Houston hedge-fund billionaire and former Enron trader John Arnold has become a surprisingly famous figure in Rhode Island politics since it emerged that he donated more than $100,000 to Engage Rhode Island, the advocacy group that helped Gina Raimondo pass the pension law. Her opponents have seized on Arnold’s ties to high finance and the ill-fated energy firm to cast doubt on EngageRI’s motivations.

But Arnold’s actual story is actually more interesting than that, according to the summer issue of WSJ.Money magazine.

Arnold, 39, closed his hedge fund last year and retired to begin giving away his $2.8-billion fortune, mainly through the Laura and John Arnold Foundation he and his wife founded:

Arnold and his wife, Laura, have a somewhat unique approach to giving. Most billionaires tend to write checks to good causes they’re part of, hospitals where they were treated or universities they attended. … Or there are donors who make sizable gifts to meet an obvious need in a community, such as hunger or education. But at a time when charitable giving in the U.S. is still down from its peak in 2007, the Arnolds want to try something new and somewhat grander. John says the goal is to make “transformational” changes to society.

The Arnolds want to see if they can use their money to solve some of the country’s biggest problems through data analysis and science, with an unsentimental focus on results and an aversion to feel-good projects — the success of which can’t be quantified. No topic is too ambitious: Along with obesity, the Arnolds plan to dig into criminal justice and pension reform, among others.

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There’s still no news about the status of talks happening behind closed doors between lawyers for for the state and public-sector labor unions who are working to resolve the fight over Rhode Island’s landmark 2011 pension law without going to trial.

Attorneys on both sides of the case met Friday afternoon with R.I. Superior Court Judge Sarah Taft-Carter, who is handling the suit, court spokesman Craig Berke told WPRI.com. In December, she ordered the state and the unions into a formal mediation process overseen by the Federal Mediation and Conciliation Service.

The lawyers met with Taft-Carter in her chambers for about 20 minutes to update her on the progress of the mediation process, Berke said. The parties have said they aren’t allowed to detail their discussions publicly. Friday’s meeting was the fifth status conference on the pension talks since February.

Taft-Carter has scheduled the next status conference for June 7, Berke said.

• Related: EngageRI: Why the law is OK (March 18) | Prof: Law may be unconstitutional (Dec. 24)

By Ted Nesi and Tim White

PROVIDENCE, R.I. (WPRI) - In his first TV interview since losing the 2010 governor’s race, former General Treasurer Frank Caprio told WPRI 12 he regrets his infamous comment that President Obama could take his endorsement and “shove it,” attributing the outburst to the frustrations of a losing campaign in its final weeks.

Read the rest of this story »

• Video: Watch the full Newsmakers with Frank Caprio (May 14)

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Engage Rhode Island’s fundraising slowed significantly in 2012 compared with the prior year, when the advocacy group provided crucial support for the pension law pushed through by Treasurer Gina Raimondo, WPRI.com has confirmed. Its union opponents said they spent $80,000 in 2011.

Read the rest of this story »

It turns out that the Democratic gubernatorial hopeful who has the biggest chunk of pension money invested in hedge funds isn’t Treasurer Gina Raimondo – it’s Providence Mayor Angel Taveras.

Providence has invested 19.75% of its total pension assets in hedge funds, the Taveras administration disclosed Tuesday after WPRI.com requested a breakdown of its investment portfolio.

Rhode Island’s state pension system has invested somewhat less in hedge funds – 14.6% of assets as of April – under a new investment strategy implemented by Treasurer Gina Raimondo soon after she took office in 2011.

Providence’s Board of Investment Commissioners, which is chaired by the mayor and oversees the city’s pension portfolio, started investing in hedge funds on the advice of its longtime financial consultant, Boston-based Wainwright Investment Counsel, Taveras spokesman David Ortiz told WPRI.com. The investment board meets roughly once a month.

