Analysis: Why Rhode Island passed pension reform in 2011

November 17th, 2011 at 11:47 pm by under Nesi's Notes

A year ago, in the wake of the 2010 election, nobody in Rhode Island thought the state had just elected a political class prepared to take on one of the nation’s thorniest policy issues – pensions – and enact the most sweeping changes any state has made.

Yet on Thursday night, that’s exactly what happened – and it wasn’t even close, with 57 of 75 votes in favor in the House and 35 of 38 in the Senate. Put another way, lopsided majorities voted to cut retirees’ pension benefits in a union-dominated state where Democrats have controlled the legislature since the eve of World War II.

The bill, which Governor Chafee is expected to sign next week, will face court challenges. Its enactment is a bitter, life-changing event for retirees and workers who spent their lives expecting a retirement benefit they now won’t get in full. And taxpayers are only avoiding far higher pension costs in the future, not saving huge sums.

Make no mistake, though: the bill is an extraordinary – and unlikely – achievement for the three leaders most responsible for shepherding it through: Chafee, House Speaker Gordon Fox and, most of all, Treasurer Gina Raimondo. It seems unlikely an alternative trio – John Robitaille, Kerry King and Fox? – would have gotten it done.

It’s clear many people don’t know what to make of Chafee’s involvement with the pension overhaul. His name is often mentioned through gritted teeth: a Rhode Island Statewide Coalition statement Thursday night pointedly said the group’s leaders “salute the steely determination” of Raimondo, while they only “acknowledge” Chafee’s role.

That’s unfair to the governor. It’s true he takes no obvious pleasure in reducing public workers’ compensation, and there were times it appeared he might not be on board. But when push came to shove, Chafee stood with Raimondo. He told his proxies to vote for the Retirement Board changes that set the process in motion; he bucked the unions that elected him by backing the bill in full; and he worked behind closed doors to ensure a viable solution. His involvement was real.

More than one Smith Hill observer has described Speaker Fox as the unsung hero of the pension process. Even after Chafee linked arms with Raimondo, the question remained: Did he – and Senate President M. Teresa Paiva Weed – have the stomach for a politically perilous vote on pensions? Fox repeatedly showed the answer was yes, as did Paiva Weed in the end.

“He showed incredible leadership on this issue,” state Rep. Joy Hearn, D-Barrington, said just after the vote. “There’s not many that could have done what he did. It takes an incredible amount of courage and leadership.”

The House’s emphatic 57-15 vote in favor of the bill was a testament to the countless hours Fox spent cajoling members of his caucus to support the bill, and the compromises he helped craft on controversial issues like the COLA freeze and the judges’ plan. He was pivotal in keeping Paiva Weed and the Senate on board. And the ease with which he dispatched amendment after amendment on Thursday recalled Lyndon Johnson in his Senate heyday.

Finally, there’s Gina Raimondo.

The lion’s share of the credit for the pension overhaul will go – justly – to the treasurer. The political newcomer and former financier is already winning glowing national media coverage, making her the darling of anti-pension warriors from coast to coast.

What that misses, though, is the nuance of her approach to the issue. Raimondo didn’t push to scrap defined-benefit pensions because like many experts, she thinks defined-contribution accounts alone don’t provide “retirement security.” She shined a bright spotlight on the funding shortfall and used her considerable speaking skills to push it to the top of the state’s agenda. She won over Chafee, lawmakers, the business community and many members of the public with her ideas for solving the problem. And she came up with a complicated plan that just may do the job.

There are other individuals, groups and events that played an important role in paving the way for tonight’s vote: the finance committee chairmen, Rep. Helio Melo and Sen. Dan DaPonte; The Providence Journal, whose coverage added to the sense of crisis; Engage Rhode Island and its mysterious financial backers; and, unfortunately, Rhode Island’s interminable economic malaise, which has made the once unthinkable suddenly thinkable.

Nothing played a bigger role, though, than the numbers themselves. Indeed, Raimondo’s master stroke happened many months ago, when she ordered new estimates of the state’s pension liability and then got the Retirement Board to approve them. The jump in the liability from $4.9 billion to $7.3 billion, and the impending budget consequences of that change, are what gave the issue its sudden urgency.

