10 ways to look at the proposed RI pension settlement

February 20th, 2014 at 12:32 pm by under Nesi's Notes, On the Main Site

The pension settlement is complicated. And so, naturally, are opinions about it.

Political controversies are often cast in black-and-white terms – you’re either for something or against it. But on many issues there’s a much wider range of possible opinions. It’s more of a gradation than a clear line.

The pension settlement is a great example of that. I’ve seen more than a half-dozen different opinions about it that vary based on the premises about pensions people start with as well as whether they’re emphasizing the fiscal or legal impacts of the deal. I’ve listed each one below – to be clear, though, these opinions aren’t necessarily mutually exclusive, and this list isn’t exhaustive.

Add more opinions in the comments section below!

The original 2011 pension law wasn’t necessary. Much of the discussion about the pension law starts from an agreed-upon premise that Rhode Island had a pension funding problem in 2011 and needed to address it. But even that is contested, usually from the left. Tom Sgouros, the local activist and writer, has argued that the reason there appears to be a pension funding problem is because of the way policymakers and actuaries have decided to measure and fund those liabilities. If the framework is changed – or if the assumptions are altered, as Cranston’s Paul Valletta has colorfully noted – what appears to be a major problem on paper could, if not disappear, at least appear far more manageable. And if that’s your view, there was no need to make the sweeping changes passed in 2011 in the first place.

The original 2011 pension law law didn’t go far enough. At the other end of the spectrum are those, usually on the right, who argue that public pension liabilities are being significantly underestimated nationwide – including in Rhode Island, even after the State Retirement Board’s 2011 adoption of more conservative forecast assumptions. The most forceful local proponent of this view is probably the conservative writer Justin Katz, now at the Rhode Island Center for Freedom & Prosperity, who thinks the original law didn’t do enough to reduce how much Rhode Island will have to spend on pension benefits now and in the future. A different but related view is that of Josh Barro, who argued in 2012 that Rhode Island “came closer than any other state to success” in its 2011 pension changes “and yet still couldn’t quite manage it.”

The original 2011 pension law was good and the settlement locks in most of its savings. This is the position taken Thursday by the Providence Journal editorial board, which strongly supported the 2011 law and has argued against changing it, but thinks the 94% (at least) savings locked in by the proposed settlement makes it worth supporting. “In our view, a deal that preserves 94% of the savings while removing the threat of losing them all is a reasonable one, however painful,” the editorialists wrote. Over at GoLocalProv, Russell Moore has made a similar argument. These people backed the changes in 2011 but see the settlement as a good deal for taxpayers.

The original 2011 pension law was good and the full savings should be fought for in court. This is the argument we’ve been hearing from Cranston Mayor Allan Fung, among others, as well as the Rhode Island League of Cities & Towns’ Dan Beardsley, who was the only Retirement Board member to vote against the settlement last week. They support keeping the 2011 law in place, in full, and think the roughly $232 million increase in the unfunded liability under the settlement is still too high a price to pay even if it means the end of the legal challenges.

The original 2011 pension law was good and a court decision is needed on the core constitutional question. Does the General Assembly have the legal right to alter pension benefits or are they an unbreakable contract? The constitutionality of the 2011 law turns on the answer, but a settlement cuts off the lawsuit, which means the Rhode Island Supreme Court won’t weigh in with a final answer. myRITV/WPRO host Dan Yorke made this case on his TV show last week, prior to the settlement’s release, saying it’s the job of the judiciary to decide a major constitutional case such as this one, particularly with so much money riding on the outcome. (Indeed, the possibility of an adverse judgment that would set a pension-cutting precedent could be part of the reason unions want to end the case now.)

The original 2011 pension law was good and a settlement creates new legal uncertainties. We’ll give this one to House Minority Leader Brian Newberry, an attorney by trade, who’s been beating the drum on Twitter with questions about the long-term legal impact of passing the settlement. Will it really lock in the savings, or will there be other avenues for workers and retirees to challenge the changes? Will the General Assembly be tying its hands if legislators want to change pensions down the road? Will retirees have a contract right to the pension benefits enshrined in the settlement, as they at least potentially don’t under current law? (See the previous entry.) This argument is less focused on the financial impact of the settlement than on the legal issues it raises.

