Cranston Police and Fire Pension Plan

SEPTEMBER 13, 2012 ALLAN W. FUNG MAYOR

City of Cranston

Tonights Presentation
Understand the past and present financial situation of our city and plan Develop a sustainable solution for the future

Do this openly with full knowledge by you and the unions

City of Cranston

Cranston Fiscal Challenges

Inherited multi-million dollar deficits from prior Mayor, Council and School Committee Permanent multi-million dollar cuts in state aid to Cranston Decrease in city revenues during recession Significant drop in interest and investment income

One time fixes

Skyrocketing pension costs due to years of inadequate funding, guaranteed minimum compounded 3% raises (COLAs) for retirees and retirement after only 20 years of service Two historic floods in 2010 Tropical Storm Irene in 2011

City of Cranston

Cuts in City Spending

Cut staff in Mayors Office Eliminated vehicles for Mayor and Director of Administration and limits on take-home vehicles Increased healthcare co-share for administrative employees to 25% Multi year pay freezes for employees Reduced city workforce by 10% through layoffs and attrition Cuts in various departments throughout city Millions in contract concession savings from Police, Fire, Laborers and Teamsters Joined healthcare collaborative (RIMIC) to significantly reduce administrative fee Implemented Healthcare plan design changes Joint purchasing with other cities and towns Reduced energy costs Refinanced past debt to save over $700,000 Stalled capital improvement projects unless it impacted safety Froze all non-emergency overtime Curtailed use of outside vendors and performed these functions in-house Sold several public buildings Leased Peter Pastore center to YMCA Implemented first ever Defined Contribution retirement plan for new city hall employees

City of Cranston

Revenue Enhancers
Increased various fees Increased residential and commercial property taxes Reduced exemption on vehicles Negotiated first PILOT agreement with Johnson & Wales Aggressively pursued delinquent taxes

City of Cranston

Cranstons Current Condition

Moodys (February 24, 2012) A2 Rating but negative outlook
the city will be challenged to restore and maintain long-term structural balance and fully fund its pension obligation given continued revenue weakness and ongoing expenditure demands

Fitch (March 16, 2012) A Rating and stable outlook

The citys defined benefit pension plan (offered only to police and fire personnel hired before July1, 1995) is severely underfunded

Standard & Poors (March 20, 2012) A Rating and stable outlook
the citys unfunded pension liabilities are very large and represent significant long-term fixed costs for the city

City of Cranston

Our Severely Troubled Police and Fire Plan

December 2011 Actuarial Report (Buck Consultants)
Total Plan Participants = 483 (426 retirees and 57 actives) Assets = $55.3 Million Total Accrued Liability = $311.4 Million Unfunded Liability = $256 Million FY 2012-2013 ARC = $25.7 Million

17.8% funded

City of Cranston

R.I.G.L. Section 45-65-6

The initial actuarial experience study shall be submitted to the study commission on or
before April 2, 2012, and subsequent actuarial experience studies must be submitted to the study commission no less frequently than once every three (3) years.

In any case in which an actuary certifies that a locally administered plan is in critical status [a plans funded percentage for such plan year is less than sixty percent (60%)] for a plan year, the municipality administering such a plan shall, not later than thirty (30) business days following the certification: provide notification of the critical status to the participants and beneficiaries of the plan and to the general assembly, the governor, the general treasurer, the director of revenue, and the auditor general.
Within one hundred eighty (180) days of sending the critical status notice, the municipality shall submit to the study commission a reasonable alternative funding improvement plan to emerge from critical status.

City of Cranston

The Experience Study

Recommended Changes in Assumptions
Reduce the overall interest rate from 8.00% to 7.50% Reflect a blue collar adjustment in the mortality table for healthy and disabled retirees Adjust the rates to be based on service rather than age for active employees

Projected Impact on Valuation**

Total Accrued Liability = $326.7 Million Unfunded Liability = $271.3 Million FYE 2013 ARC = $26.5 Million 16.9% funded

City of Cranston

Critical Status of Our Plan

Our actuary certified our plan in critical status in April 2012 City sent notice to all plan participants and required statutory entities Outside review of plan to ensure participants paid correctly Worked with actuaries on plan to emerge from critical status

City of Cranston

Our Local Legacy Issues

We cannot afford to meet 100% of our projected FYE 2014 revised PENSION ARC

PROJECTED 2014 ARC $26,461,044

2013 CONTRIBUTION DIFFERENCE $21,994,344 $ 4,466,700

OPEB (POLICE and FIRE ONLY)

Dont know what 2014 ARC will be yet 2013 ARC 2012 ARC $ 4,405,694 (100% Contribution) $ 4,089,059 (100% Contribution)

City of Cranston

We Cant Tax Our Way Out of Problem!

