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Can’t lawmakers fix the municipal pensions too?

October 17, 2011

As if pension overhaul in Rhode Island isn’t complicated enough already, a last minute dispute has cropped up between Genera Treasurer Gina Raimondo and Governor Lincoln Chafee about the breadth of change.

Chafee believes that the General Assembly ought to tackle the locally-run pension funds as well as the state employee retirement system. But Raimondo is so far backing only an overhaul of the state-run system.

Raimondo and Chafee have been on the same page for most of  the pension debate, which began in earnest shortly after each took office in January. Raimondo has had a laser-like focus on the problems and deserves much credit for moving the problem to the forefront of the state government’s agenda.

But Chafee has a point on this one. Many of the local pension systems are in worse shape that the state system, which is close to 50 percent funded. And the canary in this coal mine has been the Central Falls bankruptcy, which has injected an urgency into the push to do something sweeping now.

So what happens if the state retirement system gets fixed. Does this mean lawmakers and Raimondo break out the champagne and declare victory while leaving the mayors and town and city councils on the hook?

What good does it do to repair the state system if the municipal systems are going to start falling like dominoes in the wake of the Central Falls fiasco.  And is it really fair to slash cost-of-living allowances for state recipients but leave some of the worst abuses in the local plans untouched?

If lawmakers and Raimondo really want comprehensive reform how can they leave the locally-administered plans out of any solution.  Especially when it is those pension systems that have the greatest short-term possibility of going belly-up or pushing up property taxes dramatically.

Some of the COLAS in the municipal plans are much more generous that what it in the state program For example, some public safety retirees in Providence are eligible for 6 percent annual COLAs, a figure that just about everyone knows is not sustainable. Would it be prudent policy to leave those raises intact while slashing COLAS for state retirees and teachers?

While Raimondo has done a fine job diagnosing the pension problems, it seems that Chafee has a point on the need to extend any overhaul to the municipally-run systems.

 

 

 

3 Comments leave one →
  1. Mister Guy permalink
    October 18, 2011 1:23 am

    It seems that the local GOP mayor of Cranston (Fung?) is keen on including the local pension plans in the mix for reform as well, so that means that there’s at least *some* tri-partisan support for doing that much in RI.

    I haven’t seen a huge amount of press over the fact that the state & many municipalities haven’t contributed their promised fair share to the RI state pension system, which is one of the main causes of the pension “crisis” in the first place. Deferring required payments might look like a “great” short-term fix to budget problems, but those kind of faulty decisions are just short-sighted, political nonsense IMHO.

    Having a state system that has so many different rules for some many different bargaining & non-bargaining units doesn’t seem like a very efficiently designed system to me. There really should be one pot of money that most (if not all) of the RI state pensions draw upon for payment of benefits.

    The feds switched their Federal Employee Retirement System (FERS) to mostly a 401(k)-type system that only had a very weak defined benefit portion (~1% of your high-3-year salary per year of federal service) included in it. Their old system (the Civil Service Retirement System-CSRS) had roughly a defined benefit package that was worth double what the FERS defined benefit package is right now. They also had some pretty clear rules for when people could retire with benefits that were either penalized somewhat for retiring “early” or not penalized at all.

    Having any kind of defined benefit package that doesn’t have a yearly COLA attached to it is pretty much foolish nonsense, since everyone knows that inflation eats away at your buying power over time. Having state pensioners start taking more lump-sum payments in the future instead of getting COLAs doesn’t seem like it would help out the overall financial health of RI’s state pension system in the short or long-run.

  2. October 18, 2011 10:18 am

    I don’t think that Treasurer Raimondo is saying that the State shouldn’t be involved with the municipal pension crises at all– rather, I think she is saying, “Let’s start with the State pension crisis, which is our primary obligation as State officials [my words, not hers].” Including municipal pensions in the initial bill could slow down and potentially torpedo progress on State reforms, and we need to resolve this issue soon or it will cost us even more than is feasible. I think that Ms. Raimondo is being realistic and pragmatic, while Governor Chafee is looking beyond the immediate needs of the State and empathizing with municipalities. It will be interesting to see what the RIGA does, and (particularly) why.

    • Mister Guy permalink
      October 20, 2011 7:41 pm

      Everyone that has looked at RI’s pension system knows that it’s really the local govt. pension plans that are really in trouble. The RI statewide pension plans are solvent for over a decade to come yet.

      While I’m not a huge fan of Gov. Chafee, he at least realizes that pension costs are one of several things that are currently killing local govt. budgets. Something needs to be done about those system as well, or many pensioners in RI are going to be doomed in the end.

      There’s plenty of time to fix these issues logically. A lot of the political wrangling on these issues is just hype that’s being drummed up to push through the ideas of a select few (Raimondo for one) on pension reform. Real substantive change takes time to enact.

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