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My friend Josh Barro of Bloomberg View, who spends a happily inordinate amount of time writing about Rhode Island, interviewed Governor Chafee this week during the governor’s media roadshow in Connecticut and New York City. Josh pressed the governor on why he’s flatly ruled out defaulting on the 38 Studios bonds yet signed a law that reneged on promises made to state retirees – and Chafee’s reply was not convincing:

That raises a question that many state residents – especially retired employees – would like to see answered: If Rhode Island can’t afford to keep its promises to retirees, how can it afford to keep its promise to the 38 Studios bondholders? Chafee isn’t prepared to answer. …

And when it came to 38 Studios, Chafee couldn’t even answer a simple question: Is it ever appropriate for the state to issue moral obligation bonds?

“I’m not an expert on that issue,” he responded. After a year of dealing with the fallout from 38 Studios’ collapse, you would think he would be.

As the interview ended, Chafee remarked, “I’ll have to think a little more about Josh’s question” — the one about why you can freeze COLAs but can’t default on 38 Studios.

Local officials are fearful that the bond market won’t differentiate between a default on the moral-obligation bonds issued for 38 Studios and the general-obligation bonds backed by the state’s full faith and credit, particularly since Rhode Island is a municipal minnow compared with, say, California. A top policymaker once asked me to imagine a Wall Street Journal headline the day after: “Rhode Island defaults on bonds.”

While that’s certainly possible, it’s worth scrutinizing.

First of all, if any state officials in the country should be able to go to Wall Street and soothingly explain why the 38 Studios case is a unique one and the default won’t set a precedent, wouldn’t they be Gina Raimondo – a former venture capitalist beloved by financiers who crafted a landmark law slashing pension liabilities – and Rosemary Booth Gallogly – a veteran policymaker who’s overseen the successful restructuring of municipal budgets in Central Falls and elsewhere, all while explicitly protecting bondholders?

Maybe, maybe not. (And maybe Raimondo and Gallogly aren’t interested in trying.) But if that’s the case, a moral-obligation bond is effectively a general-obligation bond in all but name, with full repayment by Rhode Island taxpayers promised no matter what. If so, shouldn’t voters have to approve moral-obligation bonds at the ballot box as they already do with general-obligation bonds – and shouldn’t Rhode Island be paying the lower interest rate investors get on a lower-risk general-obligation bond?

Felix Rohatyn, the banker who famously helped save New York City from bankruptcy in 1975 as chairman of New York’s Municipal Assistance Corporation, has an interesting op-ed in today’s FT arguing political and labor leaders should negotiate solutions to thorny fiscal problems, notably underfunded pension plans – a timely take in light of Rhode Island’s debate over the Raimondo and Taveras approaches:

Once again, business and labour share a huge stake in our cities’ fortunes, and the consequences for both if we fail to stabilise our finances and set a course for growth will be devastating. Yet amid the solutions proposed, no one argues that the two sides must work together to restructure the finances of troubled states and cities. …

If the nation is to enter a new era of opportunity and growth, our government, company executives, labour leaders and employees have to co-operate on matters of common interest. They need not abandon their principles, but they must create a climate where dialogue and compromise are possible, and mutual sacrifice may be negotiated. One thing is certain: the path of stalemate leads nowhere. We need to take a new direction now.

I’ll have my own story on all this soon, but for now check out Mike Stanton’s piece in today’s Projo about yesterday’s fight at the State Investment Commission over Treasurer Raimondo’s use of hedge funds:

Rhode Island has moved about $1 billion of its $7.6-billion state pension fund into hedge funds over the past 18 months, a move that General Treasurer Gina M. Raimondo defended against critics Wednesday during a meeting of the state Investment Commission. …

On Tuesday, Raimondo’s office provided The Providence Journal with records showing that the state paid $15.8 million in fees to 19 hedge funds for the eight months ending June 30, 2012. But the office could not immediately produce how much has been paid since then, given how the records are kept. Those fees aren’t in the detailed monthly investment reports produced for Investment Commission meetings, because they are not directly billed to the state. …

Raimondo, in an interview, said that hedges in such investments as currencies, agricultural commodities and precious metals are designed to move against the stock market, and provide a better alternative to lower-yielding Treasury notes that reaped more years ago. Noting that the pension fund lost $2 billion in the ’08 crash, Raimondo said an analysis showed the loss would have been $1.5 billion with hedge funds in the portfolio.

