Should state rethink its pension strategy?
Involved parties in Rhode Island state government may be getting a little more apprehensive over the fate of their defense arguments on behalf of the state pension reform law enacted late 2011, which is being challenged by labor and is now before Superior Court Judge Sarah Taft-Carter, melded into a previous court challenge relating to pension changes enacted during the Carcieri years. That’s because local communities like Providence and Cranston are forging ahead successfully with local pension plan overhauls with labor cooperation. Taft-Carter is obviously following these developments and, in fact, she oversaw and approved the new Providence deal.
Just last week Mayor Allan Fung of Cranston and Mayor Angel Taveras of the capital city announced settlements with their public safety unions to help save the locally administered plans. Not only do the agreements save the plans from eventual insolvency, but they rescue the municipalities from potential bankruptcy. The agreements, which the involved unions and retirees accepted grudgingly in the face of each city’s financial realities, eliminate COLA payments over a ten-year period in Providence’ case and cap and reduce COLAs in Cranston’s case under a more specific agreement, also for a decade.
The Providence settlement follows the state pension reform law in that COLAs are frozen for a 10-year period while in Cranston 3 percent COLAs get frozen every other year for a decade with the city reducing the COLA rate down to 1.5 percent in years 11 and 12. Providence, which had already reached similar pension deals with its other unions that remain to be ratified, will save $18.5 million this fiscal year and Cranston will save 6.5 million in next year’s budget. The deal spares Cranston – and Mayor Fung – a property tax increase. Providence taxpayers may get hit with an increase just the same.
Both Taveras and Fung, along with Mayor Scott Avedisian of Warwick, pushed during the state pension negotiations in the General Assembly to get locally administered plans wrapped into the legislation. They were supported by Governor Chafee in that attempt but were ultimately unsuccessful, in no small part because legislators went with the recommendation of plan mastermind General Treasurer Gina Raimondo, who felt that adding local plans could jeopardize the legislation in court once it was challenged, which is exactly where it sits now.
Taft-Carter has asked that the state and the unions challenging the pension overhaul to discuss their differences via non-binding arbitration, which the state opposes in principle but must now engage in. Under those imposed conditions, it’s not especially helpful to the state’s position to witness important local communities succeed at negotiations with their unions. If they can do that and gain concessions that both sides can live with, why can’t the state?
And if Providence and Cranston can do it, Warwick will too and so will other communities with belly up local plans. West Warwick is in desperate straits with its underfunded plans and its unions – and taxpayers – are going to have to come to agreements or face state intervention. East Providence came close – a special overseer was appointed – but the city across the river from the capital city has spared itself the prospect of becoming the next Central Falls by undertaking a series of tough measures.
The painful experience of Central Falls, where taxpayers who could ill afford them got hit with tax increases and retirees had their pensions cut by a whopping 50 percent, strikes fear in local governments across the state. Labor, in the end, will accept concessions because of a simple and inescapable calculation: refuse to deal and the municipality that pays the salaries and retirement benefits could go bankrupt and then no one gets much, if anything.
The fate of the state’s case rests on an interpretation of case law and the notion of an implied contract obligation inherent or not in successive contractual bargaining agreements. The state can resist negotiations now, lose the case and elect to fight on. But that costs more money and increases the liability if the state loses its appeals before higher courts. Or it can step back, elect to negotiate, and reach a new modified agreement with labor, eliminating the court challenge. Providence and now Cranston show that it can be done. Should the state rethink its strategy?