Once those numbers were set in stone, lawmakers didn’t face the choice between a comfortable – if unsustainable – status quo and a risky vote for change. Instead, they faced two options, both unpalatable: finding a lot more money for the pension fund or trimming retirees’ and workers’ benefits. On Thursday, the vast majority of them chose the latter.

That also demonstrates the biggest mistake made by labor leaders. Their best bet would have been finding some way to stop the original Retirement Board vote, thus preventing an immediate budget crisis for the state and municipalities that pushed lawmakers to act. They then waited far too long before challenging Raimondo’s reputation as a fiscal truth-teller to change the perception at the end. And they never offered an alternative robust enough to beat hers back.

From the perspective of fiscal stability, the bill’s biggest failing is its lack of any significant fix for the 36 locally run pension plans. The debate isn’t finished about why Paiva Weed and Raimondo worked so hard to keep those out – though it’s hard to ignore their shared ties to the Laborers union – but regardless, it leaves a festering sore on the books of Rhode Island’s largest cities, one of which has already been pushed into bankruptcy.

This is a bittersweet moment for Rhode Island. The state has led the way, to the surprise of many here and elsewhere, in tackling an extraordinarily difficult issue. But doing so means the state is breaking a promise – and, in the eyes of at least one judge, a contract. That shouldn’t be done lightly, and it will have painful human consequences.

Rhode Islanders would do well to reflect not only on the present political leadership that brought about tonight’s successful vote, but also the past political leadership that made it necessary. After all, it would have been far better if the vote was never required in the first place. •

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

This post has been updated to reflect the revised final Senate vote tally of 35-2 with Sen. Moura’s inclusion.

(photo: Ted Nesi/WPRI)

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55 Responses to “Analysis: Why Rhode Island passed pension reform in 2011”

  1. bob says:

    Great post and a great day for RI.

    1. ahh says:

      How quickly we forget that these people that passed this bill have been around for a long time. Paiva-weed for TWO DECADES.

      Let’s congratulate them. They ignored and bandaided the problem and now I’m supposed get all excited that they passed this bill?

      Maybe we all feel we still have to complement them and kiss up to them so that they will pass a municipal bill soon?

      At that point, would be be allowed to look at their past record and see the truth?

  2. Listen_Here says:

    Here’s an example of what’s wrong with America in a nutshell.

    The press calls breaking promises and hurting middle class Americans “political leadership.”

    It’s all a bit Orwellian Ted, don’t you think? What are they leading us to? What is the grand vision?

    Here’s a prediction the actuaries didn’t talk about: You just passed the biggest austerity package in the state’s history in the middle of a recession.

    The result will be deeper recession. 60,000 families buying fewer cars from Saccucci, less furniture from Cardis, eating out less often, and running scared.

    1. Tough Love says:

      All BS …. the SAME purchases will be made, except by TAXPAYERS (for themselves) instead of by Public Sector retirees (with TAXPAYERS money).

      Greed has consequences !

    2. We're Doing God's Work says:

      Actually, did they do any economic analysis on the impact of this? It should shorten the money supply in RI, in theory anyways. There could be an economic “drag” effect.

      Blinking a few billion off of the books can matter – as the 2008 crisis showed us…

  3. GaryM says:

    The union will file their injunction followed by a lawsuit. Years from now, this will be in the US Supreme Court arguing: “how could the state keep passing out pay raises and longevity bonuses to current workers, but had to give a haircut to retirees?” There won’t be a good answer.

    I would have preferred just to see this pension business ended and give everyone a defined contribution plan. If the boss (the taxpayer) doesn’t have a pension, how is it that the workers are doing better than the boss?

    Yes, I know we don’t have the cash to fund the transition. I’m not so sure that was ever a truthful argument.

    1. CDC says:

      “Years from now, this will be in the US Supreme Court arguing: “how could the state keep passing out pay raises and longevity bonuses to current workers, but had to give a haircut to retirees?” There won’t be a good answer.”

