Feds relent, allow East Providence to put Google cash towards police pension liability
WASHINGTON, D.C. — Spurred by the state's congressional delegation, the United States Department of Justice Friday, Jan. 11, relented and will allow East Providence and North Providence to use asset forfeiture distribution money obtained through a settlement with Google Inc. towards closing unfunded police pension liabilities in both municipalities.
U.S. Senators Sheldon Whitehouse and Jack Reed lobbied on behalf of East Providence and North Providence, which had recently petitioned the USDOJ to alter its original guidelines for using the so-called "Google money."
Last spring, East Providence and North Providence each were earmarked to receive $60 million of what was a $500 million settlement between the federal government and the internet search company. The city is seeking to use about $49 million of that total towards easing its unfunded pension burden.
Police departments in both cities assisted federal investigators with their case against Google, which was found to have violated import laws for controlled and non-controlled prescription drugs into the United States by targeting consumers with advertisements from Canadian drug companies.
"This is great news," said East Providence City Council President/Mayor and Budget Commission member James Briden. Mr. Briden attended a Friday afternoon press conference in North Providence announcing the decision.
"The city will be allowed to use those funds towards its unfulfilled pension liability, the police portion of the liability," he added. "So that's great for the City of East Providence. It's a very important development relative to the fiscal stability and future of our city."
The decision is certainly a boon to East Providence's still struggling finances. According to experts, including Michael Fallon of Fallon Pension Actuaries in Wellesley, Mass., the city’s unfunded pension liability to police officers would just about be cleared with the receipt of the Google cash. The gap with the E.P. firefighters union, however, would still need to be addressed. Mr. Fallon spoke on the topic at a Budget Commission meeting in November of last year.
The Google money will go a long way in closing the city's huge overall $100-plus million unfunded liability and allow it to edge closer to the minimum 60-percent funding formula, which is required by the state for East Providence to be cleared from so-called “critical” status as well as improve its credit standing with ratings agencies.
The East Providence Budget Commission was seated to take over the city's finances due in part to the massive pension liability. The Commission has fully funded the pension ARC (Annual Retirement Contributions) in the two budgets it's put into place.
The Fiscal Year 2012-13 ARC payment is just over $7.5 million. It’s projected to grow to just under $8 million in FY ’13-14. It should be noted the city has not fully funded its ARC payments in well over 10 years.
The Commission is also attempting to renegotiate the city's contracts with the police and fire unions. Key topics subject to negotiation are expected to be reducing the annual Cost of Living Adjustments (COLAs) and changing the percentage of payments early retirees receive.
East Providence and North Providence along with the State’s Attorney General’s office received the lion’s share of the local money under an equitable distribution plan for services rendered in the Google matter, each getting $60 million of the settlement. The Rhode Island State Police was allocated $45 million. The R.I. National Guard picked up $5 million.
The equitable distribution plan was based on a formula derived from the amount of resources and man-power each of the agencies put into the investigation, which lasted well over two years and ended when Google settled with the government in August of 2011.
When first announced, federal authorities were adamant the money was to be used for law enforcement purposes only for things such as equipment, etc. U.S. District Peter Nerohna, at the April 2012 press conference announcing the settlement, stressed that it couldn't be used in place of funds already set forth to police by cities, towns or the state to fill in general budget shortfalls, including pension liabilities.
He added spending would be “very closely audited" by the USDOJ. That apparently changed, however, after some cajoling by the Rhode Island Congressional caucus as well as state and local politicians and administrators, who asked for some easing of restrictions considering the financial hardships both East Providence and North Providence still currently face.