The last time the General Assembly met in the fall, lawmakers gathered for a single day. This time around, lawmakers may want to block off more of their calendars, much more.
In an unprecedented move, legislative leaders have beckoned their members back to Smith Hill to hold a session exclusively on pensions.
“To come back and just deal with one issue like this is extremely rare,” said Larry Berman, a spokesman for House Democratic leadership.
Lawmakers appear to have little choice. Ballooning pension costs, including $9 billion in unfunded liabilities, pressure the very foundation of Rhode Island’s economy, said Laurie White, president of the Greater Providence Chamber of Commerce.
“It’s an issue that morally threatens our economy going forward and that sweeps everyone into the mix,” White said.
Lawmakers are now paying attention, especially after General Treasurer Gina M. Raimondo released a report in May. The report, “Truth in Numbers,” painted a precarious picture of the state pension system. The report charged that for years politicians of all stripes underfunded the system and relied on overly optimistic, projected investment rates of return.
“I think we’re finally at a crisis point and I’m hopeful that … is going to cause people to act,” Raimondo told Providence Business News last week.
The treasurer said she is not prepared to share specific recommendations yet. However, she said it’s fair to assume that some recommendations may stem from changes outlined in her report.
Among the concepts were boosting the retirement age to 67 and eliminating annual cost-of-living adjustments. Another idea would move state employees to a plan with a mix of defined benefits and investments managed by the employee, similar to a 401(k) in the private sector. Raimondo also has said publicly that retirees may need to see their benefits reduced.
The concepts have stirred controversy and opposition from labor unions, which recently won a court case contesting changes to pensions that the Assembly enacted in 2009 and 2010. After the ruling, Gov. Lincoln D. Chafee and Raimondo said they planned to appeal and push on with pension reform.
“What I want them to do is pass a legislative package, which is comprehensive enough so that we can solve this problem once and for all and don’t have to be back here in another few years,” she said.
The treasurer said she expected the bill would be guided, in part, by the work of a 12-member pension advisory group assembled by the governor and treasurer last summer. The panel included a mix of academics, union leaders, politicians, businesspeople and government officials. Each brought a different perspective, and for Mark Higgins it was that a looming pension crisis threatens the state’s attractiveness to private businesses.
Higgins, dean of the University of Rhode Island College of Business Administration, said there are two ways to cover a pension shortfall: change pensions or infuse more money into the system. He worries that the second option will drive up taxes and scare off the companies that Rhode Island desperately needs in an era of stubbornly high unemployment.
“I think people have failed to see the interconnectedness of the pension to the state budget [and] to the ability of the state of Rhode Island to attract new businesses,” he said.
Raimondo’s report says that 3 cents of every taxpayer dollar in 2002 was required to support pensions. By 2009, that number rose to 9 cents and by 2013 it will jump to 16 cents and cost the state a total of $615 million. Soon after, the costs will explode to more than $1 billion (to put that in perspective, the state budget this fiscal year is $7.7 billion, including money from the federal government).
And it’s not just taxes. Higgins and White said shifting increasing amounts of money to pensions starves budgets that pay for roadways, schools and other government services that companies rely on.
So legislative leaders have promised action.
“The House of Representatives will be part of a deliberative process that will lead to the enactment of fair and thoughtful pension reform this fall,” House Speaker Gordon D. Fox said in a statement. “Pension reform is a critical step in ensuring the economic well-being of our state for future generations.”
The House and Senate finance committees started meeting in September to learn about the state’s pension system and its troubles. Spokesmen for both bodies said they expected the full Assembly to convene shortly after Columbus Day.
“We’re anxiously awaiting Treasurer Raimondo’s proposal and trying to do some of the groundwork beforehand,” Berman said.
When the full legislature does convene, it will likely hear from labor unions. American Federation of State County and Municipal Employees Council 94 President and pension advisory-group member J. Michael Downey promised unions would forcefully fight changes to existing pensions.
“People were hired under certain conditions and the commitments that were made to them, some would call it a promise,” he said.
And he said hybrid plans might work for well-paid workers but not for those at the lowest pay grades. And he complained that some retirees – especially former judges – hold generous pensions at the expense of others.
But where Downey and politicians can agree is that something needs to be done this October.
“Are we going to live and work in a situation where every year they have trouble with the budget they’re going to say, ‘Wait a minute we have to change your pensions?’ ” he said. •
