Chafee, Taveras plea for pension aid for ‘too-big-to-fail’ citiesOctober 18th, 2011 at 12:40 pm by Ted Nesi under Nesi's Notes
The policy argument over the locally run pension plans may come down to this: What do you do about Gilbert McLaughlin?
The former Providence fire chief is one of 775 city retirees – nearly 27% of the total – who get a 6% or 5% compounded cost-of-living adjustment each year. Those pensions double every 13 or 16 years, respectively; McLaughlin’s pension is $175,162 this year, up from $155,892 in 2008.
Now, it’s not the state’s fault – nor Treasurer Raimondo’s, nor Senate President Paiva Weed’s – that Providence gave away the store in the early 1990s. But it’s not Mayor Taveras’ fault, either – and, contrary to what some have asserted, without the General Assembly’s help it’s hard to see how Taveras can pare back McLaughlin’s COLA legally, despite widespread agreement his COLA is too rich.
“Our ability to implement reforms at the local level will be hampered without state-level action that gives us the tools and flexibility needed to put our pension plans back on firm financial footing,” Taveras, Cranston Mayor Allan Fung and seven other municipal leaders wrote Friday in a letter hand-delivered to Chafee and Raimondo. Pawtucket Mayor Don Grebien says he also signed on to the letter, just too late to have his name included.
“What we’re seeing is, in order for us to really have a meaningful impact on saving all these plans, the retirees have to be part of the solution, because otherwise you can’t get enough [savings] on the active employees and those that haven’t been hired yet,” Fung said Monday. Raimondo has made the same point at the state level.
Think about it this way. When it comes to pensions, workers fall into one of four groups: new hires; workers who aren’t vested in the system yet; vested workers; and retirees. To try and change benefits for anybody in the first three groups, it’s obvious what you do – go negotiate with their unions. But how do you change benefits for a retiree who’s no longer in the union?
Central Falls receiver Robert Flanders ran into that catch-22 before the city filed for bankruptcy. Retirees were legally entitled to collect the pension benefits that were set out in the contracts their unions negotiated while they were working. But Flanders couldn’t ask those same unions for concessions to reduce the retirees’ benefits, because the union no longer represents a worker who’s retired.
“Even though the agreements pursuant to which they receive these benefits are union-negotiated, once they retire they cease to be part of the unions,” Flanders said Monday. “They’re no longer represented. So if you want to change the deal with them going forward, I don’t know how you do it without going to them directly.” And when Flanders asked for voluntary concessions in Central Falls, he was rebuffed – and soon filed for bankruptcy.
Cities have tried – and failed – to make changes. In Providence, the Cicilline administration lost a 2007 case before the Rhode Island Supreme Court when the city tried to reduce McLaughlin-era COLAs. And in Cranston, a Superior Court judge sided against the city in 2005 [pdf] when it tried to change collectively bargained pension benefits.
“In retrospect, this action by a previous Mayor and City administration was arguably ill-conceived and detrimental to the long-term fiscal health of the City,” the judge wrote in the Cranston case. “However, on the facts before the Court, a promise is a promise – notwithstanding the adverse and unforeseen consequences associated with it.”
The list of places with locally run plans at risk of insolvency is a roll call of the state’s biggest cities: Providence, Warwick, Cranston, East Providence, Woonsocket, Coventry, Cumberland, North Providence, West Warwick, Johnston. Out of the 12 biggest communities, only one – South Kingstown – doesn’t have an at-risk local plan. For Rhode Island, these communities are too big to fail.
That’s the case made by Chafee, Taveras, Flanders and others who are demanding changes to the locally run plans be included in the Raimondo-Chafee bill. The Rhode Island League of Cities and Towns has suggested either outlawing local pension benefits that are more generous than what the state offers, or having lawmakers give the cities and towns authority to change benefits, as they did with the new Medicare law earlier this year.
“The state still has power over collectively-bargained plans and could, through legislation, pass laws that would address the situation that is causing these local plans to suffer the kinds of problems that Central Falls experienced,” said Flanders, a former Rhode Island Supreme Court justice.
In Providence, for example, it’s estimated that suspending COLAs for current retirees – the same policy Raimondo-Chafee will propose at the state level – could cut its $828 million unfunded liability by roughly 25%, saving millions of dollars in this year’s budget alone. (And Providence’s problems are likely even worse than they look.)
The push-back from Raimondo, Paiva Weed, Warwick Mayor Scott Avedisian and others is twofold.
First, it’s unclear whether it’s legal for a state statute to supersede a contract that was agreed to in collective bargaining or awarded in binding arbitration. If they’re right, and the locally run plans can’t be changed, the state may see more bankruptcies like Central Falls’ to deal with insolvent plans. Raimondo has accused the governor’s office of failing to get its homework done on that score, so to speak, before the last minute.
Second, tackling the non-MERS plans makes the politics of pensions even more challenging.
Raimondo and Paiva Weed seem to be acutely aware that taking on the locally run plans earns them a whole new set of opponents, including the powerful Laborers International Union – whose leadership includes a member of Raimondo’s transition team and Paiva Weed’s majority leader – as well as the police and fire unions, who are extremely active in campaigns.
“I am worried that the complexity of adding all of the nuances relative to each individual municipal plan could create problems with passage of real reform,” Avedisian said in an email Monday. “Each plan would require its own actuarial study, updated assumptions addressing rates of return on investments and mortality rates.”
The rebuttal from Chafee’s camp is that those political challenges actually add to the argument for including the locally run plans in the big legislation – because what are the odds that lawmakers will want to tackle this problem again anytime soon, especially if it means taking on an additional set of organized labor groups?
It appeared early Tuesday that Chafee had won the debate over whether to include the locally run plans in the legislation he and Raimondo put forward this afternoon. But it’s still unclear what precisely they will propose – and whether it will still be in the bill when the House and Senate are finished with it.