The original 2011 pension law was bad but the settlement is good. This is the argument of union leaders and lawyers, at least in public, who fought the original 2011 law vociferously at the General Assembly and then filed suit in 2012 to overturn it. (They’d already filed suit to overturn pension changes made in 2009 and 2010, and actually won the first round.) Even though the settlement locks in the vast majority of the pension cuts they fought from 2009 to 2011, they now argue that passing the settlement and accepting its small benefit enhancements will give workers and retirees certainty while ending a costly and uncertain legal fight. They say they still think the original law was unconstitutional, but it’s time to stop pushing for full repeal.

The original 2011 pension law was bad and the settlement is bad, too. This has been the initial reaction from some rank-and-file workers and retirees, such as retired Providence teacher Candace McCall, who’ve expressed shock that their union leaders are willing to end the legal challenge in exchange for a relative pittance compared to how much they’ve lost. They’re not convinced by the argument above that it’s better to settle and accept some minor givebacks in exchange for avoiding a potential negative judgment. One of the biggest questions now is whether this is a minority view, or if enough people will feel this way that one of the union/retiree groups being asked to vote on the settlement will kill it.

The original 2011 pension law was whatever, but the settlement process itself is questionable. I don’t have a clear proponent of this view, but I thought it should be included. Basically, this viewpoint feels less strongly about the positive or negative merits of the original 2011 pension law than it does about the inherent strangeness of a public law being rewritten in secret talks and presented to state lawmakers as a done deal. That ain’t exactly “I’m Just a Bill.”

I have no opinion on the policy merits of the pension settlement at this point. Unlike Republican gubernatorial candidates Allan Fung and Ken Block, who’ve come out forcefully against the proposed settlement, Democratic candidates Angel Taveras and Clay Pell have said little on the policy merits of the deal. If they were governor, would they urge lawmakers to vote “yes” or “no” on the settlement? Gina Raimondo, the third Democratic candidate, is obviously a proponent of the deal; the Taveras campaign has suggested her support for it isn’t consistent with her earlier opposition to mediation. Pell has said all along he favors negotiations on pension changes – but does he support the results as expressed here?

Those are the pension-settlement opinions I could come up with. Got any others you can think of?

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

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19 Responses to “10 ways to look at the proposed RI pension settlement”

  1. Colleen J Derjue says:

    Less an opinion than a concern – much has been made of the fact the groups must ALL approve the settlement as presented, or it goes to court in Sept. However, what individuals will be allowed to vote on this? Being a MERS retiree who was not represented by any union, will I be given an opportunity to weigh in on this matter, or will I be forced to abide by whatever the unions have worked out, were this to be approved?

    I have attempted to get an answer to this but to no avail, so far.

    My OPINION is that since as a member of the System the funds within the system are being used to pay for litigation, and as a taxpayer as well my tax contributions are ALSO being used to pay for litigation … seems I should at least have earned one vote in this.

    1. Ted Nesi says:

      Colleen, that’s a good question.

      There are going to be two sets of votes. The first vote, coming up within 60 days supposedly, is by the six blocs of workers and retirees directly involved in the lawsuit. They will be voting on whether or not to approve the settlement and move forward with it. If 50% or more voters in any of the six blocs vote “no” the whole deal dies. (Importantly, though, those who fail to mail back a ballot will be counted as “yes” votes.)

      As I understood last week’s briefing, only those directly involved in the lawsuit – whether through their unions or because they joined a retiree plaintiff group – will get a vote during this first round.

      If they all approve it, the second step is for Judge Taft-Carter to hold hearings on whether to certify *everyone* impacted by the changes as a class, which will turn the settlement into a class-action lawsuit covering everyone affected by the original law.