• Related: Chart: How Raimondo has changed RI’s pension investments (April 4)

The fine folks over at Bloomberg View asked me to write a short op-ed for them about the outlook for Rhode Island’s 2014 gubernatorial race, focusing on Treasurer Gina Raimondo’s high profile after the pension fight and how it will impact the campaign. Here’s how I kicked off the piece:

Rhode Island General Treasurer Gina Raimondo has experienced a meteoric rise to fame that most politicians can only envy.

Raimondo, a 41-year-old former venture capitalist, was virtually unknown in 2010 when she coasted to victory as a Democratic candidate in a deep-blue state. Soon the new treasurer surprised almost everyone by engineering the most sweeping overhaul of a public-pension system ever enacted. By the time her reforms became law in November 2011 she was one of the most popular politicians in Rhode Island, and the subject of adulatory coverage in both the New York Times and the Wall Street Journal.

Even before the pension process was over, there was growing speculation that Raimondo might run for governor in 2014, in no small part because the incumbent who signed the pension law — independent ex-Republican Lincoln Chafee — has had an approval rating in the 20s for most of his term in office. It has become clear in recent months that the treasurer is likely to throw her hat into the ring.

Read the rest on Bloomberg.com.

Lawyers for the state and public-sector labor unions are apparently still talking behind closed doors in an effort to resolve the fight over Rhode Island’s landmark 2011 pension law without going to trial.

Lawyers on both sides of the case met Monday afternoon with R.I. Superior Court Judge Sarah Taft-Carter, who is handling the suit. In December, she ordered the state and the unions into a formal mediation process overseen by the Federal Mediation and Conciliation Service.

The lawyers met with Taft-Carter in her chambers for about 45 minutes and updated her on the mediation process’s progress, court spokesman Craig Berke told WPRI.com. The parties have said they aren’t allowed to detail their discussions publicly. This was the fourth status conference on the pension talks since February.

Taft-Carter has scheduled the next status conference for May 17 at 2 p.m., Berke said.

• Related: EngageRI: Why the law is OK (March 18) | Prof: Law may be unconstitutional (Dec. 24)

Edward “Ted” Siedle launched a blistering attack on Treasurer Gina Raimondo in a Forbes.com post Thursday that suggested her changes to Rhode Island’s $7 billion pension system are leading to a “Wall Street feeding frenzy.” Raimondo’s critics seized on Siedle’s broadside immediately, while others wanted to know more about his charges.

Raimondo responded to the Forbes piece Friday in an interview with WPRI.com, defending the State Investment Commission she chairs for moving aggressively to create and expand a portfolio of hedge funds. This transcript has been lightly edited for length and clarity.

Let’s jump right to it. Did you read the article, and what was your reaction?

I did read it. It’s not an article – it’s an opinion blog, and obviously there’s a number of inaccuracies, and I disagree with the overall tone of the blog.

Did the author ever reach out to you or your office, do you know?

No.

So there was no effort to discuss it?

No.

Looking for a thesis in the article, Siedle writes: “There’s no prudent, disciplined investment program at work here – just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits.” I know you’ll disagree with that, but what’s your response?

(more…)

The iconoclastic liberal economist Dean Baker is famous for discovering the housing bubble years before better-known economists did so. Baker is the co-director of the Center for Economic and Policy Research in Washington. He visited Rhode Island on Thursday to speak at the Economic Progress Institute’s annual budget conference.

Baker sat down with WPRI.com after the event for a wide-ranging interview about the economic issues facing Rhode Island. (A previous excerpt discussed the Superman building and vacant properties.) In this section, Baker discusses why he thinks Rhode Island’s pension return forecasts are reasonable.

The transcript has been lightly edited for length and clarity.

When you testified in New Mexico recently, you said it would be “nearly impossible” for the state’s pension fund not to achieve the 7.75% long-term investment return it’s projecting. Rhode Island’s pension projection is even more conservative at 7.5% – I presume you think that’s even more reasonable. Why?

What most people are doing when they say you can’t get 7.5% is they’re looking back over the past, say, 10 to 15 years, where we’ve had two big tumbles in the stock market, and they go, “See what happens?” But you don’t look at the past; what you look at is the current market valuation – you look at price-to-earnings ratios. And that’s what I’m focused on.

