Governor Lincoln Chafee said Tuesday cities and towns that run their own pension plans face a choice. But after looking at Chafee and General Treasurer Gina Raimondo’s pension reform, as it would affect plans independent of state plans, at least two mayors don’t like the choices.
Reminding legislators of what’s happened in Central Falls Chafee told state legislators, “We can pass legislation that doesn’t touch the local plans, and return here soon to take up this issue again. Or we can address them now in a comprehensive pension reform package that ensures financial stability for our municipalities and the citizens of our state.”
Further, he said the condition of some of these plans qualify for the state to intervene. He said 24 of the 36 independent plans “are in grave danger because of inadequate funding levels.”
“I know that you don’t want to hear these words, just as I don’t want to be uttering them. But I also don’t want to have to appoint receivers to take over these cities and towns, receivers who will have no choice but to impose drastic cuts, such as those Judge Flanders has imposed in Central Falls. Honest, comprehensive reform means a top-to-bottom effort that doesn’t simply ignore these local plans because they aren’t operated by the state. We can’t have true pension reform if our cities and towns are neglected,” he told legislators.
Unlike state pension benefits that are set by statute, municipal pension benefits are the result of contract negotiations. This raises the issue of how municipalities would gain concessions and whether that can be achieved within next year’s deadlines set forth in the proposal. Further, many municipalities are at a loss as to how to deal with retirees already receiving pension benefits. These people are no longer union members and are without representation, yet it is their cost of living increases that are principally responsible for the unfunded portion of their plans.
Cranston Mayor Allan Fung, who served on Raimondo’s pension advisory board, called the plan “horrible” yesterday.
Fung said the plan is “all stick without any carrot.”
The proposal requires municipalities to conduct actuarial studies of their plans that would be partially funded by the state and draft a 10-year plan that would improve its funding by at least half of what it would take to reach 80 percent funding.
The plans would be subject to approval by a solvency review board that would have the power to withhold state aid to municipalities, including school aid, as an incentive. If the municipality doesn’t take action, the state would step in to remove COLAs in the city plans and presumably the municipality would also see a decrease in state funding.
This is a bitter pill for Cranston to swallow, says Fung.
He cites the Cranston plan for police and fire hired before 1995. That plan has 500 members with all but 55 who have retired. Presently the plan faces an unfunded liability of about $300 million. It is approximately 18 percent funded.
To accomplish what the governor and Raimondo set forth, Fung projects he would have to raise an additional $9.5 million in tax revenues every year for the next 10 years.
“I can’t level 10 years of tax increases on the taxpayers. They have had enough,” he said.
If there was a carrot – state aid – then, says Fung, the city could handle it. The alternative is for legislators to also reform local plans, and to suspend COLAs, although the unions would likely challenge that.
But faced with either losing state aid or increasing taxes, Fung calls the plan “a losing proposition.”
Johnston Mayor Joseph Polisena would like some “breathing room” for municipal officials so they can meet with Raimondo and House and Senate leaders to hammer out something after the first of the year.
“They didn’t really ask our opinion on anything,” said Polisena.
He called the current proposal “punitive” and if it were implemented “it’s going to put the cities and towns in virtual bankruptcy.”
“Let’s get the state pension straightened away and MERS,” he said.
The Johnston fire and police plan faces an $84.4 million unfunded liability.
Warwick Mayor Scott Avedisian sees complications, although his assessment isn’t nearly as dire.
"The complexity of adding all of the nuances relative to each individual municipal plan could create problems with passage of real reform,” he said in a statement. “I believe that the Governor and the Treasurer are both committed to working with each individual community and on each individual plan. Each plan would require its own actuarial study, updated assumptions addressing rates of return on investments and mortality rates. I know that Governor Chafee and Treasurer Raimondo stand ready to be full partners with cities and towns. Rhode Island stands on the threshold of making major pension reforms. I thank the Governor and the Treasurer and look forward to working with them on communities’ individual pension plans and in strengthening Warwick's one problematic pension plan.”