PROVIDENCE, R.I. (WPRI) – Providence’s failure to make adequate annual contributions to its pension system throughout the late 1990s and early 2000s cost the retirement fund more than $300 million, according to an analysis released by the city’s investment advisor.
Wainwright Investment Counsel LLC projects the beleaguered fund would have an additional $305 million today if city leaders made the correct yearly payments between 1996 and 2006 and again in 2010 and 2012, an amount that would bring the city’s current pension funding level close to 50%.
The firm calculated the amount that city leaders failed to contribute to the system – $111 million – and the monthly returns the actual money in the retirement fund saw between July 1996 and June 2016. Between 1998 and 2002, Wainwright estimates the city shorted the fund by $76.8 million.
“Although the best time to have made these payments was decades ago, it’s on us to take action today,” Mayor Jorge Elorza, a Democrat, told Target 12. “That is why I have been focused on monetizing the Providence Water Supply Board, a transaction that would be a once-and-for-all solution to our pension problem. We cannot kick the can down the road any longer and we have to address this challenge now.”
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The city asked Wainwright to calculate how much money the pension fund should have after a Target 12 investigation last October revealed former Mayor Vincent A. “Buddy” Cianci Jr. knew in the 1990s that the city’s unfunded pension liability was spiraling out of control, but none of the ideas his administration had for rescuing the system ever materialized.
“I think the unions ought to be made aware of this,” Cianci, an independent, told the city’s Board of Investment Commissioners at a meeting in 1996. “I mean, the city will no longer exist if we have to come up with this kind of money.”
Providence is still solvent, but its pension system was just 25.8% funded as of June 30, 2017, with an unfunded liability that exceeds $1 billion. In the current fiscal year, more than 10% of city spending – approximately $78 million – will go to the pension fund. That figure is expected to grow to $100 million by 2025.
The majority of the missed contributions were skipped during the Cianci administration, but Wainwright’s review shows full payments weren’t always made during the tenures of his successors David Cicilline ($22.5 million) and Angel Taveras ($10.4 million), two Democrats.
Under Taveras, the city negotiated an agreement with the municipal unions and retirees that suspended 3% COLAs for 10 years, eliminated 5% and 6% COLAs forever and placed a cap on how much retirees could earn from their pensions.
The deal also required the city to make at least 95% of its actuary’s recommended pension payment, effectively prohibiting future mayors from shorting the fund. The city’s annual pension payment is projected to grow by at least 3.5% a year over the next two decades, with the funding level reaching 100% by 2041.
Elorza has warned that the city still has more work to do and has vowed to pursue the sale or lease of the city’s water system, which was valued at $404 million last year. The mayor has also said he would like to “strike a grand bargain” with the city’s retirees, although he’s never publicly disclosed the types on concession he’ll seek.