(more…)

Lawyers for the state and public-sector labor unions continue to talk behind closed doors about whether they can resolve the fight over Rhode Island’s landmark 2011 pension law without going to trial.

Lawyers on both sides of the case met Monday morning with R.I. Superior Court Judge Sarah Taft-Carter, who is handling the suit. In December, she ordered the state and the unions into a formal mediation process overseen by the Federal Mediation and Conciliation Service.

The lawyers met with Taft-Carter in her chambers for about a half-hour and updated her on the mediation process’s progress, court spokesman Craig Berke told WPRI.com. The parties say they aren’t allowed to detail their discussions publicly.

Taft-Carter has scheduled the next status conference for April 22 at 2 p.m., Berke said.

• Related: EngageRI: Why the law is OK (March 18) | Prof: Law may be unconstitutional (Dec. 24)

Engage Rhode Island, the deep-pocketed advocacy group closely tied to Treasurer Gina Raimondo, released an unsigned three-page document [pdf] on Monday that makes the case for the legality of the 2011 pension law. Here’s the core of the argument:

If the Rhode Island Supreme Court affirms Judge Taft-Carter’s Decision, it will reverse its own precedent on the unmistakability doctrine, and create new constitutional law which will differ from federal court precedent and the precedent of the majority of state courts in this country. … If the judiciary can require a legislature to bind itself forever through one legislative act, which can never be revisited, the judiciary is thereby given too much power. Thus, it is important to hold from a separation of powers perspective that, unless the legislature’s intent to create contractual rights against the state is unmistakably clear, it should be free to amend its own legislation in the future.

Read the entire PDF here. For an alternative view, check out this from RWU Law’s Michael Yelnosky.

• Related: Mediation to continue in RI pension suit after judge gets update (Feb. 28)

The U.S. Securities and Exchange Commission is still investigating Rhode Island’s pension disclosures to bond investors, Treasurer Gina Raimondo’s office confirmed Tuesday after the agency settled a similar case.

Raimondo spokeswoman Joy Fox told WPRI.com the SEC probe, which the treasurer disclosed shortly after she took office in early 2011, isn’t complete despite the passage of more than two years. The treasurer’s office has said it’s barred from discussing details about the investigation.

On Monday, Illinois agreed to a settlement with the SEC over allegations the state misled investors about the health of its underfunded pension system. Illinois admitted no wrongdoing and was not fined or penalized. A similar outcome was reached in a 2010 SEC case against New Jersey.

In Illinois’ case, the SEC praised steps the state’s government has taken in recent years to improve the way it discloses its pension liabilities – suggesting Rhode Island could benefit from the dramatic actions local leaders have taken on pensions since 2011, as well.

Governor Chafee’s 2012-13 budget request estimated the entire cost of the SEC investigation to Rhode Island at $276,000, shared between the treasurer’s and governor’s offices.

Here’s an interesting email I got recently from a reader who says he’s a veteran state worker, offering his perspective on all the changes to his retirement benefits made in recent years (I’ve redacted his name):

Dear Mr Nesi,

My name is [X], I am a Correctional Officer with the RI Dept of Corrections, and have been employed there since 1988. At the time of my application I was a young ambitious man with hopes of making a better life for my family and I; that being said, I also knew that this would involve sacrifice, hard work, and dedication.

Today, I am older, wiser, and left to “play a game” in which the rules have been changed “in the middle”.

In my initial interview, I was informed that if I were fortunate enough to attain a position in the academy I would be paid $150.00 per week throughout the academy…and if I graduated, my starting salary would be +/-$21,000.00, would receive a full benefit package of life insurance and dental FOR LIFE, also, at 50 years of age I would be eligible to retire with a retirement package of 50% of my current salary. Also if I attended college and graduated in Administration of Justice I would receive a stipend of 15% of my pay for as long as I was employed.

This was not my only opportunity! I had other opportunities, Prov Police, State Police, Deputy Marshal, however, based on these promises I turned down the other opportunities for the opportunities availed by RIDOC. Now all these promises have been changed, IS THAT LEGAL! My college incentive cut to $2500.00 per year; my retirement age increased to 59, my percentage reduced significantly, my healthcare costs increased significantly. How is this possible?

Not through negotiation but through legislation!

