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Is it time for state pension talks?

November 16, 2012

Rhode Island’s state pension overhaul faces a Superior Court hearing next month. RIPR political analyst Scott MacKay wonders if  it’s time for the parties to negotiate.

Our state’s landmark pension overhaul heads to Superior Court on December 7. Rhode Islanders of a certain age recall that as the day that lives “in infamy,’’ in the immortal words uttered by President Franklin Roosevelt, to a stunned nation in 1941 after the Pearl Harbor attack.

No lives will be lost over the legal fate of  Rhode Island ‘s 2011 landmark pension changes that sought to bring solvency to the state retirement system. But state government and our struggling cities and towns would be in for a serious financial strafing if the state loses in court to the state employee unions challenging the law approved in a special session by the General Assembly.

Some history:  After warnings from State General Treasurer Gina Raimondo, Rhode Island lawmakers approved and Governor Lincoln Chafee signed into law historic changes in Rhode Island’s state employee retirement system. Faced with unfunded liabilities of  $7 billion or more, the state raised the retirement age for state employees and public school teachers and trimmed back so-called cost of living raises that went automatically to retirees. Some younger employees were switched into a retirement program that reduced taxpayer contributions.

The pension changes were approved to make the system solvent and sustainable for both taxpayers and future retirees.

State employees and teachers and the unions that represent them were furious. The unions say cutting pension benefits meant breaking a promise to retirees and their families. So the unions went to court, sparking an epic legal battle that is likely to reach the Rhode Island Supreme Court.

Unless, of course, cooler heads prevail and the parties sit down and negotiate a deal that averts a protracted and costly legal marathon. For a way out for both sides, we take you to Providence and the administration of Mayor Angel Taveras.

When he took office last year, Taveras was hit with a financial tsunami…a deficit of more than $100 million and hundreds of millions of dollars in pension liabilities. After many rounds of negotiations, Taveras was able to win concessions from all of the major unions representing city workers, with the exception of the police union. Talks with the police union continue and the mayor is hopeful of   reaching an agreement.

As far as the state employees and teachers are concerned, their union leaders have made “direct and indirect overtures’’ on negotiations  that would settle the legal battle, says George Nee, president of the state AFL_CIO.

The unions believe, says Nee, that the Taveras path is the best way to resolve the issues because then labor and management can craft an acceptable deal, rather than having a solution imposed by an outside force, such as the state Supreme Court.

Treasurer Raimondo has opted for the court route and has recruited David Boies, a prominent New York lawyer, to help defend the lawsuit. Governor Chafee and Assembly leaders have not publicly supported negotiations, but they are more likely to do so than Raimondo.

The legal route carries risks for both sides. Superior Court Judge Sarah Taft-Carter has already denied state government’s attempt to establish that the state can unilaterally reduce the pension benefits and cost-of-living benefits of state workers and retirees.

Judge Taft-Carter stated clearly that pension benefits cannot be changed “at the whim of the state.’’

But that is just the first round and the unions know there is no certainty they will prevail as their lawsuit moves forward. If the unions lose in the end, their members are stuck with whatever the court imposes. And if the state loses in court, hold on to your pocketbook, because state taxes and local property levies would have to be sharply increased to pay the pension tab. The only guaranteed winners in a never-ending court joust are, of course, the army of lawyers each side has hired.

The state situation is a bit different than what has transpired in Providence. State pensions are set by law, not contract. So any negotiations would have to include all parties – the treasurer, the governor, the Assembly and the unions would have to hammer out an agreement that could win Assembly approval and be signed into law by Chafee.

And there are political complications. Raimondo is already seen as running for governor in 2014, and Taveras is seriously considering making the run. If the economy rebounds Chafee may want a second term. We just got over the 2012 political cycle (to the extent that Rhode Island ever gets over anything political) so it would be nice to see some governing happen before everybody gets all ginned up about electioneering for 2014.

In the end, the RI Supreme Court will probably cut the baby in half, ruling that core pension benefits cannot be cut but that cost of living allowances and pension plan design are the province of the General Assembly. But who wants to bet their paycheck or tax bills on a court decision?

Unions always prefer negotiation to legal confrontation, so Nee’s stance is no surprise.

Nothing would be lost – and much might be gained- by both sides sitting down at the state level and trying to work things out.

And if  negotiations fail, well, the court house doors aren’t closing any time soon.

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:40 and 8:40. You can also follow his political reporting and analysis at our `On Politics’ blog at RIPR.org

23 Comments leave one →
  1. Phil Keefe permalink
    November 16, 2012 8:36 pm

    This has been said many times state officials in many forums. Why the rush? The pension would have been solvent for another 12 to 15 years. This was purely a political decision. What does the state do if they lose? Where are they going to come up with millions to make people whole. This was not well thought out or planned.

  2. Mister Guy permalink
    November 16, 2012 10:37 pm

    “But state government and our struggling cities and towns would be in for a serious financial strafing if the state loses in court to the state employee unions challenging the law approved in a special session by the General Assembly.”

