The politics of pensions
The General Assembly has not helped its image much lately. But Rhode Island’s pension mess has given the Smith Hill crowd a chance at redemption, says RIPR political analyst Scott MacKay.
Rhode Islanders have been treated in the last year to an unending stream of chicanery from our politicians. From the corruption and bribery by public officials in North Providence to the allegations against lawmakers, it appears some of our elected officials have walked a path that over the centuries has been too well-trodden in our state.
Now the Smith Hill crowd has a chance to surprise us all by stepping up and dealing in a forthright and transparent manner with the sea of red ink in our public employee pension plans, an issue that threatens the very financial future of the Ocean State.
Within the next week or so, Governor Chafee and State Treasurer Gina Raimondo will take the wraps off plans that will finally address this mess. Then it will be up to lawmakers to put aside the usual parochial concerns that so often plague the State House and put together a plan that moves Rhode Island forward and sets the table for a 21st Century economic rebound.
So far, there are reasons for cautious optimism. Neither Chafee nor Raimondo have engaged in the kind of partisan blame-laying and union-bashing that so often has clouded past attempts at pension overhaul. And events are moving so fast that the General Assembly has no real choice but to tackle the pension mess now.
The grim reaper is the Central Falls bankruptcy. Without legislative action now, there will be more Central Falls-style emergencies. Unless you have been living in a cave for the past year, you probably know what is about to occur as other cities and towns seek bankruptcy protection.
Raimondo and Chafee are about to drop a pension overhaul program that isn’t going to make anybody happy. There will be substantial cuts in the cost-of-living adjustments that make life comfortable for retirees. Future COLAS will be linked to investment returns. Younger public employees will be phased into a retirement regimen that will add a 401k-style hybrid plan that tracks what federal employees and some private sector workers have. The retirement age will be raised along the lines of social security, where a worker who retires early gets a smaller benefit. And with interest rates at historic lows, the state will probably do what many Rhode Island homeowners have done – refinance future obligations, a move known as reamortization in pension lingo.
Organized labor has a huge interest in fixing the system. After all it is their workers and retirees who will be hurt in the event of pension insolvency. And if state programs have to be cut to pay generous benefits for retirees, it will mean a loss of state jobs for the workers who teach the kids, patrol the highways and guard the prisoners. In the Central Falls fiasco, it is the city workers and retirees who are paying a severe price for decades of fiscal irresponsibility.
Don’t expect any legislation to fix the pension system for all time. Wall Street is too volatile these days to predict returns. And, of course, even the good news is bad for the state retirement system – retirement ages must be raised because people are living longer, collecting pensions well into their 90s.
In 2002, three percent of state revenues went toward pensions, a reasonable amount. But by 2018, if there are no changes, that is projected at 20 percent, a number that the state cannot afford.
There have been too few profiles in courage on Smith Hill of late. The pension mess is arguably the toughest matter the Assembly has taken on since the banking collapse and the workers compensation problems of the early 1990s.
If lawmakers can’t leave their agendas and egos at the door and work out a plan to salvage the state’s economic future, then just what are they doing at McKim, Mead and White’s majestic State House?
Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:35 and 8:35. You can also follow his political reporting at RIPR’s `On Politics’ blog at WRNI.org