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Governor Lincoln D. Chafee Joins with Mayors, Town Administrators to Detail his Budget’s Support for Municipalities and New MAST Program

Flanked by several mayors and town managers, Governor Lincoln D. Chafee and members of his administration today unveiled the full details of the Municipal Accountability, Stability and Transparency (MAST) Fund, an innovative approach that is part of the Governor’s proposed 2012 budget.

The MAST Fund is designed to encourage local governments to employ fiscally prudent budgeting practices, focus on the sustainability of current pension plans and reduce the unfunded liability of significantly under-funded pension plans. In addition, the MAST Fund addresses the significant unfunded liabilities for other post-employment benefits (OPEB).

“Our cities and towns are facing ever-increasing challenges to maintain retirement and retiree health care benefits, especially in the form of significant cost drivers for municipal budgets,” stated Governor Chafee. “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.”

Joining the Governor at today’s press conference were Warwick Mayor Scott Avedisian, Pawtucket Mayor Don Grebien, North Providence Mayor Charles Lombardi, East Greenwich Town Manager Bill Sequino, Westerly Town Manager Steven Hartford, Jamestown Town Administrator Bruce Keiser, Department of Revenue Director Rosemary Booth Gallogly, and Susanne Greschner, Chief of the Department of Revenue’s Division of Municipal Finance.

The MAST Fund is a three-phased approach to increasing municipal financial accountability over the coming three years, as follows:

Starting in FY 2012, all cities and towns will receive additional state aid if they comply with the following fiscally prudent practices:

*Provide Five-Year Forecast to the Division of Municipal Finance. The forecast has to include two scenarios: one scenario would show a baseline forecast, the other forecast would include pensions and OPEB funded at 100 percent of the Annually Required Contribution (ARC), separately for the general and unrestricted school funds. The forecast also has to show underlying actuarial assumptions.

*Provide fiscal impact statements to the Division of Municipal Finance 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. Fiscal impact statements have to show underlying actuarial assumptions and support for underlying assumptions.

*Provide financial data, such as quarterly reports, adopted budget surveys and the Comprehensive Annual Financial Report (CAFR) on time.

*Join electronic reporting/implement Municipal Uniform Chart of Accounts (UCOA), within six months of implementation.

Starting in FY 2013, all cities and towns will receive MAST Fund state aid if they:

*Comply with the fiscally prudent practices, as spelled out above,

*Fund 100 percent of their Annually Required Contribution (ARC) for municipal pension plans over a maximum of 5 years,

*Starting in FY 2013, cities and towns that have any municipal pension plan that has a funded ratio below 50 percent will be required to make an additional contribution equal to 10 percent over and above the actual contribution made in the prior fiscal year. This additional contribution would continue until the municipality’s funding ratio is 50 percent or higher.

Starting in FY 2014, all cities and towns will receive MAST Fund state aid if they:

*Comply with the fiscally prudent practices, as spelled out above,

*Comply with the pension requirements, as spelled out above,

*Fund 100 percent of their ARC for OPEB over a maximum of 10 years, and

*Join a multiple employer trust once this trust is established. Cities and towns that have already established a trust as of June 30, 2010 will not be required to join a multiple employer trust for OPEB, if the city/town adheres to minimum standards established by the state.

There will be a penalty for non-compliance with the MAST program. Starting in FY 2014, those cities and towns not complying with fiscally prudent practices and the requirements relating to pension and OPEB will experience a decrease of 5 percentage points each year in the state’s share of contribution towards the employer cost of the teacher retirement fund, starting in FY 2014.

Governor Chafee outlined how he proposes to fund the MAST program to be funded. The Governor proposes to finance the newly created MAST Fund by maintaining the state and local meals and beverage tax rate at 8.0 percent. The state and local meals and beverage tax rate consists of the state sales tax rate of 7.0 percent and the 1.0 percent local meals and beverage tax rate. The Governor’s Sales Tax Modernization Proposal lowers the state sales tax rate to 6.0 percent. By maintaining the state and local meals and beverage tax rate at 8.0 percent the Governor is able to designate the 1.0 percent that previously went to the state to finance the newly created MAST Fund. It is projected that this fund would total $19.3 million, which would be available for municipal governments. Distribution of the MAST Fund receipts to each community will be based on the 2009 General Revenue Sharing percent distribution.

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