Quick hits from the final pension advisory group meetingSeptember 12th, 2011 at 1:40 pm by Ted Nesi under Nesi's Notes
Members of the Chafee-Raimondo pension advisory group took the gloves off – briefly – at their fourth and final meeting on Monday, in another sign the pension debate is shifting from a wonky academic discussion to a fierce political fight. But it didn’t last long.
“I have never been in a group that has had such disagreements and been so civil,” marveled Richard Licht, Governor Chafee’s director of administration and proxy on the pension group.
As planned, the 12-member panel finished their work without taking any specific action – they didn’t issue a final report or take a vote on specific recommendations. But they did spend a few months analyzing and debating a huge amount of information on retirement financing.
A number of people have dismissed the group’s work as smoke and mirrors, but it’s important to remember who was taking part in (and learning from) those discussions – notably Licht and Deputy Treasurer Mark Dingley, Treasurer Raimondo’s proxy. Their views are likely to play a pivotal role in shaping the legislation the governor and treasurer submit to lawmakers before their special session next month.
What’s next? Raimondo will brief state senators on the pension issue this afternoon, and the House and Senate finance committee will kick off a series of three joint hearings about the problem this Wednesday. There’s no timeline yet for the unveiling of the Raimondo-Chafee bill, but it should happen by early next month.
In the meantime, here are some highlights from today’s meeting:
• The pension advisory group got combative – finally.
About an hour into the meeting, NEARI’s Bob Walsh blasted a proposed framework of changes – supported by some in the group – as potentially leaving Rhode Island with “by far the worst” public pensions in the country and putting the state at a disadvantage in attracting workers compared with Massachusetts and Connecticut. Cranston Mayor Allan Fung rebutted that he has a pile of résumés on his desk already, which caused SEIU’s Philip Keefe to yell at Fung about pitting workers against each other to cut pensions.
Then Richard Licht weighed in, raising his own voice a bit as he pointed out that some of those at the table – eyeing union leaders – failed to support Governor Chafee’s sales tax plan strongly, which would have resulted in more revenue. With that in mind, Licht said, when he proposes a budget to Chafee this winter “there’s not going to be tax increases of any significance” to cover rising pension costs – which would mean layoffs if changes aren’t enacted. Keefe fired back that the state lost revenue by giving tax cuts to the wealthy and corporations.
But Licht said Keefe and others know lawmakers’ feelings about raising taxes. “It ain’t gonna happen,” he said flatly, adding that that’s the reason the required pension deposits need to be reduced to an affordable level. Things mostly calmed down after that for the remainder of the meeting. The union leaders, though certainly sincere in their arguments, also may have wanted to show some fight in front of the members and retirees watching.
• Cost-of-living adjustments (COLAs) are clearly in the crosshairs. “The COLA is a very expensive proposition,” actuary Joe Newton said, before comparing the different costs of an inflation-linked COLA; a COLA capped at 2.35% as is currently in place; or a COLA of up to 2% on the first $12,000 of a pension, similar to Massachusetts.
No part of the pension issue got more attention at today’s meeting, and the idea of an at least five-year freeze on COLAs was frequently mentioned as part of any solution. (COLAs already granted wouldn’t be touched.) Officials seem to think it will be easier, legally and politically, to make changes to COLAs for retirees and vested workers than their base benefits.
• Much still depends on the outcome of the case testing whether the state can change COLAs. If a judge rules that amending COLAs is beyond the General Assembly’s power, then much higher taxpayer contributions to the pension fund appear inevitable.
• One of Newton’s slides offered a menu of six options for dealing with the pension funding issue, with varying mixes of reamortizations, COLA freezes, state taxpayer contributions, and transitions to partial 401k-style plans. They’d get the state to 80% funding between 2024 and 2029 at a total cost to state taxpayers of $3.94 billion to $4.99 billion depending on which options are chosen.
• Even the cheapest options laid out by actuary Newton aren’t cheap. One alternative he set up gets to 80% funding by 2024 at a 25-year cost to taxpayers of $3.94 billion; another gets there by 2029 at a 25-year cost of $4.99 billion. Reamortization hawks pointed to that as evidence for why further delay in shoring up the fund is so costly, but supporters said the annual contribution has to be affordable to taxpayers.
• The average state employee who retired over the last three years got a $33,000 pension plus $19,000 from Social Security, actuary Newton said. With no pension COLA, their purchasing power would fall from $52,000 to $30,000 after 29 years.
• NEARI’s Bob Walsh said about half of the state’s teachers don’t get Social Security.
• Cranston Mayor Allan Fung made another pitch (closer to a plea, really) for the Chafee-Raimondo bill to include measures that would help cities like his with locally-run pension plans rein in their costs by allowing collective-bargaining changes, for example. The local plans are more unfunded in aggregate than the state-run municipals.
• Joe Newton, the friendly state actuary from Gabriel Roeder Smith in Irving, Texas, got a laugh when he made a Rick Perry joke. “I’m from Texas – how do you think I feel about Social Security?” (He was kidding.)
• Judicial pensions, though a minuscule portion of the overall funding problem, are emerging as a major flashpoint in the debate. A suggestion that they might be treated differently than regular state employees’ pensions drew a quick rebuke from SEIU’s Phil Keefe. Organized labor will be livid if judges get a better deal than their members.
• State workers, teachers and retirees have clearly been mobilized over the course of the summer. Today’s meeting at the Cranston Public Library was packed, and a number of those in attendance sported T-shirts and waved flags calling on officials to protect their pensions. The crowd interrupted the meeting with applause a few times when labor leaders defended their pensions. High-profile protests seem likely over the next two months.
(photo: Ted Nesi/WPRI)