    The state & local governments of RI have been shucking their pension responsibilities for years & years, and it’s time to pay the piper.

    “The unions say cutting pension benefits meant breaking a promise to retirees and their families”

    …and they are clearly right.

    “Superior Court Judge Sarah Taft-Carter has already denied state government’s attempt to establish that the state can unilaterally reduce the pension benefits and cost-of-living benefits of state workers and retirees.”

    Exactly.

    “If the unions lose in the end, their members are stuck with whatever the court imposes.”

    “The state situation is a bit different than what has transpired in Providence. State pensions are set by law, not contract.”

    “In the end, the RI Supreme Court will probably cut the baby in half, ruling that core pension benefits cannot be cut but that cost of living allowances and pension plan design are the province of the General Assembly.”

    Nonsense. The state govt. can’t unilaterally impose changes to existing contracts that were signed by existing retirees, and there’s basically no such thing as a defined benefit pension system with no COLA whatsoever. The unions have nothing to lose in court (except maybe the cost of their legal fees, which members are mostly paying for anyways) & everything to gain. The state simply isn’t going to be allowed to get away with modifying existing retiree contracts without negotiation, period.

  3. November 17, 2012 1:07 pm

    I think there should be a clock on the unions offer to negotiate. If the state doesn’t begin negotiations by a certain date, say before the trial in Superior Court, then, if the unions win, they will no longer offer to negotiate and the state will be required to pay the full tab.

    It was a foolish decision to allow Gina Raimondo to lay the foundation for her political career on the backs of the workers. This foolishness will cost in the end. Still, it’s not too late to make it right.

  4. Jeffrey J Brown, CFP permalink
    November 17, 2012 1:35 pm

    @Phil Keefe “This was purely a political decision”. I beg to differ. The “pure political” decisions were by the General Assembly for the past three decades, adding cola’s, enhancing service credits, shortening final average years part of the formula from 5 to 3, doing away with the minimum retirement age, etc. etc. etc., none with an actuarial study to support these over-the-top enhancements.
    The Treasurer actually did her job, unlike any of her predesssors. And, she knew the problem was great than it even appeared. And it is. One year later, after the discount i.e projected return was lowered from 8.5% to 7.75%, it was reported that the plan earned 1.2%, i.e. for 2011. http://blogs.wpri.com/2012/01/26/raimondo-avoiding-risk-after-ri-pension-fund-earns-1-4-in-11/. This week PIMCO, amongst the most respected management firms in the world, lowered it’s long-term return on equities to mid-single digits. Combine that with bond returns in a 60/40 stock/bond portfolio. What you come out with is an unfunded liability more in the range of $18 to $20 Billion, not 3.5 and not the prior reported 7 billion when looking at the state plan alone. http://mercatus.org/publication/rhode-islands-local-pension-debts

    Now add GASB changes to pension reporting, June 2012
    http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176160140567

    Please tell us how her decision was political.

    • Mister Guy permalink
      November 17, 2012 9:09 pm

      “Please tell us how her decision was political.”

      The pension “reform” that was rammed through by Mrs. Raimondo was almost solely geared to raise her political standing so that she could run for higher office at a later date. Too bad that it’s not going to work out so well when most, if not all, of it gets thrown out via our court system. Wake up…

  5. Ashley permalink
    November 17, 2012 4:57 pm

    Raimundo started a train out of control that appears to be heading straight into the bay. She should’ve listened to the mayors and put together a comprehensive strategy versus this peace-meal and largely illegal one of hers. Us in the unions will not forget this if she ever has the gaul to run for public office.

  6. November 17, 2012 8:51 pm

    Thanks all.

  7. November 17, 2012 10:18 pm

    “Some younger employees were switched into a retirement program that reduced taxpayer contributions.” all teachers and state workers were put into the 457 plan,not just younger employees. The only workers exempt ( from those two groups) were those already eligible to retire.

  8. Kevin Sullivan permalink
    November 19, 2012 2:16 pm

    The issue with negotiation on the state level is leverage. Providence had the threat of bankruptcy as leverage in negotiating concessions with its unions. This is a very powerful tool, as the central falls bankruptcy demonstrated how easy it was for a city to drastically cut retirements benefits in a bankruptcy proceeding. The state does not have such leverage.

    One question I never heard the answer to: where was the union leadership this whole time the state and municipalities were failing to adequately fund retirement benefits?Didn’t they have an obligation to their mambers to make sure the necessary retirment contributions were being made?

    • William Berube permalink
      November 19, 2012 7:47 pm

      The union leadership and members have been complaining about this very issue for decades. Unfortunately, it was ruled in a 1980’s lawsuit filed by public safety workers in Cranston that the municipality could continue to unfund as well as use money contributed by workers for any purpose they desired since they had never failed to make payments to their retirees in the past. The judge did give them a stern warning though – “Don’t come back here in the future and tell me you don’t have enough money to fund these pensions!”

      So here we are.

