Does Rhode Island’s Pension Reform Law have Any Hope of Survival?
Friday, December 07, 2012
With attorneys expected to ask a Superior Court judge to toss out a lawsuit challenging Rhode Island’s landmark pension overhaul, the state is bracing for the latest battle in a more-than yearlong scrum with its top public employee unions today.
At stake is a pension reform package signed into law last year by Governor Lincoln Chafee that cuts the state’s unfunded pension liability by $3 billion and is expected to save taxpayers nearly $300 million by next year. It also enrolls public employees in a 401k-style hybrid plan, freezes cost-of-living-adjustments (COLAs) and raises the retirement age for many union workers. The outcome of the suit could play a role in how states all over the country attempt to address massive unfunded pension liabilities.
In one corner, the state has brought in prominent New York lawyer David Boies (who represented former Presidential candidate Al Gore in the aftermath of the 2000 election with George W. Bush) to join a legal team that will defend the overhaul, which state leaders, including General Treasurer Gina Raimondo, have argued is in the best interest of all sides.
In the other corner are the public employee unions, which are prepared to argue that it was unconstitutional for the legislature to pass a law that altered guaranteed retirement benefits to their members.
Both sides enter the hearing following a week of discussion over whether all sides should sit down at the bargaining table to reach an agreement to avoid a lengthy –and costly— legal battle. Chafee said this week he favors negotiations.
“I have confidence in the state’s legal case,” Chafee said. “But a strong case does not guarantee a win. I am therefore reluctant to rely exclusively on the uncertain outcomes of litigation. The most prudent approach is to continue to aggressively press the state’s case in court while, at the same time, exploring reasonable settlement options that could yield favorable alternatives in the best interest of the taxpayers. Engaging in settlement discussions is a near-universal practice during high-stakes litigation.”
A Political War
Chafee took a backseat to Treasurer Raimondo last year as the pension reform law was crafted, but the two clashed over whether to include municipal pension in the overhaul and now, with Raimondo emerging as a potential challenger for Governor in 2014, the relationship has continued to sour. This week, Providence Mayor Angel Taveras, Cranston Mayor Allan Fung and former Auditor General Ernie Almonte –all potential gubernatorial candidates themselves— sided with Chafee when it comes to negotiating with the unions.
“I have been disappointed that state leaders in a position to engage in reasonable discussions have chosen not to do so,” Chafee said. “There is no harm in talking, but the consequences of failing to talk could be tremendous, in a case where a loss – in the Treasurer’s own words – would be a ‘fiscal calamity.’ It is my continued hope that other state leaders will join me in working to find common ground to protect the interests of Rhode Island taxpayers and the retirement security of all public employees.”
"I have great respect for the judicial system and we now must let this process unfold in an orderly and transparent way,” Raimondo said. “We owe that to the people of Rhode Island. It is not the time for closed-door meetings. This is not a time for politics. This is too important to the future of Rhode Island.”
In a statement this week, Fox agreed with Raimondo, noting that negotiations could have taken place last year.
“It is not appropriate for me to negotiate legislation that was passed by the General Assembly and signed by the Governor,” Fox said. “The time to negotiate was during the 30 hours of public hearings that were conducted by the legislature. We always anticipated that there would be a legal challenge to this comprehensive law. This law is critical to securing the state’s retirement system and placing Rhode Island on sound financial footing now and into the future. The matter is now in the hands of the judiciary, where it will be appropriately decided.”
Union Leader Compares Raimondo to Mitt Romney
The pension reform law requires that teachers, state employees and the state-administered municipal plans (MERS) wall be enrolled in a 401k-style hybrid plan that shifts the risk to the employee through combining the attributes of both the defined benefit and defined contribution plans. The law also institutes a proportional retirement eligibility structure for most employees between ages 59 and 67, depending in part on the employee’s current years of service. Those already eligible to retire as of June 30, 2012, would not have their eligibility to do so change.
Under the law, retirees would not lose COLAs granted prior to last July 1, but all future annual COLAs would be suspended until the aggregate funded ratio of the Employees’ Retirement System of Rhode Island, the Judicial Retirement Benefits Trust and the State Police Retirement Benefits Trust exceeds 80 percent.
But union leaders have argued that Raimondo and lawmakers rushed the pension reform law without taking the time for more negotiations. National Education Association government relations director Patrick Crowley said Raimondo has spent too much time celebrating then pension reform law.
“The Treasurer is looking more and more like Mitt Romney everyday - travelling around the country to meetings with big Wall Street donors talking about the ‘saving’ of Rhode Island, like Romney ‘saved’ the Olympics,” Crowley said. “It's almost as if she has written off the working persons' and labor vote, like Romney's ’47 percent’ strategy. We all know how that ended.”
Judge has a Conflict
Still, others remain firmly in the Treasurer’s corner. Rhode Island Statewide Coalition executive director Donna Perry said throwing out the pension law would be devastating the state.
“This case will show whether the RI courts view a public sector pension as a sacred cow that’s above all else, including the fiscal survival of local governments,” Perry said. “An overturning of the law would produce a number of damaging scenarios that would take many communities to the brink of bankruptcy, and it’s hard to see how anyone wins from that.”
At the center of suit is Judge Sarah Taft-Carter, who has faced scrutiny for having family members who receive pensions and for being eligible for a pension herself. The state asked the Supreme Court to prevent Taft-Carter from hearing the case, but the high court said Thursday that she can preside.
Earlier this week, Perry and Ocean State Tea Party in Action President Lisa Blais released a statement suggesting Taft-Carter’s economic interest in the case presents too much of a conflict.
“The Judge’s character and work ethic are not in question, but what should be focused on is the clear language that sets forth when a judge should recuse themselves from particular cases,” Blais said.
Raimondo photo credit: Gammino Photography.