      Simple, people are living to long now. If they checked out at age 76 there would not be a problem, but many more retired people are living into their 80s and 90s now. This was not factored in the retirement pension contracts. These people are getting free money once they go over the average mortality age when the contracts were signed many years ago.

      Sorry, but tax payers should not pay for your longevity. The retirees need a major CREWCUT.

  4. James Dickson says:

    Props for the good article and good reporting in general throughout this

    Keep it coming plz

  5. Mr. Fish says:

    “That also demonstrates the biggest mistake made by labor leaders. Their best bet would have been finding some way to stop the original Retirement Board vote, thus preventing an immediate budget crisis for the state and municipalities that pushed lawmakers to act.”

    But Ted, you think we live in a DEMOCRACY!!!! Who sits on that board? and who dominates it? Please, do not be so naive.

    Gina broke it, and workers have to fix it….the perfect CEO fix.

  6. Nelson says:

    Again, the fix was in and the workers sufferred. If Gina is right we should all see lowered taxes, more infrastructure development, 0% unemployment. Com’on Hassenfeld start making jobs, lets go Gilbane put people to work. This was a big steamimg pile of the rich taking from the poor.

    1. Tough Love says:

      Bull …………… it’s just the 1-st step in stopping the greedy Civil Servants’ theft from Private Sector Taxpayers.

  7. paul says:

    why are the members of the general assembly receiving paid healthcare for life foe a part time job if the state is in such crisis. Why is chafee welcoming illegals into the state and handing them money hand over fist if there is no money and what happens to the money that enters the “general fund ” and is never heard from again. same with the lottery, that money was supposed to go to the schools and reduce property taxes. Never happened. Answer all that and then talk about robbing and lying to retirees

  8. Snow says:

    Eloquent analysis Ted. You are wasting your talents here.

  9. ken says:

    “The state has led the way, to the surprise of many here and elsewhere, in tackling an extraordinarily difficult issue. But doing so means the state is breaking a promise – and, in the eyes of at least one judge, a contract. That shouldn’t be done lightly, and it will have painful human consequences”.
    Please remember these words, the unions are FAR from done!

    1. Tough Love says:

      And remember also, there is NO MONEY, so a judicial decree overturning this law won’t change anything….. other than perhaps even MORE of the actives’ money subsidizing the retirees until the pot runs dry quicker.

      1. 1whonos says:

        Get your facts straight, a judicial decree will absolutely revearse this injustice, this is the United States of America, believe whatever fantasy you want in your little narrow mind… and you will caugh up as you promised. What do you tell your mortgage holder, sorry the pot is dry you have to let it go, lmao, nah. A deal is a deal, woops, I mean a contract is a contract. I dont want to hear the excuses,

      2. Tough Love says:

        To 1whonos,

        You know squat. A judicial degree won’t magically create any money to pay your fantasy pensions.

        BIG haircut coming.

        Greed HAS consequences.

  10. [...] states such as Wisconsin, this reform didn’t emerge from an anti-union crusade. Instead, as Ted Nesi, the WPRI reporter whose in-depth coverage became must-read in the state, explains, it was a tale [...]