High Property Tax Burden Already ($22.84/$1000 residential; $34.26/$1000 commercial)
Distressed Community designation this year by state

communities with the highest property tax burdens relative to the wealth of taxpayers - R.I.G.L 45-13-12
As of July, 2012, Cranston Unemployment Rate at 11.5%

City of Cranston

Why Act Now?

The solution is going to be unpleasant for everyone in the short term, but beneficial in the long term. Not dealing with the problem is going be more unpleasant for everyone in the long term. Lessons from Central Falls:

significant number of Police and Fire pensions cut by 50 percent

or more Only 19 pensions left untouched Retirees now paying healthcare premiums for the first time

City of Cranston

Why Act Now?

Auditor General September 2011 report

Assets available within the City of Cranstons Police and Fire Employees Retirement System are only sufficient to make pension benefit payments to retirees for approximately two years. (Page 40)

When pension and OPEB plans are chronically underfunded, the eventual costs to fund the plans become significantly larger and divert resources from other programs and initiatives. (Page 40) Bond rating agencies have increased their focus and given additional weight to the responsible management of unfunded pension and OPEB liabilities of governmental entities. The frequency of ratings downgrades precipitated by unfunded pension and OPEB obligations has increased. (Page 7) Ratings are being downgraded due to unfunded pension liabilities and the lack of a responsible funding plan or attempts to modify benefits. (Page 40) OPEB liabilities warrant the same attention and funding commitment as those accruing from pension benefits and represent another significant financial challenge for municipalities. (Page 40)

City of Cranston

Impact of Annual Raises (COLAs)

Position Fire/Police Fire Chief Asst. Fire Chief Deputy Chief Supt. of Fire Alarms Fire fighter Police Chief Major Captain Sergeant Police officer
Years Retired Pension at Retirement Current Pension Dollar Increase Percent Increase

4 10 6 20 34 16 27 9 22 35

98,961.23 53,499.88 65,176.49 26,411.53 12,998.40 66,500.06 27,218.28 60,827.59 23,998.97 6,293.00

113,631.38 90,643.52 85,220.67 62,495.00 41,605.95 110,509.18 91,079.11 72,198.00 59,783.79 36,406.32

14,670.15 37,143.64 20,044.18 36,083.47 28,607.55 44,009.12 63,860.83 11,370.41 35,784.82 30,113.32

14.82% 69.43% 30.75 136.62% 220.09% 66.18% 234.62% 18.69% 149.11% 478.52%

City of Cranston

Proposed Reasonable Improvement Plan

Freeze guaranteed annual cost of living (COLA) raises for ten (10) years Re-amortize an additional 4 years Make overpayment in first year

Cap COLA to 3% compounded after freeze ends

City of Cranston

Other Issues for Discussion

OPEB Issue Give up Blue Cross Classic Blue and move into Healthmate Coast to Coast

Pay co-share on healthcare

City of Cranston

Timeline
September 2012 Meeting with beneficiaries introduction of Reasonable Improvement Plan to City Council Retirees get representation October 2012 Series of public meetings before City Council on Plan with public input Discussions with active/retiree representatives November 2012 Submission of plan to state Pension Study Commission (due 11/11/12) Ongoing Discussions with active/retiree representatives

December 2012 Reach a plan agreement for city to utilize in future budgeted fiscal years

City of Cranston

How you can help

Retirees can engage legal counsel or appoint representatives to negotiate on their behalf Active employees represented by IBPO and IAFF

City of Cranston

Questions and Answers

Only retirees or beneficiaries or union may ask questions

Raise hand and staff will come to you

Keep questions to under 3 minutes Questions only, please limit any statements If your question has already been posed and answered please refrain from asking After tonight's meeting you can email questions to Marcia Lopresti at mlopresti@cranstonri.org

City of Cranston