In East Greenwich, there has been a lot of conversation in recent months about pension liability – the money East Greenwich owes town employees upon their retirement.
EG’s been putting aside money to pay retiree pensions for years. But East Greenwich – and lots of municipalities both in Rhode Island and nationwide –hasn’t always put enough money into those pension funds. So, when talking about pension liabilities, there is the money we have saved toward this expense (the funded part of our liability) and there is the amount of money we would need if everyone were to retire today. The difference between what EG has saved up and what EG would owe if everyone retired today – if, say, the Town of East Greenwich suddenly closed shop – is the town’s unfunded liability.
According to Town Council President Sue Cienki in a letter to East Greenwich residents Aug. 17, EG’s unfunded pension liability is “more than $86 million.”
According to the state treasurer’s office, EG’s unfunded pension liability, based on the 2016 fiscal year, is $34.8 million. (Check out the treasury office’s May 2017 Debt Affordability Study here – information on municipalities begins in Part 3, page 50.)
Cienki said her number was based on state numbers and information from Angell Pension Group of East Providence but, despite repeated requests, she did not offer a breakdown of the $86 million number.
Angell Pension Group has, apparently, been consulting with the town. No details about that relationship were made available.
Although Cienki’s letter said the $86 million number was the town’s “unfunded pension liability,” in a subsequent email Cienki said the number include both unfunded pension liability and the town’s OPEB – “other post-employment benefits,” i.e. health care for retirees, liability.
East Greenwich had been paying health care costs for retirees out of the general fund until a couple of years ago, when it joined an OPEB fund with Rhode Island Interlocal Risk Management Trust. The last figure available for EG’s unfunded OPEB liability, however, comes from 2013, before the town started paying into the fund and accruing a fund balance. The number in 2013 was $11.5 million.
Adding $34.8 million to $11.5 million brings the total to $46.3 million, well short of Cienki’s “more than $86 million.”
“You guys are healthier than a lot of other cities and towns,” said state Treasury Communications Director Evan England. “It’s fair to have your internal local discussion only looking at your internal circumstances but there are cities and towns in Rhode Island with a much greater challenge to overcome.”
Still, funding both EG’s pensions and its OPEB costs requires tax dollars that might be spent elsewhere and a state-mandated half-percent lowering of pension fund anticipated interest earnings, from 7.5 percent to 7 percent, will increase EG’s unfunded numbers for FY 2017 – requiring EG to make a larger payment. Those numbers aren’t available until December, according to state officials.
In addition to higher yearly payments, another downside of an unfunded pension liability can be lower credit ratings. Having a good credit rating makes it easier and cheaper to borrow money. But the East Greenwich remains in a good place regarding its credit ratings – Moody’s gives EG an Aa1 rating (Aaa is its top rating) and Standard & Poor’s gives EG an AA+ rating (AAA is its top rating).
While East Greenwich remains a good bet for lenders, it is not at the highest tier partly because of capital debt. EG has borrowed a lot of money in recent years, to fund large capital expenses like the new middle school, the new police station, renovations to Swift Community Center and other projects. Much like the unfunded pension liability, the town is paying that debt down over time.
– Elizabeth F. McNamara