  11. Jim says:

    The Employee’s Retirement System of Rhode Island (ERSRI) was created to be a self-sustaining and self-serving entity for the retirement benefit of state employees and other teacher groups and municipal fire and police departments that opted (PAID) into the retirement system. This fund had always funded by the mandatory bi-weekly collection of a percentage (11.5% in my case)of the employees salary. The employer was also required to make a set contribution to the same account. This did not always occur, so the account became “underfunded”. Where was the treasurer demanding payment from cities and towns for their legal obligation? The fund was not to be used for ANY other purpose. The State of RI (politicians) started “borrowing” from this fund back in the 1990′s (illegally) with the intent of re-paying the debt when bonds were sold. This was never re-payed, further lessening the fund. Now the General Assembly are making more laws to NOT distribute the monies to the very employees that contributed to the system!!
    The public blames the “Union Greed” for this problem. Take 11.5% of your bi-weekly pay and hand it over to a “trusted source” that had created a set of laws that says you MUST contribute to this fund as a condition of employment. Now remove another 8% of your bi-weekly pay and send that to the Social Security Administration as required by law. Basic math adds up to 19.5% of monies earned. Multiply this amount by the number of years worked and you should have a comfortable (and legally mandated) retirement income. The remaining 80.5% goes to federal, state, and local taxes to support the non-working folk. Now what is remaining is yours to maintain a house, car (to get to work to fund the ERSRI account with the missing money) and other incidentals. That is not a whole lot remaining.
    But, based on the actions of the RI Treasurer and the General Assembly, I now qualify for SNAP (food stamps) and free medical care for myself and family. 185% of the Federal Poverty Level is the formula. The masters of Smith Street will create another conundrum with very foreseeable consequences.
    The “leaders” have to learn to quit taking what is not legally theirs to begin with. Quit trying to make RI a cozy “safe haven” state for illegals. Keep your legal obligations to those that have funded the ERSRI.

    1. Don Botts says:

      Then my question to you Jim is, how are you going to vote in 2012? Are you going to vote for the same party that has been in power in the General Assembly in RI for 70 years? Are you going to vote for the party that voted to not make the required contributions to ERSRI? Are you going to vote for the party that has allied itself with groups such as Ocean State Action and the RI Poverty Institute, which has lobbied to increase social spending that has exponentially grown since 2000, to the point where RI has trouble spending on its basic functions of government?

    2. Norm says:

      Well said. We all had money stolen by the state after putting in our share plus extra to pay for all the people who don’t pay taxes like we do.Unfair to only we State workers.If we took money and didn’t live up to our contracts , we would be sued and prosicuted for it. Most of the people speaking for the cuts are the ones who get free welfare checks that we pay for. It’s all about “JEALOUSY”. They all were too lazy to apply and get an actual job with the state years ago, like I did.

    3. Tough Love says:

      Jim, To fully fund a 75% of pay COLA adjusted pension after 30 years of service retiring at age 55 requires a level annual contribution of 50% of pay … not 2 x 11.5% = 23%.

      Actually a bit lower on average because some will die before retirement, some will terminate w/o vesting, some will have shorter careers,and some will retire at a later age, but still at least a level annual 40% of pay.

      Sure, a lack of steady contributions from the State contributed, but the ROOT CAUSE is that your Plans are simply TOO GENEROUS and therefore VERY VERY costly and difficult to fund.

      Employee contributions WITH investment earnings rarely accumulate to an amount at retirement sufficient to purchase more than 10-20% of their promised pension. The Taxpayers are responsible for the 80-90% balance. This is patently absurd when these same Taxpayers get SO MUCH less.

    4. ahh says:

      Fine for you to argue about promises.
      Unless you are from Central Falls, your 11% payments resulted in a small fraction of what will be paid out to you until your death. Please don’t pretend that you paid in and won’t get that plus a sizable return even with these changes in retirement.

  12. Martha C. says:

    I love, love, love Gina. What a talent! What guts! Gina for Governor! Shame on our former Treasurers. They knew the problems but in Rhode Island it is “don’t upset the apple cart”. You Ted are a shining star.

    1. ken says:

      Martha please remember your loving rant when your taxes increase to pay for court fees, past money owed, lawyers ect… then what will you think of Ms. Raimondo?

      1. Martha C. says:

        Ken, I will still admire her for what she did. I’d rather pay for all that you said than pay greedy people who never should have had what they were “artificially promised”. Promises were made with nothing to back them up. My colas (two employers) were taken from me in the private sector. I did not have any recourse. I will never get an increase in payment. I didn’t belong to a selfish union with selfish leaders. My husband never had a cola in the first place. We saved our money for retirement over all these many years. We lived within our means. The retirees are on television crying over the fact they are going to lose their houses, health insurance, etc. etc. They were living high on the hog if that actually happens. They should have been saving their money like everyone else. Ken, you must be a state employee or a teacher. I know — it’s a bitter pill to swallow.