      Again, as I understood last week’s briefing, there will then be a second round of voting by everyone impacted in the class action – which would include non-union state workers and retirees who weren’t plaintiffs in the lawsuit.

      Does that make sense?

      1. Colleen J Derjue says:

        Thank you for that explanation. It is the first time I have heard this information anywhere (including on official sites that should, in my opinion, be getting this information out). Seems this will be quite a long process, if the length of time to get this far along is any indication!

        Hopefully anyone affected will be made aware of all of these steps and the importance of acting quickly if they do receive a ballot.

        I appreciate your in-depth coverage of this settlement as well as the other issues that are of concern to RI’ers who want to remain informed.

  2. [...] Related: 10 ways to look at the proposed RI pension settlement (Feb. [...]

  3. Matt D says:

    The fact that if approved, this agreement won’t be binding upon the State is a joke. That the GA will still be able to make any changes down the road that they wish makes no sense at all, it only means that when they take away more down the road, we’ll be right back where we started with lawsuits. Also, this agreement totally ignores the whole issue of vested property rights which is what the original lawsuits were filed over. We need to vote “NO” and get this settled once and for all, vested rights have already been upheld in several states so a precedent has already been set.

  4. Snow says:

    Thanks Ted for your analysis. It’s interesting how opinions can overlap too. I’m concerned about the constitutionality of the law and having that question settled. I would accept the opinion of the court whichever way it went, but I can’t abide a settlement that offers so little and settles nothing at the same time. Would I be happy with a settlement that gave back much to the workers? I would not. I have offered, on this comment section, that I don’t like the idea of a settlement, no matter what the outcome. The General Assembly would still be able to change the law at will for vested workers and retirees. If the courts say they can, that’s one thing, if our own unions won’t push the question, that’s unacceptable.

  5. stephen says:

    The problem is the process. The pension people took advantage of the system that was given to them. Mr Downey or clouney is a joke, He makes over 200 000 dollars and is a sell out to the state. What they did is illegal and should be brought to court . Let the judge decide the constutionality of this

  6. Paul Vincent Zecchino says:

    Forget extraneous issues, many of which serve merely to muddy the waters for benefit of those who wish to continue to profit at retirees’ expense.

    Bottom line: you cannot pass laws, not even in half-clever manner by citing some imaginary ‘crisis’, to deny contractually owed COLAs to retirees. You cannot.

    You cannot do that anymore than a bank officer can get his political cronies to pass a law requiring you to pay your mortgage for another twenty years after you make the last payment.

    Retirees, in classic manner of a Constructed Fraud, have been relentlessly demonized by gutless cynics from ENRON, wall street, and other political dry-sockets. In every Constructed Fraud, first and always, you choose a scapegoat, a fall guy. Why? So that the perps who pull the gag can shift their guilt onto him so that they can get away with the goods. In this case, the Fall Guy happens to be all those ‘bad, bad, eviw retirees and their unsustainable lifestyles’.

    These were old and reliable gags which worked for years when the perps and their political pals could count on a docile if not complicit media.

    But our Net-Centric Era is the wrong time to pull old gags, because today we’ve millions of citizen reporters. Upon sniffing chicanery, today’s Net reporters immediately take to the Net to broadcast their concerns and alert their fellow citizens. The Net allows hiding place for ‘shenanigans’.

    Tell us, how about the ‘unsustainable lifestyles’ of some of those who so callously cut the COLAs, those especially who reap millions from that age-old voodoo known as ‘education reform’?

    For that matter, couldn’t the pretty boy from ENRON easily pay the COLAs from a fraction of his so-called ‘hedge fund’? What’s his interest in reducing the means of retired Rhode Island workers? Or is he just another tiresome megalomaniac with a checkbook, like Dr. No, Goldfinger, and the sawed-off manhattan martinet who thinks he’s going to take firearms from law abiding citizens?

