By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Treasurer Gina Raimondo fired back at her critics Friday, dismissing Cranston Mayor Allan Fung’s assertion that the pension overhaul bill will lead to “crushing” tax hikes and emphasizing her firm belief that the courts will uphold it.

“I have personally committed to Allan Fung and Mayor Taveras and every single mayor that I will work with them to come up with creative, long-term legal solutions,” Raimondo told WPRI.com during a 40-minute interview in her first-floor Statehouse office.

At issue is the section of the Raimondo-Chafee bill that lays out a plan for dealing with the 36 locally run pension plans, 24 of which are at risk of running out of money. It requires cities and towns to run new actuarial studies of the plans, then get the state to approve proposals for dealing with them.

Fung says the only way he’ll be able to fulfill the bill’s requirements is to hike taxes and pour money into the massively underfunded plan in his city. “He’s 100% wrong,” Raimondo said, because there are other potential options and she’d never sign off on a plan that hurt Cranston taxpayers in the way Fung suggests.

“Why wouldn’t we work together with Allan Fung to come up with a buyout scheme for his closed plan?” the treasurer said. “How else do you think you fix a closed plan that’s 15% funded? It’s 15% funded and it’s closed. He has no one new paying into it.” (A closed pension plan no longer enrolls new hires.)

Fung, Taveras and others “need overhauls of those plans,” Raimondo said. “And I’ll help them figure it out.” Pressed about whether she’d sign off on a plan that sends Cranston’s taxes skyrocketing to deal with the funding shortfall, she paused, then said incredulously: “Have you met me?”

Local COLAs need stronger case

Raimondo’s partner on the pension bill, Gov. Lincoln Chafee, pushed hard for the locally run plans to be included in the final version and acknowledged at a forum Friday he’d pushed a “more aggressive” approach than the compromise between himself and the treasurer that made it into the final draft.

Fung and Taveras each slammed the provision after it emerged on Tuesday for falling far short of what they wanted, which was for the bill to force the suspension of cost-of-living adjustments (COLAs) in their locally run plans. The treasurer told WPRI.com the mayors and others failed to understand the legal reasoning behind her opposition.

While Raimondo acknowledged a 2007 Rhode Island Supreme Court decision that found a contractual right to COLAs and blocked Providence from suspending them, Raimondo said that ruling still left the cities with the same potential legal argument as the state: that breaking the contract is necessary because it’s in the broader public interest.

But at this point the state government could not back up that argument for the 36 locally run plans, she said.

“In order to do that – and prevail in a court of law – [the state] would have to make a finding in each individual instance of a necessary public purpose” for suspending COLAs in all 36 plans, Raimondo said. “And the only way you’re going to do that is if you have what we now have in the state – 10 months of actuarial data.”

“If the state is going to violate a collective barganing agreement by, for example, passing a law that suspends a COLA, the only way it has a chance in court is to lay the groundwork for the necessary public purpose,” she said. “And as somebody who just spent the last 10 months doing the hard work behind that, I can’t get behind it” yet for the locally run plans.

“However, a mayor may be able to at this point in time to say: Providence is in such a state of fiscal disorder, we have to act today,” she added.

U.S. Supreme Court may decide

The legal landscape is different at the state level, Raimondo said, because her office has spent the past 10 months laying the groundwork to make the case for the necessity of the COLA suspension and the other dramatic measures in the bill, which would immediately slash the state pension system’s unfunded liability from $7.3 billion to $4.1 billion.

“Let me be very clear: I believe the bill we’re submitting is legal,” she said. “I’m not submitting a bill that I think is going to be struck down. I think we’re going to prevail in a court of law. And again, that’s why I’m being such a stickler on the law about the non-MERS plans,” she said, a reference to the 36 locally run plans, which aren’t in the state-managed Municipal Employees Retirement System (MERS).

Still, Raimondo acknowledged it could take years for legal challenges to the pension bill from unions or retirees to make their way through the courts, and she said the case could conceivably go all the way to the U.S. Supreme Court. The unions recently won the first round in Rhode Island Superior Court.

“If 10 years from now it’s finally adjudicated against the state, a judgment could be entered against the state, and then we’ve got to pay the money back,” she said. “I don’t think it’s going to happen, though. I don’t think it’s going to happen.”

‘Misreporting’ on dispute with Chafee

Raimondo said “there’s been some misreporting, frankly,” about the extent of her disagreement with Governor Chafee about whether the 36 non-MERS plans should be addressed, and she energetically defended the measures to tackle them included in their draft legislation.

“Of course there’s a problem!” Raimondo said. “I believe there’s a non-MERS problem. And I agree with the governor that if Providence, if the capital city – I totally agree with the governor that if there’s another Central Falls, it hurts Rhode Island. I’m 1,000% on board that we have to fix them. I’m 1,000% on board, myself, with helping these guys fix them.”

“I just couldn’t get behind something that felt rushed and not well-enough thought-out and I worried was legally impermissible,” she said, even if suspending the COLA “feels good for a little while.” But she argued that by following the steps she and Chafee have outlined, “we’ll work together to come up with a plan that works.”

Told that some think she may not want to tackle the locally run plans because it could anger various labor unions whose support she might need in a run for higher office, Raimondo replied: “Then no one knows me really, if they think that. I’ve dedicated my life to this problem. I’m not going to go away until it’s fixed.”

Raimondo added that she is “a little puzzled” by the heated opposition of Fung and Taveras to the bill, noting it would reduce Providence’s pension contributions by an estimated $14.5 million next year alone. “He ought to grab that as fast as he can, and then work hard to find more,” she said.

This is the first of three articles on Nesi’s Notes with details from the Raimondo interview.

• Related: Chafee, Taveras plea for pension aid for ‘too-big-to-fail’ cities (Oct. 18)