You may want to watch what’s going on in the Rhode Island pension battle. According to a 2011 Pew Center report on the states, the pension deficit between what states have promised and what they have saved, or the unfunded liability, is $660 billion. According to Pew’s 2010 report, 16 states were in good shape while 19 were the subject of serious concerns, including Rhode Island.
Next year, Rhode Island taxpayers will pay $622 million into the state-run pension system. That’s nearly double what was paid this year, and it’s 20% of what taxpayers contributed to the entire Rhode Island state budget. The number being kicked around as the unfunded pension liability is $7 billion, but I believe a more accurate number, based on a more realistic expected rate of return, is a debilitating $11 billion.
In a joint statement, Governor Chafee and democrat and general treasurer Gina Raimondo announced the creation of a new 12-member pension advisory group. As described by The Providence Journal, it “includes high-level Rhode Island labor leaders and, from the opposite end of the spectrum, a one-time adviser to the U.S. Department of the Treasury who worked on the restructuring of General Motors and Chrysler.” I’d say “the same side of the spectrum” is more like it, and based on my review, Rhode Island taxpayers will have only three members looking out for them, compared to nine who are likely to support the public-sector employees.
From the top, unions get four of the twelve seats, represented by the president of the largest employees’ union in Rhode Island—Michael Downey (1), of Council 94, AFSCME; NEARI executive director Bob Walsh (2); SEIU’s Phil Keefe (3); and a union representative on Rhode Island’s Retirement Board, John Maguire (4).
Former lieutenant governor Richard Licht (5) was Governor Chafee’s first cabinet selection and is the director of the Department of Administration. Chafee’s endorsement of Mr. Licht alone should be enough to scare Rhode Island taxpayers.
Harry Wilson (6) worked on President Obama’s auto industry task force under lead advisor and “car czar” Steve Rattner. Mr. Wilson is the person who, according to The ProJo, is at the opposite end of the spectrum from the labor leaders. Yet he was a lead dog in the government’s bailout of GM and Chrysler, which gave the United Auto Workers a sweetheart of a deal while sticking taxpayers with the tab.
President Obama and his lead manufacturing adviser Ron Bloom throw around an estimated loss on the bailouts of $14 billion. That figure understates by billons the amounts that were lost. They forget to mention the $12- to $13-billion tax-loss gift, which, under normal bankruptcy laws, only applies to a reorganization. GM wasn’t reorganized; it was sold to a government entity, so the tax loss should not have been allowed. And what’s lost on most government bailout supporters is that the private sector was crowded out from participating in the bailout.
I’m calling Alicia Munnell (7) the Gina Raimondo pick. Ms. Munnell is the director of the Center for Retirement Research at Boston College, which is referenced by Ms. Raimondo in her pension report “Truth in Numbers.” Ms. Raimondo strikes me as a person who, because of her future political aspirations, is not interested in offending anyone—an attitude that is unacceptable in the state’s chief fiduciary. And to justify her inoffensive approach, she will be able to shield herself with Ms. Munnell’s body of work.
Munnell is not a huge fan of 401(k)s. She, along with coauthors Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinby, wrote a brief titled “A Role for Defined Contribution Plans in the Public Sector,” concluding that defined benefit plans, or pensions, could remain as a secure base, with defined contributions, or 401(k)s, as additional retirement income for those at the higher end of the pay scale. In the section on risk, they write: “Leaving the responsibilities in the hands of employees means that they are exposed to the risks of saving too little, losing funds when financial markets fluctuate, seeing the value of their retirement income eroded by inflation, and outliving their resources since payment is generally not in the form of an annuity.” A more appropriate title for the brief would be “Life in the Private Sector.” As an aside, Ms. Munnell served at the U.S. Treasury Department during Bill Clinton’s first term.
Bill Foulkes (8) is a strategic planning consultant and a Rhode Island School of Design (RISD) faculty member. Public records show he contributed money to the 2007 Chris Dodd for President and Jack Reed Committee campaigns. At the very least, we know his political persuasion.
Robert DiMuccio (9), the CEO of insurer Amica, seems to be a token private-sector member. Yet upon further review, he’s a deeply entrenched special interest. In his message to shareholders, he writes:
Amica is a member of the Property Casualty Insurers Association of America (PCI), and I currently serve as the chairman of PCI’s Board of Governors. In this role I’ve become much more involved in the state and federal legislative and regulatory issues that face the insurance industry.
I am proud to represent Amica and PCI, which includes more than 1,000 insurers in the U.S. property-casualty market. As a member of PCI, Amica has joined forces with these companies so that we have a collective voice in the ongoing regulatory discussion in Congress.
Congress has a dismal 17% approval rating, mainly because Americans don’t trust the voice given to special interest groups like PCI.
To round out the panel analysis are the three that, based on past writings and actions, are in the taxpayer’s camp: Mark Higgins (10), dean of the URI Business School, favors a business friendly flat tax. Ernest Almonte (11), as the former state auditor, is a proven representative for the taxpayer. And Cranston mayor Allan Fung (12) has gone head to head with union leaders to enact change.
With taxpayers having only three members representing them on the panel, it’s hard to have much hope for any real reform. In a joint statement on the panel, Chafee and Raimondo said “the group will help foster honest dialogue about the real sacrifices that will be required to redesign a system that attracts quality employees; provides a level of security for its retirees; preserves funding for public services… [and] protects taxpayers.” In other words, let’s not hurt anyone’s feelings. Real reform will have to wait.
P.S. This weekend, at the Rhode Island Air Show, you’ll get a chance to see the only operational fifth-generation fighter aircraft—the F-22 Raptor. One of the many ways the Raptor provides the leading edge in air dominance is by flying faster while using less fuel than fourth-generation fighters. The F-22 can accelerate through the speed of sound (Mach 1) and then hold or increase speed, attaining what’s called “supercruise,” without using fuel-gulping afterburners. This allows the F-22 to cover twice as much area as an F-15 or F-16 by maintaining higher speeds, for more of the mission, while leaving enough fuel to get back home.
F-22 flies faster with less gas: Little drag helps the F-22 save fuel allowing it to cover twice as much area as the F-15 and F-16.