      2. Cosmo says:

        Hey union guy, I’d rather give my tax money to the lawyers rather than the public employee union thieves when it comes right down to it. And in any case, anybody who has the education, drive, training, brains etc to make good money, me included, is running out of this tax hell. Good luck taxing fast food workers and illegal aliens to get your pension LOL.

      3. Muddy says:

        Martha,
        Fine. But were you REQUIRED (NO OPTION) to pay 12% of your salary into a retirement (that you were saving so hard for) and then have people tell you: “Sorry. You can’t have that. But keep paying MORE?” You were ALLOWED to invest your money and save it as you stated. Public workers get that money taken off the top with NO say on where it goes, whether or not they pay it, etc. BIG DIFFERENCE.

        The Public employees are not the problem. The elected officials are.

      4. CDC says:

        Ken,

        It is better than the state and cities going bankrupt. But, you and the union would love to take us there. Than you really would see cuts!

  13. Patrick says:

    “The result will be deeper recession. 60,000 families buying fewer cars from Saccucci, less furniture from Cardis, eating out less often, and running scared.”

    Sounds like a true blue union member. Thinking of the 60,000 union people before the other near million Rhode Islanders. Ok, this change will reduce the amount of money that the retirees have, but not doing it would have reduced the amount that the other million people in the state will have. So who do you think will better help the economy, 60,000 people or 1,000,000 people? I think Saccucci and Cardi’s would prefer that a million people have more money than 60,000.

    It’s always about you though, isn’t it?

  14. Robin says:

    Good job Ted! When retiree’s are collecting more then they earned when working, we have a BIG problem! This is so unfair to everyone!

    1. ken says:

      Gina retracted that comment because it’s NOT true.

  15. Tough Love says:

    WONDERFUL !

    Public Sector Unions are a CANCER on Society, and GREED has consequences.

    1. Cosmo says:

      Bravo, well said.

      1. 1whonos says:

        we are here to stay and will survive this so get used to it

  16. [...] Related: Analysis: Why Rhode Island passed pension reform in 2011 (Nov. 17) Tags: pensions, [...]

  17. Al Moncrief says:

    Sadly, everyone ignored that gorilla, “Constitutionality” sitting in the back of the legislative chambers. Such an inconvenience for those engaged in pension reform, we live in a land of laws.

    1. Tough Love says:

      Al, Too bad …. Greed HAS consequences.

  18. B says:

    Wonder what Gina/Chafee promised Fox in return for passage of this bill….?

    1. Tough Love says:

      Don’t you mean ….

      Wonder how much bigger the Union bribes will now have to be to regain the allegiance of their corrupt partners in crime (the politicians) ?

  19. [...] Related: Analysis: Why Rhode Island passed pension reform in 2011 (Nov. 17) Tags: pensions, [...]

  20. Disgusted says:

    What Tough Love, Cosmo, and Martha don’t realize, (or want to admit) is that without unions to fight for fair wages, benefits, and workers rights, ALL workers would be paid peanuts and have no benefits. Let’s see how happy you are in 10 or 15 years when no one (except maybe the ILLEGALS) wants these public sector jobs anymore, the police and firefighters don’t show up when you need them, and your water isn’t safe to drink. Press 2 for English, amigo. Raimondo, Chaffee and the rest of the millionaires who spend more money to get elected than their jobs pay aren’t giving up anything, are they? The politicians are the problem, not the workers.

    1. Cosmo says:

      Good try, no sale. I don’t get paid well because of any union BS, I get paid well because I’m highly educated, trained, hard working and I gained and continually update a skill that is in demand and valuable to current and potential employers. In addition, I’m flexible, get the job done and don’t count down until the clock reaches quittin time so I can head home. Not to say that many public employees don’t possess those qualities also, but if they do and they don’t like the work, get another job…DUH!! And here is a little secret about capitalism that unions need to learn…when nobody wants public sector jobs anymore for whatever reason, guess what the pay will go up, not because you get to elect your bosses, but because your skills are needed.

  21. Tough Love says:

    Well “Disgusted” ….. maybe if Civil Servant Unions (and by extension, their members) weren’t such PIGS, we wouldn’t be in this mess.

