PROVIDENCE, R.I. (WPRI) – A pending lawsuit by a group of retirees over changes to Providence’s pension system could cost the city more than $11 million over 10 years if the retirees prevail, according to data reviewed by the Target 12 Investigators.
The plaintiffs filed the suit in November 2013, arguing Providence broke the law when city officials passed an ordinance making sweeping changes to the retirement system in 2012.
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The changes – reached in a settlement between Providence Mayor Angel Taveras, the unions and retirees – included a 10-year freeze on 3% cost-of-living adjustments (COLA), eliminated costly 5% and 6% COLAs forever, and shifted how pensions are calculated.
Taveras said those 5% and 6% annual pension raises were crippling the city’s finances and putting Providence on the brink of bankruptcy.
“Those five and six compounded raises double your pension every 13 to 15 years depending whether it’s five or six percent,” Taveras said. “That was a big, big problem in the city of Providence.”
According to pension data reviewed by Target 12, 653 retirees collected 5% and 6% COLAs in 2012, adding up to more than $32 million in annual pension payments. Those benefits would have grown to nearly $57 million in 10 years, the figures reveal.
Adding up the estimated savings over a decade, city officials said the settlement saved taxpayers more than $135 million over 10 years by freezing the 5% and 6% COLAs alone.
“This was a comprehensive effort to address a very serious problem in the city of Providence and at the same time to avoid bankruptcy,” said Taveras.
Some Taveras critics say the mayor’s reforms didn’t go far enough. They note that even after the changes pushed through by the Taveras administration the city’s locally-run pension system is still only 31% funded, with an official shortfall of $832 million between its promised benefits and assets.
But others, including former firefighter’s union president Stephen Day, say the changes went too far and are illegal.
“He obviously hasn’t done his homework; maybe he’s too busy running for governor than looking at the city of Providence,” Day said. “You just can’t go in and make draconian cuts to older retirees on a fixed income that are living on that benefit.”
Day is one of 65 retirees who filed suit against the city last fall. He said the mayor’s claims that Providence would have slipped into bankruptcy without the changes are “part of the absolute lie and misrepresentation to the public, to the retirees and to the courts.”
Taveras said the settlement was agreed upon by 90% of retirees, but Day called that a false statement. He said ballots that were not returned were automatically counted as a “yes” vote, and estimated that there were upwards of 700 ballots that weren’t returned.
“They put those guns, that ammunition, those factors in front of people and said, ‘Are you going to vote for this or are you going to sue us, what are you going to do?'” Day said. “A guy who’s 70 years old who’s not going to be able to afford his mortgage, what is he going to do? He’s going to take the deal because he has no other option.”
Of the 65 retirees who are suing the city, six live in Providence, according to pension records. The highest benefit paid to one of them was $99,000 in 2012. The average pension of the plaintiffs is $52,000.
Less than half of the plaintiffs – 27 of the 65 – used to receive the 5% and 6% compounding COLAs; the rest received 3% annual pension raises.
If the retirees prevail their pensions would continue to grow, totaling $11.1 million over 10 years in additional benefit payments.
“We are going to fight this vigorously in court and do everything we can to be successful,” Taveras said. “Some people would like to avoid the truth. I believe it’s my responsibility as a leader to make sure that people understand where we are, what the problems are, what the possible solutions are and what are the consequences if we do nothing.”
It’s the “solutions” part that Day takes the most issue with, saying the city failed to disclose assets it could have used to balance the books.
“There are so many other things they didn’t do they could have done,” said Day.
Among them is selling off the Providence Water Supply Board, a move he said other municipalities have done to bring in a large influx of revenue. Day also said the city should have been able to get more revenue from nonprofit organizations, particularly Brown University.
Taveras came to an agreement with Brown that secured roughly $3 million in annual payments for a period of 11 years. In exchange the city gave the university the rights to 250 parking spaces and handed over several streets to the Ivy League school. Day said the deal should have translated into at least $9 million in annual payments.
Taveras said the city explored the option of selling the Providence Water Supply Board, but decided there were too many hurdles to make that happen.
“People are looking for easy solutions, quick fixes,” Taveras said. “The truth of the matter is … do you not think that a previous mayor would have tried that or would have done that if that was in fact such an easy solution?”
The outcome of the lawsuit will have no impact on the settlement agreement that Taveras brokered in 2012 and would only apply to the 65 retirees who filed the suit.
There were originally 66 retirees who sued the city, but Day said one has since passed away. The trial could start as early as September.