24 years later, I know I am only a mere middle class guy, but I feel if there has ever been oppression and prejudice laid upon anyone, it is against me…the regular “joe” that works and does what he must for his family.

I do not think that the founders of this state or country intended that the working guys/gals were the ones that would be oppressed.

Your Thoughts,
Respectfully,
[X]

• Related: Mediation to continue in RI pension suit after judge gets update (Feb. 28)

Talks aimed at resolving organized labor’s legal challenge to Rhode Island’s landmark 2011 pension law will continue behind closed doors for now.

Lawyers for both sides of the case met Thursday morning with R.I. Superior Court Judge Sarah Taft-Carter, who is handling the case. In December, she ordered the state and the unions into a formal mediation process overseen by the Federal Mediation and Conciliation Service.

The lawyers met with Taft-Carter on Thursday for a status conference that lasted about 30 minutes, court spokesman Craig Berke told WPRI.com. “Mediation is continuing,” he said. The parties aren’t allowed to discuss the progress of their discussions publicly.

Taft-Carter has scheduled the next status conference for March 25 at 9:30 a.m., Berke said.

• Related: ‘Pension law may be unconstitutional,’ RI law professor warns (Dec. 24)

One of the big questions that Tim White and I had while reporting out our Scituate pension investigation was who exactly has fiduciary responsibility for the police pension plan there. The answer, as we suspected, was the Scituate Police Pension Board, which met only once from mid-1999 to mid-2011.

Why does that matter? Because, legally, the pension buck stops with the entity that has fiduciary responsibility for the plan. Credit Treasurer Raimondo with driving this point home in recent years: pension boards, whether at the state or local level, are obligated to make prudent decisions based solely on the best interests of the pension system’s members, even if doing so causes larger budget challenges.

The former chairman of Scituate’s pension board, Ted Pryzbyla, tried to deflect the question of whether the board should have been meeting regularly by saying the town council was in charge of the pension plan. But while the council undoubtedly bears significant responsibility for the situation in Scituate, it’s the pension board that had responsibility to look out for the plan’s financial health no matter the consequences.

The Financial Times’ John Kay, writing about the banking sector, made this point a few days ago:

Fiduciary standards describe how people should behave when they manage the affairs of others. The key elements of the concept are loyalty – put your responsibilities to others ahead of your own interests – and prudence – discharge your responsibilities with care and skill.

Statutes define the fiduciary duties of company directors. The common law imposes demanding fiduciary obligations on other agents, such as the trustees of pension funds. In 1984, a landmark legal ruling on this matter was made in the UK. A case had been brought by Arthur Scargill, the leader of Britain’s main mining union. He sought the end of coal board investments in overseas businesses. The judge rejected Mr Scargill’s claim, on the basis that it is the duty of trustees to increase the fund’s value for its beneficiaries, regardless of their moral or political views.

If you live in one of the 24 cities and towns with a locally run pension plan, it’s worth asking who has fiduciary responsibility for your local pensions and checking whether that entity is carrying out its duties properly.

• Related: Pension board met once in 12 years as shortfall soared by $8M (Feb. 4)

Should Rhode Island cut its pension investment forecast to 2.42%?

The idea sounds outlandish, considering Treasurer Raimondo was harshly condemned in 2011 when she got the rate lowered from 8.25% to 7.5%. But before you scoff at the idea, read this new Institutional Investor article about the raging debate over discount rates. An excerpt:

The Netherlands, which runs one of the world’s most rigorous and best-funded retirement systems, requires that pension plans discount their future liabilities using not their hoped-for rate of investment returns but a conservative benchmark tied to long-term interest rates. … The executives can only imagine what it would be like to operate under U.S. rules — if they used Indiana’s [6.75%] discount rate, ABP could claim to be nearly 200 percent funded.

[ ... ]

By the last quarter of 2011, when the discount rate stood at 2.74 percent, ABP’s funding ratio had recovered to 93.7 percent, well below the 105 percent level required by law. ABP responded by cutting pensioners’ monthly payments by half a percentage point and raising employer and employee contributions, which already stood at more than 20 percent.

