Fee on outsourced work goes to pension fund

When the dust settled after the General Assembly’s historic vote on a sweeping overhaul of the state pension system, one piece of language added quietly to the bill hours before passage set the nerves of many pension-reform supporters on end. More

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GOVERNMENT

Fee on outsourced work goes to pension fund

Posted 11/28/11

When the dust settled after the General Assembly’s historic vote on a sweeping overhaul of the state pension system, one piece of language added quietly to the bill hours before passage set the nerves of many pension-reform supporters on end.

Located in the second-to-last section of the 114-page law, the amendment creates a new 5.5 percent charge, or tax, on most state-government work outsourced to a private vendor. The proceeds from the charge, to be paid by the state, will go directly to the state pension fund.

Some supporters of the measure, including Gov. Lincoln D. Chafee, acknowledge a key benefit is to limit the use of contractors by state departments by in effect assessing a penalty fee to each contract awarded.

Others, however, see the fee as an unnecessary and potentially costly increase in state expenses.

“In studying the bill this morning at our board meeting, it raised a number of questions and concerns,” Greater Providence Chamber of Commerce President Laurie White said the day after the Nov. 17 vote. “It is not clear how it will be enforced and how it will apply and exactly who will be making this payment.”

Grafton “Cap” Willey IV, managing director of accounting firm CBIZ Tofias and chairman of the Rhode Island chapter of the Smaller Business Association of New England, said the amendment will likely increase the state’s operating costs and cause corresponding pressure on the budget.

“I know what they are trying to do but I don’t know about the way they chose to do it,” Willey said. “They are trying to address a premium on outsourcing and did it at the behest of the unions. It is certainly going to increase the cost of providing services for the state.”

Gary Sasse, who led the R.I. Department of Administration under former Republican Gov. Donald L. Carcieri, said he understands the need to monitor the use of contractors, but is concerned the added charge will raise costs and create an “anti-contractor bias.”

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