NEW: Chafee Details Plan to Fund Local Pensions

NEW: Chafee Details Plan to Fund Local Pensions

Governor Lincoln Chafee yesterday elaborated on his proposed Municipal Accountability, Stability and Transparency Fund (MAST), which is essentially a carrot-and-stick program aimed at promoting stable funding for municipal pension plans and other post-employment benefits (OPEB).

“These costs and the reality of unfunded pension and OPEB liabilities either have or will threaten to jeopardize the fiscal stability of municipalities and we cannot standby without acting,” Chafee warned at a press conference.

Chafee plans to pay for the MAST fund by maintaining the state’s meals and beverage tax rate at 8 percent, despite his proposed reduction of the sales tax from 7 to 6 percent. Currently, the meal and beverage tax is composed of a 7 percent sales tax and a one percent local meals and beverage tax. By retaining the extra one percent, the state could generate $19.3 million, which would then be made available to municipal governments through the MAST program.

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The MAST fund is to be phased in over the course of the next three years, with increasingly strict requirements each year. In order to receive additional state funds for the following years, cities and towns must:

FY 2012:

• Provide two “Five-Year Forecast” to the Division of Municipal Finance. One would be a simple baseline forecast and the other would include pensions and OPED funded at 100 percent of the Annually Required Contribution (ARC).
• Provide fiscal impact statements for changes in health care benefits, pension benefits and OPEB, reflecting the impact on the unfunded liability and ARC, as well as the impact on the Five-Year forecast.
• Provide all financial data and budgeted reports on time.
• Join the electronic reporting and implement Municipal Uniform Chart of Accounts, within 6 months.
 

FY 2013:

• Fund 100 percent of their ARC for municipal pension plans over a maximum of five years.
• Cities and towns that have any municipal pension plan funded below 50 percent will be required to make an additional contribution of 10 percent over and above the actual contribution made in the prior fiscal year—this additional payment would continue until the municipality’s funding ratio reached 50 percent.

FY 2014:

• Meet all aforementioned requirements.
• Fund 100 percent of their ARC for OPEB over a maximum of 10 years.
• If the city hasn’t already established a trust, it must join a multiple employer trust.

Beginning in 2014, municipalities not meeting the basic requirements of the MAST program will be penalized with a 5 percentage point decrease each year in the amount the state contributes towards the employer cost of the teacher’s retirement fund. “We need to have the stick ready,” warned Chafee.

Among those accompanying the governor today were the mayors and town managers of Warwick, Pawtucket, North Providence, Westerly, and East Greenwich, all of whom have expressed support for the proposed plan.