This is a good reminder that partisanship can make it harder to analyze policy. In the U.S., the push to lower discount rates for public pensions is usually associated with conservatives, many of whom are also antagonistic toward the unionized public employees who will eventually receive the pensions. Yet The Netherlands isn’t exactly a conservative country by American standards.

What’s interesting about the Dutch approach to pensions is that it’s dynamic, adjusting benefit and contribution levels based on the financial health of the fund. It’s easy to imagine how this could cause problems – would benefits have been slashed immediately after a market meltdown like the one in late 2008? On the other hand, this would ensure the pension fund isn’t paying out significantly more than it can sustain, and creates incentives for everyone involved to push for a healthy funding level.

And speaking of pensions, don’t miss the big investigation Tim White and I have coming tonight about one of the worst-funded local pension plans in the state. It’s pretty shocking and raises serious questions. The story airs at 10 on Fox Providence and 11 on WPRI 12, with the more detailed Web story also going online tonight.

• Related: Going Dutch? Netherlands uses Raimondo-like COLA formula (Nov. 3)

(photo: Bed & Breakfast World)

Democrat Gina Raimondo is the early favorite to win the 2014 governor’s race, according to a new poll released Thursday morning to WPRI.com.

The Public Policy Polling survey [pdf] shows Raimondo would win anywhere from 32% to 46% of the vote depending on which hypothetical opponents she faces. She is the only candidate to crack 40% support in any of 10 ballot tests conducted by PPP.

If Raimondo is out of the picture, however, there’s no clear frontrunner: the leading candidates in non-Raimondo scenarios shift between Republican Brendan Doherty, Republican Allan Fung and Democrat Angel Taveras depending on the match-up. Moderate Party founder Ken Block starts out with double-digit support in most scenarios, suggesting his presence could have a major impact on the outcome.

Independent Gov. Lincoln Chafee faces an unsurprisingly uphill battle to win a second term, with more than half of voters saying they don’t want him to run again. His strongest shot at re-election comes if he runs as a Democrat: running under the party banner, Chafee starts out trailing Republicans Doherty and Fung by just four points. Among voters who do want Chafee to run again, 20% say he should run as an independent and 18% say he should run as a Democrat.

(more…)

Rhode Island is only 23 years away from paying off its unfunded pension liability.

Joe Newton, the state’s actuary, offered his latest projections [pdf] to the Retirement Board last week during an annual check-up on the overhauled pension system. The size of the projected contribution taxpayers will need to make to the pension fund for the 2014-15 fiscal year is actually “slightly lower” than what was expected when the General Assembly passed the pension overhaul in November 2011, he said.

Rhode Island’s unfunded pension liability for state employees and teachers – the two largest groups in the system – rose to $4.5 billion as of June 30, 2012, an increase of $142 million. That reduced the pension system’s funding level by a percentage point compared with a year earlier, to 57.8%.

Rhode Island’s state payroll continues to grow significantly more slowly than expected. Back in 2001 actuaries projected the state’s total payroll would be $814 million in 2011-12; it turned out to be only $644 million, or 21% less. The same was true for teachers: the 2011 projection was a $1.1 billion payroll in 2011-12, but the reality was a $972 million payroll.

(more…)

​By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Rhode Island’s pension system lost $200 million during the 2011-12 fiscal year, as the amount of money paid out to retirees continued to outpace the amount of money put into the fund, the auditor general’s office said Friday.

Read the rest of this story »

• Related: RI ignored 1974 pension warning (Dec. 20) | Problem worsened in ’80s (Dec. 19)

Treasurer Gina Raimondo’s star just keeps rising in the world of high finance.

The new issue of Institutional Investor, a monthly magazine with a wide readership among financial types, features a long cover story about Raimondo. The front caption says “Solving the Retirement Dilemma” and the Web headline is “Rhode Island Treasurer Defies Conventional Pension Wisdom.”

The article by Institutional Investor senior writer Imogen Rose-Smith is a favorable but thorough retelling of the now familiar story about how Raimondo – described as “slight and personable” but “quietly ambitious” – pushed the pension law through. It links the treasurer with her friend Newark Mayor Cory Booker, New Jersey Gov. Chris Christie, and the mayors of San Diego and San Jose, Calif.

