Proposed Providence Pension Changes Could Cost City $4 Million

Tuesday, July 26, 2016

 

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Mayor Jorge Elorza and the City of Providence could be tackling major pension decisions -- with major budgetary implications -- in the near future.

Consultants to the City of Providence are recommending that the city's pension system lower its expected rate of return from 8.25% to 8%, in a move that would cost the city millions -- depending on if and when it is phased in. 

In its recent review, Segal Consulting notes that the city's pension system has averaged a 6.39% investment return rate over the last five years on an actuarial value basis, compared to the current assumption of 8.25%, prompting their proposal to lower the investment return assumption.  Currently, the State of Rhode Island's State Investment Commission uses a 7.5% rate of return. 

The initial draft report by Segal shows that the change would increase the total plan cost by as much as $4 million this year -- from $73,102,313 to $77,309,215 in Fiscal Year 2017. 

However, a set of alternative plans provided by Segal show a number of options for the city to address costs associated with the lower rate of return (see below) -- but City Treasurer Jim Lombardi is advocating that the city go even lower.   

"8 percent is still too high. I would like to see it at 7.5%," said Lombardi on Monday. "How you can accomplish that to reamortize the payment schedule to 30 years whereas it's currently on 24 year schedule. We could fund it immediately and not even have it phased in." The city did not respond to request for comment on Monday.

Consultant Proposals Show Range of Options

The forty page "Actuarial Experience Review" by Segal Consulting for July 1, 2013 through June 30, 2015 for the Employment Retirement System of the City of Providence was provided to the city this spring, who is expected to address the proposals, and their decision on how to proceed, in the near future. 

The Providence Retirement Board meets on Wednesday but the report and proposed changes are not on the agenda. 

While the preliminary new funding schedule in the draft report shows an immediate phase-in of the new rate of return, four alternatives were provided by Segal to the city for ways to phase it in, with recommended investment return and mortality assumptions.  The following plans, and their short term impact -- were submitted to the city for review. 

* Plan 2a - "Impact First Reflected in FY 2018 Plan Cost." The FY17 plan cost would be $73,217,543, and $80,187,734 in FY18. The cost would be $83,029,035 in FY19. 

* Plan 2b - "Impact Phased-In Over Two Years Beginning with FY18 Plan Cost." The FY17 plan cost would be $72,217,543, and $78,123,118 in FY18. The cost would be $83,357,357 in FY19.

* Plan 2c - "Impact Phased-In Over Two Years Beginning with FY17 Plan Cost." The FY17 plan cost would be $75,287,546, and $79,993,018 in FY18. The cost would be $82,877,964 in FY19.

* Plan 2d - "Impact Reflected Evenly Over Schedule Beginning with FY18 Plan Cost." The FY17 plan cost could be $73,217,543, andd $76,212,652 in FY18. The cost would be $79,345,492 in FY19.

Pension Critic Riley -- "Providence Should Be at 5%"

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The Segal Report which shows their proposal that the rate of return be dropped.

Providence pension critic Michael Riley said Monday he would peg the rate of return lower --- much lower. 

In a recent piece, "Providence in Big Trouble," Riley reported that Providence pension plan assets ended fiscal year 2016 at $246 million in cash and investments, writing, "Coincidentally the $246 million marks the lowest level of assets at fiscal year-end since 2007."

Segal, in their actuarial experience report, states that the FY16 "actuarial" value of assets was $353 million.  Riley has written repeatedly the claim that the assets are artificially inflated

"5% and they can't, which is my point," said Riley of how much he'd lower the return investment to. "Warren Buffett would say 5.5% for a funded plan. Lower for Providence -- current annuities price at about 4.5%

"The national authority is Josh Rauh at Stanford University," continued Riley "It very much makes a difference whether the pension is reasonably funded. GASB 67 & 68 give guidance [through the] Government Accounting Standards Board. The worse finding ratio, the lower the discount rate. That's one reason a politician would lie about funded ratio.”

Riley weighed in with his thoughts on reamortization. 

“Reamortizing without reforming contracts is equivalent to theft of future generations. It is disgusting but Providence won't or can't renegotiate public worker contracts without receivership,” said Riley. “A big part of state reform was a reamortization. To a purist like me that is effectively a default.  It’s what they do in Greece and Argentina.”

 

Related Slideshow: Providence’s Most Endangered Properties - 2016

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Atlantic Mills 

100 Manton Avenue. 

Atlantic Mills is one of Providence's most highly visible  and recognizable mills. The mill structure is being utilized, the towers are falling into a state of disrepair. 

Today, the former mill complex is used as a commercial space and includes a furniture store and carpet warehouse. 

 

Photo courtesy of Providence Preservation Society 

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Bomes Theatre 

1017 Broad Street 

The Bomes Theatre is a two-story, Beaux Arts-style, felt-roof, brick building that includes stone trim. 

