As the Moody’s chart at right shows, Woonsocket’s bond obligations and pension liabilities are equal to nearly 20% of its total property value, more than any other municipality in Rhode Island including Central Falls.
Woonsocket’s debt burden is “high” at $3,265 per capita or 7.6% of property value, Fitch Ratings said in March. The city spent $17 million on debt service in 2010-11, which was 12% of all government spending; Providence, by comparison, spent 9%.
Woonsocket’s bonded debt totaled $210.5 million on June 30, 2011, and its most recent audit lists more than a dozen times the city has borrowed since 1996, including $90 million in 30-year pension obligation bonds sold in 2002 and $11.5 million in deficit bonds sold last year at a 7.125% interest rate.
Woonsocket’s pension fund isn’t healthy, though.
The city has a locally run pension plan for police officers hired before 1980 and firefighters hired before 1985. In 2002, the city moved to stop paying for those pensions on a pay-as-you-go basis and for the first time to formally acknowledge its long-term liability – then closed the shortfall by selling the $90 million in pension obligation bonds, becoming the first Rhode Island city to do so.
Former Woonsocket Mayor Susan Menard, her successor Leo Fontaine and the Northern Rhode Island Chamber of Commerce all supported the pension borrowing, which was approved by lawmakers, former Gov. Lincoln Almond and city voters in a referendum. (Almond had vetoed a similar measure the year before.) By 2005, Menard told The Providence Journal: “Ours is probably one of the better pension funds in the country.”
Unfortunately, as the audit explains, a new shortfall opened in the old police and fire pension plan within a few years “due to declines in the market value of the investments and [in the] rate of return on the plan” – and in 2008-09 Woonsocket’s actuary told Menard and the City Council the pension fund needed additional annual deposit to shore it up, even as they’d barely begun to pay off the pension bonds sold in 2002.
City leaders complied, at first barely: in 2008-09, they deposited $26,200, far less than the $1.5 million called for by the actuary; the next year they deposited just $15,612, although the actuary called for $2.7 million. They came closer in 2010-11, putting in $1 million of the $2.8 million requested.
On top of that, the closed plan has no active police officers contributing to it anymore – they’ve all retired and started collecting – and just a handful of active firefighters doing so. Treasurer Gina Raimondo has suggested closed pension plans may need to buy out their beneficiaries rather than pay up.
As if all that wasn’t enough, Woonsocket has promised to provide medical, dental and life insurance to 1,743 city workers once they retire, but has yet to set any money aside to cover those promises. That includes 654 current retirees who are already receiving benefits, which cost Woonsocket more than $6 million last year.
(chart: Moody’s Investors Service)
An earlier version of the headline on this post listed the wrong year for the pension bonds.