The lines have been drawn on pension reform legislation in Rhode Island. After 10 months, tension as thick as fog remained between its two architects, Governor Lincoln Chafee and General Treasurer Gina Raimondo. At the 11th hour, Chafee pushed to include local plans. Raimondo chose to focus first on the state plan. Both of their solutions will hit the taxpayer and retirees with an eventual default.
The Straw That Stirs the Drink
Chafee and his director of administration, Richard Licht, want to deal with this once and for all using state aid as a form of carrot and stick. Another city-pension-related bankruptcy like that of Central Falls would be hard to paper over in an election year. In the last month alone, Moody’s downgraded the bond rating for North Providence and Coventry.
On the inclusion of local plans, Raimondo said last week, “Everyone is waiting to see the governor’s plan on that. He’s had 10 months to work on that and I still haven’t seen a plan.”
Licht, the straw that stirs the drink in the Chafee administration, responded, “They are waiting on our language, [But] her office has seen the outline…. We have been in countless meetings with her and her staff. The concepts on the non-MERS plans have been well-discussed with her…. Several drafts of outline have been submitted and they are waiting for the final legislation, which is being reworked based on specific comments from the treasurer herself.”
Licht and Chafee will have a difficult time getting around local collective-bargaining contracts. Instead what Licht should be advising Chafee to do is get back to private-sector rules. The first step in pension reform is to follow Wisconsin Governor Scott Walker’s lead. Get rid of collective bargaining for pension and benefits for public workers. Get union leaders out of Smith Hill and govern for the taxpayers who foot the bill.
Raimondo and Paiva-Weed Unite
Regarding Chafee’s plan to include local plans, Gina Raimondo said, “At this point, I have yet to see from the governor a legal analysis, an actuarial analysis or a financial analysis or a complete plan. So I think we have broad agreement there’s a problem, but I have yet to see a thoughtful solution.”
Raimondo and Senate President Teresa Paiva-Weed do not want to include local plans as part of the state pension reform. “One at a time” is their drum beat. But this feels disingenuous. If Weed were serious about tackling real reform of the local plans, she would not have voted to pass binding arbitration earlier in the year. And Raimondo has not been sounding the alarm loud enough about the real truth in numbers: one, the unrealistic expected rate of return of 7.5% is still way too high; two, a full shift to a 401(k)-style, not a hybrid, is a must; and three, it’s necessary to get rid of collective bargaining for public workers. Her reform only kicks the can down the road. In June, the headline was “Moody’s Downgrades Outlook on R.I. Bonds.” It isn’t going to go up for a long while, if ever. By that time, Raimondo may be on to her next political post.
Cranston Mayor Alan Fung has been in front of this issue since day one, not only for Cranston, but for the 36 local plans or non–Municipal Employees Retirement System (MERS) plans that are at the heart of the local issue. Based on a report from July 1, 2010, Cranston’s police and fire departments are at a funding level of only $46 million, or 16%. Fung recognizes the clock is ticking on the local plans. A 16% funding level is not much better than bankrupt Central Falls’ 9% back in July 2010.
Funding levels for Coventry, which manages its own plans for general, police, and school, were at a dismal 30%, 17%, and 27%. Cumberland’s MERS plans for general and rescue were 67% and 93%—maybe at risk, but not compared to the funding level of its local police, which is only 45%. Johnston’s MERS for fire and general were at 78% and 70%, but the non-MERS for fire and police were at a low 27% and 28% funding. Scituate’s MERS for general and police were at 68% and 69%, while its non-MERS was only 23%. Tiverton’s MERS for fire and general were at 86% and 103%, while the non-MERS was only 39%. W. Warwick doesn’t have a MERS; its non-MERS was at only 30%.
Chafee and Raimondo have politicized the pension reform mess. The debate over local versus state reform is simply posturing. Both will not end well. Few are looking out for the taxpayer. It’s about positioning for future political positions with the least pain as possible. The real pain will come when the plans default.