    Contracts cannot be broken with impunity. They cannot. Yeah, the Yale Law School Method is said to be ‘resolutions first, reasons second’. The practical outworking of this gag was pulled relentlessly by the 90s regime who long said to “Jes’ do it, heh, heh, heh, and backpedal with excuses later.”

    Well, it’s a new day. The Net does not abide ‘just do it and lie about it after the fact’. That’s why Lifespan’s Estate Grifts are being nicely exposed and are about to experience lawful consequences, and it’s why that which was done to retirees will not endure.

    Americans dislike it when they’re reduced for no good reason, and they really become disappointed when they’re lied to by the reducers, no matter how many Oxfordian Don’s tales from some ante-deluvian era they spin.

  7. Tradita says:

    I would find it hard to be in favor of the settlement without first having the court decide the question of whether or not it was legal to alter the retirement agreements of those who were already retired when the 2011 pension “reform” law was passed.

  8. Heather says:

    One thing that I think is missing from the discussions is…. Union members took cities to court in the 70′s because the money that was taken out of their pay checks was going into the “general fund”. Then, the cities were spending the money instead of investing it. The judges decision was that they didn’t have to invest or save money. As long as they paid the pensions. He stated that they could raise taxes, sell properties etc. to make sure they paid pensions. NOW…. We are going to blame the people that tried to stop this from happening. Funny how judges are NOT in same pensions! I just wish for ONCE the truth would come out and the RIGHT thing would be done in this State! Now we are giving the money to Wall Street?! Didn’t they start this mess?!! Ramondo complains that pensions cost were 4% and she turns around and spends 7% to her buddies in Wall Street! NOW…they are paying her back by donating millions to her campaign. One hand washes the other…RIGHT.?!! Good old RI

  9. Jim Hackett says:

    The notion that “what appears to be a problem on paper could, if not disappear, at least appear more manageable” is no more credible than the opposite argument that “what appears to be a problem on paper could, in reality, be a far bigger problem.”
    At the end of the day, those advocating “kickiing the can down the road” are responsible for this mess to begin with.
    Any argument to continue doing so is pure silliness.

  10. Bob Petrone says:

    Ted,

    Could any of the parties involved in this case have asked the courts for an advisory opinion regarding the constitutionality of the 2011 law? Maybe they have and I missed the decision.
    I always look forward to reading Nesi’s Notes. Great work.

  11. [...] sure of whether the pension settlement is going to go through. As I chronicled Thursday, there at least 10 flavors of opinion on the merits of the deal, a sign of how fluid and heated the debate around it is. That said, keep in mind that the [...]

  12. [...] Political controversies are often cast in black-and-white terms – you’re either for something or against it. But on many issues there’s a much wider range of possible opinions. It’s more of a Read full article [...]

  13. Mike says:

    What a helpless feeling for public employees and pensioners. Their union leadership completely let them down by (a) accepting a deal that only returns 6% of what was taken from them in 2011, and (b) agreeing to a voting process that counts all unreturned votes (or unsent, or thrown away “no” votes) as “yes”. It seems like the sole purpose of this deal was to allow Raimondo to get on with her campaign without having to answer pension trial questions. It’s understandable why she’d want to do that, but it’s completely incomprehensible why the union leaders would agree to it.

  14. mister_bean says:

    You have remarked very interesting details! P.s. Nice web site =)

  15. [...] Related: 10 ways to look at the proposed RI pension settlement (Feb. [...]

  16. janri says:

    I firmly believe that the retirees were already engaged in the retirment process wherein the state was meeting the terms of a contract whereby the state accepted that liability by already giving us our pension and the colas according to the contract> I think to stop after they have acknowledged that these terms are to be met and are already meeting these terms just does not seem legal. This should change all contract law in the future, because obviously they are not worth the paper on which they are written. What is to stop any entity from backing out of contracts? I think this is a mockery to law and the justice system of which we, as Americans are all a part of.

  17. janri says:

    Lawyers should all be up in arms over these decisions since they could affect how you do business with contract law and contracts. We break the law to suit our fancies???? Sounds frivolous to me.