A federal appeals court's upholding of Rhode Island’s pension overhaul in 2011 and 2015 is a credit positive for Cranston because benefit changes for the city’s public safety pensions will remain, said Moody’s Investors Service.
On Jan. 22, a three-judge panel of the 1st U.S. Circuit Court of Appeals upheld retired Rhode Island U.S. District Judge Mary Lisi’s previous dismissal of a lawsuit Cranston police and firefighter unions filed, challenging the constitutionality of Rhode Island’s 2011 pension overhaul.
Cranston’s police and fire unions refused to take part in a 2015 settlement between the state and local unions.
Then-General Treasurer Gina Raimondo, a Democrat who is now governor, championed the bill. Cranston Mayor Allan Fung, a Republican who lost the general election for governor in 2014, is running for the office again.
The justices on Jan. 22 determined that the unions' agreement to contribute more to pension plans in 1996 did not establish a contract preventing further benefit changes.
Moody’s upgraded Cranston, an 81,000-population city five miles southwest of capital Providence, to A1 from A2 in May 2016.
“The city's credit has strengthened in recent years with rebounding property valuations, an improved financial position and a manageable debt burden,” said Moody’s.
Cranston’s pension burden is still considerable, said Moody’s. Its adjusted net pension liability of $739 million amounts to 270% of city revenue, as of the fiscal year ending June 30, 2016.
“However, its liabilities and annual pension costs would be considerably higher without the 2011 benefit changes,” said Moody’s.
For example, said Moody’s, the city was expected to contribute more than 35% of payroll for its police pensions to the Rhode Island Municipal Employees' Retirement System in 2011, but the changes dropped the city's contribution requirements to less than 10% of payroll.
“Even with moderate cost increases since 2011, the city's public safety pension costs have remained far below pre-reform levels,” said Moody’s.