EDITORIAL: Providence, We Feel Your Pain

May 30--Here in Connecticut, we should be grateful that Rhode Island is next door. Not only does it provide us with great day trips, but it has problems that make us feel better about our own.

Take Providence. That charming city has a financial migraine that makes the city of Hartford look almost healthy by comparison. Providence's pension fund is only 26 percent funded. Hartford may have a lot of other ailments, but at least the pension plan for city employees is more than 72 percent funded.

These numbers come from a Providence Journal essay titled "The State Should Intervene in Providence -- Hartford Style," written by Rhode Island resident and financial expert Michael G. Riley. It's not often that Connecticut and its capital city are held up as models, so this essay caught our attention.

Hartford's Tax Problem

Mr. Riley argues that Providence Mayor Jorge Elorza should do what Hartford Mayor Luke Bronin did -- ask the state to step in and oversee the city's finances, in exchange for a bailout. "Bronin opted for saving the city of Hartford instead of his own job," Mr. Riley wrote. "He deserves congratulations for this selfless act."

Instead of congratulations, however, Hartford's mayor is getting a lot of guff. Other mayors were jealous that the state had agreed to pay off half a billion dollars in city debt over 20 years -- although the legislature has since modified the bailout. Legislators felt bamboozled by the deal they approved but evidently didn't read very carefully.

And critics still insist that Hartford's wasteful spending is the cause of its current problems. It isn't.

The city didn't flounder because of mismanagement and extravagance, although there were mistakes made in the past. Hartford could do all the right things -- save for city employee pensions, get concessions from city unions, cut services -- and still end up looking at bankruptcy.

Hartford can never collect enough in taxes to cover all its expenses because it is home to so many tax-exempt state offices, hospitals, colleges and other nonprofits. Half its property value is off the tax rolls.

Providence's Pension Problem

Providence, unlike Hartford, failed for years to put aside any money for retirement benefits for its city employees. Now some Providence leaders are threatening the dreaded B-word. "If the city does not solve its pension issue, bankruptcy will follow," they said in a report. Mayor Elorza wants to privatize the city-owned water supply to get cash for the pension fund, though the Providence Journal calls his plan "dubious and possibly illegal."

Providence is far from alone in its pension problems. The Coventry, R.I., police department has only 16 percent of what it needs to pay off benefits. Closer to home, New Haven's City Employee Retirement Fund is funded at just 33 percent.

Many cities, like Hartford, are switching from traditional pension plans to 401(k)-style plans, in which employees take greater responsiblity for saving for their retirements.

Hartford has been, in fact, more responsible than a lot of other Connecticut communities when it comes to saving for retirement. But many cities are finding that the stock market hasn't kept pace with the money needed to pay pensions, says the Center for Retirement Research at Boston College.

And so pension costs are eating up larger and larger portions of city budgets. Even cities with good savings habits, like Hartford, are seeing their pension liabilities growing faster than their assets.

So, with our own capital city in trouble, we feel sympathy for Providence. Misery loves company.

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