A sign reading "Bomes Theater" is centered at the roof line. Plywood now obscures the original fenestration. 

After its use as a theatre, the Bomes building was occupied by Jason's furniture. This theatre could be used as a theatre once again. 

 

Photo courtesy of Providence Preservation Society 

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Cranston Street Armory 

310 Cranston Street 

The Cranston Street Armory was constructed in 1907 in order to house the Rhode Island National Guard. 

The building was vacated by the National Guard in 1996 due to the rising costs of upkeep and the need for upgrades. 

In 2015, the State's Department of Administration began a "Structural Repairs Project - Phase I" which focuses on the tower on Parade Street.

Photo courtesy of Providence Preservation Society 

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Barstow Stove Company (Tops Electric) 

120 Point Street 

The building dates back to 1849 and includes a monitor roof, granite window lintels, and a corbel led brick cornice. 

Top Electric Company has operated out of the sight since 1974, however, it was sold in 2015 to the current owners who are evaluating potential uses and redevelopment. 

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Ward Baking Company Administration Building 

145 Globe Street 

The Ward Baking Company Administration Building is a two story, brick, flat roof building  constructed between 1908 and 1956. 

In 2011, the Ward Baking Company Administration Building was set for demolition with the rest of the complex, however, the Historic District Commission asked owners to find a solution to save the building. 

Lifespan purchased the property in 2015. 

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Gilbert Stuart Middle School 

188 Princeton Avenue

The Gilbert Stuart School is a public school in the West End of Providence. 

The Gilbert Stuart Schools are in dire need of major upgrades and repairs in order to continue servicing students and their families. 

The building is face with water damage, poor air quality, inefficient heating, and an outdated plumbing system that produces water unsafe to drink. 

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Roger Williams Middle School

278 Thurbers Avenue

The Roger Williams Middle School is a 4-story brick and limestone public school built in 1932 in Lower South Providence. 

The school just put in a new digital media laboratory, however it suffers from problems resulting from a long-leaky roof and a lack of modern fire suppression systems. 

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Nathanael Greene Middle School 

721 Chalkstone Avenue

The Nathanael Green Middle School is a 3 story public school that was built in 1929 in Providence's Elmhurst neighborhood. 

Providence Preservation Society has yet to identify issues with the building.

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Broad Street Synagogue 

688 Broad Street

The Broad Street Synagogue was listed on the national register in 1988 after being constructed in 1910-11. 

In 2015, the building was sold and the new owner is planning major renovations that are expect to start in the spring. 

Photo courtesy of Providence Preservation Society

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Congregation of the Sons of Jacob

24 Douglas Avenue

The Congregation of the Sons of Jacob was listed on the national register of historic places in 1989. The two story building was built in two stages in 1906 and 1922 and has been largely unaltered. 

The building needs interior plaster repair as well as window repair. 

 

Photo courtesy of James Waters

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United Presbyterian Church

619 Chalkstone Avenue

The Church was active in the Smith Hill community in the 1970s and has served numerous congregations over the last three decades. 

The current owner is seeking redevelopment ideas to bring the building back to a useful purpose for the neighborhood. 

Photo courtesy of Providence Preservation Society

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Industrial Trust Building 

111 Westminster Street

The Industrial Trust Building is one of the most iconic and recognizable buildings in the region rising over 420 feet. 

The Trust Company became Fleet Bank before merging  with Bank of America in the early 2000s. High Rock Development purchases the building in 2008, and Bank of America remained as the sole tenant until their lease expired in early 2013.

The Providence Preservation society said that this building may be the most critical development challenge. 

Photo courtesy of Providence Preservation Society

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Kendrick-Prentice-Tirocchi House

514 Broadway

The property is currently owned by ONE Neighborhood Buildings, a community development corporation. 

The house is for sale, however, ongoing work is required to retain the state historic tax credit allocation. 

 

Photo courtesy of Providence Preservation Society

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Meader Street School 

20 Almy Street

The Meader Street School is a 2 story primary school located in the Federal Hill neighborhood. 

The school is one of the last remaining wooden 4 room schools in Providence. 

The west Broadway Neighborhood Association has attempted to purchase it for several years. 

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Rhode Island Hospital Southwest Pavilion 

593 Eddy Street

The building is a part of the original campus of Rhode Island Hospital, built in 1900. 

In 2006 and in 2015, RIH submitted an application for Institutional Master Plan Amendment to allow demolition of the building. It has been denied in both cases.

 

Photo courtesy of Providence Preservation Society

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Sheffield Smith House 

334 Smith Street

The Sheffield Smith House was constructed by quarryman in 1855. 

The house was foreclosed in 2007 and sat boarded and vacant for years. 

Providence Preservation Society is hoping the listing will attract attention and spur appropriate redevelopment for this property. 

Photo courtesy of Providence Preservation Society

 
 

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