    Per the US Gov’t BLS, the cash pay alone of Public Sector workers is now equal or better than that of comparable Private sector jobs. That being the case, there is ZERO justification for your continuing to get bigger pensions and better benefits …. 80-90% of which you want US (Private Sector workers) to pay for.

    Not gonna happen !

  22. Disgusted says:

    Pigs, nice. Thank you. Since we’re dropping down to that level, you idiot, I’m not even in a union. It’s the politicians taking bribes and the “400 million dollar retirement bonus” Wall St CEO’s that have put us in this mess, not the Civil Servants. Why aren’t the politicians fighting to control the price of gasoline and home heating oil? Because Goldman Sachs owns them, maybe? Public sector workers don’t get Christmas bonuses, and for a long time, and in many cases, still don’t earn what their counterparts in the private sector do. Many of them work holidays while you’re home with your family. But screw em, right? Have a nice holiday, jerk.

    1. Tough Love says:

      Quoting …”It’s the politicians taking bribes and the “400 million dollar retirement bonus” Wall St CEO’s that have put us in this mess, not the Civil Servants. ”

      And exactly WHO are the financial beneficiaries (via overstuffed pensions and rich benefits) of the collusion (Union campaign contributions and election support in exchange for favorable votes on pensions & benefits) between the Public Sector Unions and the politicians? It’s the workers, so THAT’s where Taxpayer must go to reverse this theft of their wealth.

      All the baloney about Wall Street and greedy CEOs (while true) is simply a distraction from the real issue at hand and the ROOT CAUSE of our ills … the grossly excessive Pensions and benefits of Public Sector workers.

      That’s what needs to be fixed, and while these RI changes are a good “start” MORE is needed. Public sector workers are entitled to EQUAL “total compensation” (pay + pensions + benefits) to their Private sector counterparts. With roughly equal cash pay, these change STILL leave Public Sector workers with substantially MORE… via STILL better pensions and benefits.

  23. Disgusted says:

    Soooo…..it’s baloney, but it’s true. Hmmmmm…… Do you even KNOW how much the average public sector…… never mind. I’m done here. Here’s an idea though… when you get tired of hating public employees don’t forget there’s always postal workers to pick on!

    1. Tough Love says:

      Interestingly, the main reason why the Post Office is going broke is because they are required to actually FUND retiree healthcare….. and can’t do so w/o HUGE losses.

      Instead of the PO complaining that they should not be the only Federal Agency forced to do so, we (the taxpayers) should be concerned how all the promised retiree healthcare for ALL Federal employees will be paid for when NONE of it is funded.

      Maybe Private Sector Corporations have it right …. it’s simply too expensive to promise pre-age-65 (Medicare Age) retiree healthcare … and the Federal (and State and Local) gov’ts should not be promising it to their employees either.

      By the way … if YOU”RE not a Civil Servant, I’ll bet dollars to donuts a close family member is. Be assured, the gravy train is coming into the LAST STOP on the line.

  24. [...] Providence Journal editorial board dubbed the achievement as “Rhode Island rescued.”  An analysis by WPRI’s Ted Nesi called the bill, “an extraordinary — and unlikely — achievement [...]

  25. [...] that Rhode Island can tackle a big issue when the right stars align. If you missed it last week, Ted Nesi had a fine analysis of how we got [...]

  26. [...] Nesi over at WPRI, who has provided excellent coverage of the issue from start to finish, tackles some of the big themes in a post-vote analysis.But one thing that strikes me is the near-unanimous support the legislature's progressive wing, [...]

  27. [...] did this happen? Who made this happen? Much of the pension coverage since Thursday night has been along those lines. Too often, it’s true, journalists bend over backwards to create a story and in doing so we [...]

  28. mike says:

    just remember this now what is happening in wisconsin will soon be here with the unions trying to recall this governor

  29. [...] (typeof(addthis_share) == "undefined"){ addthis_share = [];}Once Governor Chafee signed the pension overhaul into law last Friday, it was only a matter of time before The Wall Street Journal’s editorial [...]