      • William Berube permalink
        November 19, 2012 8:48 pm

        By the way. The judge who presided over that case was our own illustrious Robert G Flanders Jr. of Central Falls bankruptcy fame. How ironic.

      • Kevin Sullivan permalink
        November 20, 2012 8:13 pm

        Wow! What an unfortunate decision.

    • Mister Guy permalink
      November 20, 2012 1:40 am

      “as the central falls bankruptcy demonstrated how easy it was for a city to drastically cut retirements benefits in a bankruptcy proceeding.”

      Nonsense. Nothing was cut from negotiated union contracts as a result of the CF bankruptcy proceedings. All concessions were made at the bargaining table, as is legally required.

      “One question I never heard the answer to: where was the union leadership this whole time the state and municipalities were failing to adequately fund retirement benefits?Didn’t they have an obligation to their mambers to make sure the necessary retirment contributions were being made?”

      Sure, and besides suing them, what do you think that the unions could do to force the state & local government to make the required payments to those retirement funds?

      • Kevin Sullivan permalink
        November 20, 2012 8:12 pm

        “Nonsense. Nothing was cut from negotiated union contracts as a result of the CF bankruptcy proceedings. All concessions were made at the bargaining table, as is legally required.”

        Incorrect. The receiver was able to, and did, adjust the contracts on the first day of the bankruptcy proceeding by filing his motion to reject the contracts of the police, fire and municipal employees. The parties reached a settlement thereafter, but municipalities and do unlaterally adjust contracts as part of municipal bankruptcy proceedings.

  9. Mister Guy permalink
    November 20, 2012 1:43 am

    “By the way. The judge who presided over that case was our own illustrious Robert G Flanders Jr. of Central Falls bankruptcy fame.”

    Flanders’ handling of CF has proven him to be a fraud. It’s quite a good thing that his “advice” has fallen out of favor at this point. He & others that have been recently associated with him have just been in the bankruptcy sham in order to personally enrich themselves.

    • William Berube permalink
      November 20, 2012 4:08 am

      Ultimately, he did benifit enormously as a result of his foolish ruling back in the 80’s. As receiver, I recall his fee was in the seven figures at last count. But Flanders is not just a greedy fraud, he obviously has some unresolved psychological issues as well. Shortly after the CF bankruptcy he attended a Providence Journal private holiday get-together. At the party, he acted out a skit where he was a giant and was stepping on all the people and buildings in Central Falls and crushing them out of existence ala Godzilla. Yeah, that Flanders has a cold black heart the size of a pea lodged in his chest. May he rot in whatever hell may accept him for the pain and suffering his greed and stupidity have caused.

  10. Mister Guy permalink
    November 21, 2012 12:17 am

    “The receiver was able to, and did, adjust the contracts on the first day of the bankruptcy proceeding by filing his motion to reject the contracts of the police, fire and municipal employees. The parties reached a settlement thereafter”

    Exactly…nothing was really changed until the two parties negotiated in good faith over their contract…that’s the entire point. Just declaring bankruptcy doesn’t really null & void anything, period.

    • Philip Keefe permalink
      November 21, 2012 1:42 am

      How about negotiate rather then litigate . What a simple idea!

      Sent from my iPhone

      • Mister Guy permalink
        November 22, 2012 4:13 am

        In the end, that’s exactly what Flanders did…negotiate in good faith with the necessary unions & reach long-term deals that both sides could live with. What he didn’t do was try & ram through changes unilaterally because he knew, as a former judge, that that wouldn’t work out over the long-run. All taking the latter course would have done is thrown the entire thing in CF into the court system even more than it already was in the first place, which helps exactly no one.

    • Kevin Sullivan permalink
      November 21, 2012 2:15 pm

      Incorrect, The pension plan changed immediatley up the rejction of the contract. In this case, the parties then reached a settlement again altering pension benefits going forward for political reasons. However, the Receiver did not have to negotiate a settlement with the union, he could have forced it down. The bankruptcy code explcitly allows for the rejection and restucturing of existing contracts, inlcuding declaring them null and void.

      • Mister Guy permalink
        November 22, 2012 4:09 am

        “The pension plan changed immediatley up the rejction of the contract. In this case, the parties then reached a settlement again altering pension benefits going forward”

        Without the latter negotiations…you don’t get the former changes to established, legal contracts being solidified legally…that’s the entire point of what took place in CF!

        “the Receiver did not have to negotiate a settlement with the union, he could have forced it down.”

        LOL…they why did he even bother to negotiate with the unions?? Simple…in order to avoid a legal fight that he knew that he would likely lose in the end. Come on now…we’re literally talking about a receiver that was a former judge that had litigated these kind of issues before. I have next to zero respect for Flanders & his corrupt cronies, but he at least knew in the end what he could get away with legally & what he couldn’t get away with legally.

        One really needs to separate the useless talk & bluster that comes during these kind of situations from what is legal & valid over the long-term. What the unfortunate experience in CF has shown very clearly is that just declaring bankruptcy is not a valid & legal way to avoid negotiating in good faith with unions, whether one likes it or not.

Trackbacks

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