PROVIDENCE, R.I (WPRI) – As he seeks ways to strengthen Providence’s severely underfunded pension system, Mayor Jorge Elorza plans to again ask state lawmakers to allow the city to monetize its water supply when they return to work in January.
Elorza told Target 12 he believes the sale or lease of the water system could generate more than $300 million for the city, all of which he claims would be deposited into the city’s pension fund.
“We have the best quality water and it’s sold at the lowest rates,” Elorza, a Democrat, said in an interview. “And it’s an asset that frankly is worth more in someone else’s hands than it is in ours since we’re so heavily regulated by the Public Utilities Commission.”
A combination of factors – including a 1991 decision to award generous benefits to retired public safety workers and city leaders’ repeated failure to make adequate contributions to the pension system – increased Providence’s unfunded pension liability from $167 million in 1993 to $985 million in 2016, according to current and historic city financial documents. As of last year the city had just 25% of the money it needed to cover future payments to retirees, according to a projection by its actuary.
While city leaders have made a slew of changes to retiree benefits in recent years in exchange for a guaranteed increase in the amount the city deposits into the pension fund each year – in the current fiscal year, the pension contribution is $78 million – Elorza maintains the payments will eventually become unaffordable.
“We don’t want to nibble around the edges,” Elorza said. “We need a big solution to it.”
Providence Water sells water directly to approximately 75,000 retail customers throughout the state and provides water to eight other wholesale customers. The city owns the land in Scituate used for its water operations. The taxable value of the land itself was $260 million in 2016, according to the town’s annual audit.
Elorza asked the General Assembly this year to approve legislation creating a regional water authority that would have the ability to buy or lease water systems, but lawmakers took no action on the proposal after House Speaker Nicholas Mattiello said he opposed the bill.
Critics said giving Providence the ability to monetize the water supply would be a bailout for Providence on the backs of taxpayers from across the state, but Elorza called it a “solution within our grasps.” He has repeatedly said he opposes privatizing the water system.
Mattiello said Monday he is open to reviewing a new proposal from the city, but he declined to comment further.
A consultant hired by the city this year estimated that the assets owned and operated by the Providence Water Supply Board are likely worth $404.2 million.
The city paid MR Valuation Consulting $200,000 to analyze all of the assets that comprise Providence Water, including the 37-billion gallon reservoir in Scituate, 27 square miles of watershed property, all the water mains and pipes in the distribution system, more than 6,000 fire hydrants and a water treatment facility.
The $404.2-million figure is based on the firm’s analysis of what it would cost to develop a new water system or rebuild the existing one. Other methods considered by the firm turned up lower values, including $317.2 million if the value was based on the original acquisition costs of the assets and $327 million if the value was based on four comparable transactions over the last three years.
Providence leaders have been trying to find ways to profit from the water supply for several decades, but their efforts have been stymied by legal questions about who actually owns the system and legislative opposition.
In 1994, then-Mayor Vincent A. “Buddy” Cianci Jr. attempted to sell the system to the Narragansett Bay Commission for $500 million, but the deal fell through. In 2008 the city again considered a sale, with City Council members telling The Providence Journal at the time they believed Providence could receive a one-time payment of between $400 million and $600 million to help the pension fund.
During a trial involving a lawsuit that challenged Providence’s pension changes in 2013, former Mayor Angel Taveras testified that he didn’t believe the city could benefit from the sale of the water system because the proceeds would need to be returned to ratepayers.
Elorza, who is planning to run for re-election next year, said he’s seeking a “once and for all” solution to the city’s pension challenges.
“The best time to have done this was probably 20, 25 years ago,” he said. “The second-best time to do it is now.”