“With focus and determination, a sure command of finance and a gift for forging consensus, Raimondo took up the challenge,” the article declares, and notes the 41-year-old will likely run for governor in 2014.

(more…)

Roger Williams University law professor Michael Yelnosky had an important op-ed in Sunday’s Projo about the state pension law, warning Rhode Islanders that they shouldn’t take the public confidence of the law’s supporters as a sign that it will be upheld by the courts.

Here’s Yelnosky:

A reader of these pages could be excused for concluding that the state will no doubt prevail in the lawsuits brought by the thousands of current and retired public employees affected by the 2011 Rhode Island Retirement Security Act. …

But these opinions gloss over some real legal issues. …

The “Contract Clause” of the Rhode Island Constitution (in the same language as the U.S. Constitution) prohibits the state from passing “any law impairing the obligation of contracts.” The retirees assert that the pension law does just that by reducing the annual pension benefits they earned during a career of state employment — benefits set forth in Rhode Island law. …

I am not predicting that the plaintiffs will win their cases. I write because the commentary on these pages does not take the plaintiffs’ arguments seriously. Some might wish it were not so, but judicial review of the pension reform law is the next step unless these cases are settled. If we are going to have an informed public debate about the desirability of settlement talks, a more balanced description of the legal landscape seems in order.

Yelnosky’s points reinforce others published here in the past – NEARI’s Robert Walsh made the union’s case at length when the suit was filed, and pension-law expert Amy Monahan of the University of Minnesota warned a year ago that this was a major legal gamble by Treasurer Raimondo and other Rhode Island leaders.

As Tim White has emphasized in his reporting, the key players here almost certainly will be the five justices of the Rhode Island Supreme Court: Suttell, Goldberg, Flaherty, Robinson and Indeglia. Are they willing to risk a “judicial backlash,” as Harvard Law’s Noah Feldman put it, by striking down a law backed by large majorities in the General Assembly, and in doing so place a major burden on strained state and local budgets?

Of course, as one smart legal observer reminded me recently, the justices also have the option of throwing out only part of the law and keeping the rest. The fiscal impacts of a mixed verdict will all depend on how the justices carve up the law’s provisions. Either way, taxpayers and their elected representatives should at least be contemplating what they’d do the day after the justices strike down the law.

• Related: Study: RI pension bill ‘a good approach’ – and it may be legal (Nov. 4, 2011)

A.A. Weinberg

Treasurer Gina Raimondo was just three years old and President Nixon had only recently resigned on Oct. 15, 1974, the day Rhode Island leaders got a stark warning: the state pension system was in serious trouble.

The alarm bell was rung by A.A. Weinberg, an actuarial consultant from Chicago who by then had been watching over the Rhode Island pension system for a quarter-century. The pension system’s liabilities were mounting fast, he said, but lawmakers and workers didn’t seem to care.

“A change of attitude and remedial and corrective measures are imperative if the retirement system is to survive and fulfill its functions and stated objectives for present employees as well as future participants,” Weinberg wrote in his 1974 report on the pension fund [pdf].

Among those Weinberg was trying to influence that day were two powerful Democrats: then-House Speaker Joseph Bevilacqua, who later resigned as chief justice of the R.I. Supreme Court because of his Mafia ties, and then-Gov. Philip Noel, who won a second term the following month.

(more…)

Remapping Debate, a nonprofit startup news site, is out with a lengthy and skeptical article about the chances that Rhode Island – and, implicitly, Treasurer Gina Raimondo – will manage to convince the state’s judges to uphold last year’s pension law.

“We’re at an inflection point,” Paul Secunda, an associate professor at Marquette University Law School, told the website’s Mike Alberti. “We’re poised between these two possibilities: will the court uphold the contract model and find that public pensions are entitled to legal protections, or will they move back toward the gratuity model, where the legislature can change benefits on a whim?”

However, the most interesting and potentially inflammatory comments in the article may be the ones made by John Tarantino, the lawyer who is Rhode Island’s lead counsel in defense of the pension law:

When asked whether he believed it was reasonable for the workers, when they were hired, to expect and rely on the benefits that were outlined to them, however, Tarantino said, “Absolutely.”

And doesn’t that promise make the law different from other legislation that can be changed at any time?

