Skipped pension payment may 'kill' city's bond rating

Residents could pay 'millions' extra for projects

By ETHAN SHOREY, Valley Breeze Staff Writer

WOONSOCKET - The City Council's decision last week to put off a required $1.7 million payment into its vanishing pension fund has a former member of its managing board this week warning of a financial doomsday.

"The rating agencies are going to freak out," said Richard Lepine, a financial adviser in Cumberland.

Lepine, former pension fund board of directors member and Woonsocket native, said choosing not to make the required payment into the fund for police and fire personnel "is going to kill" the city's bond rating, a worst case scenario for any municipality.

It's a decision that could cause near irreparable harm for taxpayers who need a decent bond rating to keep costs down on future projects, he said.

He's also urging the city to sell upcoming bonds soon.

Lepine told The Valley Breeze that council members were "not far off" last week when they suggested that city leaders accelerate the pace in selling Woonsocket's bonds for such items as the $80 million middle school project or a $25 million to $30 million new water treatment facility.

"They'd better issue those bonds quickly," Lepine warned. "When you're trying to borrow money, the last thing you want on your record is not paying your bills."

If Woonsocket's bond rating is downgraded by rating agencies for a third time in a year, says Council President Leo Fontaine, it would mean "junk status" for a city that just two years ago appeared to be on the right track. At the time, financial assistance was pouring in from the state and city leaders were holding the line on taxes.

Fontaine, a candidate for mayor this year, said Monday that he wasn't joking when he said that the city should try to sell its middle school bonds well before November to avoid much larger payments.

"My overriding concern on this entire situation is very thoughtful of that rating," said Fontaine. "We could be talking about millions of dollars here."

Junk bond status would be "immensely detrimental to us," according to Fontaine, who, along with Lepine, has been warning of what could happen since the pension fund began its precipitous decline in 2007.

Taxpayers would be forced to pay much more in added interest than the $1.7 million they were saved from paying under the council approved 2010 budget, said Lepine, who noted he agreed with council members who favored making the payment.

Lepine left the pension fund's governing board last year after it became clear that fellow board members did not share his sense of urgency in putting more money back into the fund than was legally required by an actuarial "smoothing method."

According to Lepine, the city is also in serious trouble on at least two other fronts:

* Few expect the stock market to rebound in a significant way in the coming year, he said, meaning that a fund that is already paying out about $700,000 in pension benefits each month could vanish still further.

* State Auditor General Ernest Almonte, who last year responded in a positive way to the planned $1.7 million pension fund payment, said Lepine, could now come down hard on taxpayers, if he so chooses, based on the latest news.

"I've got to believe some conversation has taken place in Almonte's office about what likely will happen going forward," said Lepine. "He could end up just saying, 'the heck with you folks, I'm going to say you need to put in $8 million right now.' It's on his discretion. He gets to do the audit and he could say 'you're $45 million short, and make them go with a five-year amortization (or payback schedule)."

Almonte did not return calls seeking comment on Woonsocket's pension fund situation.

Like Lepine, council members seem to agree that the only possible solutions to the pension fund mess are a massive stock market rebound, indifference from state officials to Woonsocket's problem due to greater issues elsewhere, or, perhaps the only real solution, legislative action taken at the state level to change the bond structure of the pension fund.

"I think (Almonte) is going to have to understand the plight we find ourselves in in the short-term," said Fontaine.

State leaders approved the bonding of Woonsocket's pension fund in 2002, but mandated that officials should keep it fully funded at about $80 million or face paying the difference over a five-year amortization period.

The fund, which reached a high of about $94 million in 2007, has lost about 55 percent of its value during a worldwide collapse of the financial markets. Pension fund board members decided last year against funding the shortfall in its true amount, instead choosing to calculate its value based on an average of the previous five years.

Prior to the council approving first-passage of a 2010 budget last week, council members Roger Jalette and Stella Brien made it clear they would not be voting to approve a $1.7 million lawfully required pension bond payment.

Because the council needed at least a 6-1 vote to make the payment as part of its budget, councilors went forward, "with reluctance," on a plan that excluded the payment, among other cuts. Because Jalette and Brien would not agree to raising the city's levy by more than the lawfully allowed 4.75 percent, the option of making the pension fund payment went by the wayside.

Taxpayers, distraught over a plan to increase the city's tax rate by $10 per $1,000 of assessed value had urged council members to defer the payment into a depleted pension fund.

An alternative budget plan, minus the pension fund payment, a large deficit reduction payment, and across-the-board spending was proposed by Mayor Susan Menard when it became apparent that Jalette and Brien wouldn't vote for an 11 percent increase on the tax levy.

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