger and frustration and look at the numbers.
“But barring anything else, this will put [bankruptcy] out to sea and keep it out there.”
David Draine, an analyst for the Washington-based Pew Center on the States, said the agreement could set a precedent. “Providence, like Rhode Island and other states, are viewing COLAs as a mechanism for saving in the short term. It’s no surprise that local policymakers are looking at them.”
According to Taveras, the city’s labor contracts will be amended and the current police and firefighter contracts extended one year to reflect the agreement.