“Listen, I take promises very seriously,” Tarantino said. “I’m a man of my word. But just because I make a promise to you, that doesn’t mean that we have a contract.”

But wouldn’t breaking that promise violate basic notions of equity and fairness?

“That stuff doesn’t matter,” Tarantino responded. “All I’m going to try to prove is that it’s legal. What’s legal isn’t necessarily fair.”

More broadly, Alberti’s article suggests that a lot may depend on whether judges agree with the General Assembly’s suggestion that Rhode Island is in such dire economic condition that paying out the pension benefits as promised is beyond what the government can pay while remaining solvent.

• Related: Study: RI pension bill ‘a good approach’ – and it may be legal (Nov. 4, 2011)

By Tim White and Ted Nesi

PROVIDENCE, R.I. (WPRI) – R.I. Superior Court Judge Sarah Taft-Carter ordered mediation talks on Tuesday to seek a resolution to the union lawsuit challenging Rhode Island’s landmark state pension overhaul.

Read the rest of this story »

The Providence Journal ran two big stories above the fold Thursday that have to be causing Treasurer Gina Raimondo’s staff members some heartburn this morning.

The first is “Texas billionaire gave to advocacy group” by investigative reporter Mike Stanton, who adds more detail to The Wall Street Journal’s revelation and my follow-up post on Tuesday about the Texas billionaire tied to Engage Rhode Island.

The second is “Raimondo says travel part of treasurer’s job” by State House bureau chief Katherine Gregg, which reports Raimondo has spent 53 days out of state since taking office and suggests she’s being less transparent about her travels than her predecessor.

Also on the pension beat, today is a big day for the city of Providence – the police union will vote this afternoon on whether to accept the pension settlement with Mayor Taveras, a key test of his decision to negotiate a deal.

Some of the secrecy surrounding Engage Rhode Island has been pierced.

The deep-pocketed advocacy group, which provided crucial support to Treasurer Gina Raimondo last year in her push to pass the landmark state pension overhaul, received between $100,000 and $500,000 from a Houston billionaire who was a trader for the ill-fated energy company Enron, The Wall Street Journal revealed Tuesday night.

A spokesman for John Arnold, 38, and his wife, Laura, confirmed their donations to the paper. Arnold founded Centaurus Advisors LLC, a Houston-based hedge fund, with $8 million of his own money in 2002. He closed the fund earlier this year. Arnold’s net worth is estimated at $3 billion by Forbes magazine.

Reached late Tuesday night, EngageRI spokesman John Duffy declined to discuss the Arnold’s financial support. “We respect the privacy of our donors and we continue to do so,” he said. The group is organized as a 501(c)4 and is not required to disclose its donors.

Duffy said EngageRI has received almost $1 million since it was created in the summer of 2011, suggesting the Arnolds provided between one-tenth and half the money EngageRI has raised so far. The group has spent about $740,000 lobbying for the pension changes.

A review by WPRI.com shows the Arnolds also donated directly to Raimondo on May 18.

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Hours before firefighters planned to picket her fundraiser, Treasurer Gina Raimondo reminded them that she opposed efforts last year by Governor Chafee, Providence Mayor Angel Taveras and others to pass legislation suspending pension cost-of-living adjustments in their contracts.

“I do think it’s important to point out I was a staunch advocate in support of protecting and respecting collectively bargained-for agreements for those firefighters, and I still stand by that,” Raimondo told WPRI 12′s Nicole Estaphan on Monday at the State House.

Raimondo also took the opportunity to defend “the long process” that led to the pension law, and suggested Chafee is going the wrong way by holding closed-door talks with union leaders to discuss a possible settlement to end their lawsuit against it.

“Before the General Assembly passed this historic legislation they had dozens of hours of hearings and give and take and a lot of back and forth and negotiation at the time that led to the final passage of the bill,” she said. “Having said that, at some point as part of this process if the courts asks the parties to sit down and mediate we will do that in good faith.”

“I don’t know if [lawmakers] have ever spent more time on any other piece of legislation,” Raimondo added. “They held a special session. They looked at every possible scenario. The labor leaders were present for every part of the discussion.”

• Related: Firefighters organizing pension protest at Raimondo fundraiser (Dec. 10)