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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.”

But Raimondo and other state leaders such as House Speaker Gordon Fox, have said the time for negotiating was last year. The Treasurer said she would be willing to sit down with all sides if Taft-Carter encourages such discussions to take place, but she remains opposed to “closed-door” meetings.

"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.

 

Dan McGowan can be reached at [email protected]. Follow him on Twitter: @danmcgowan.

 

Raimondo photo credit: Gammino Photography.

 

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Comments:

Ouch, I would not take credit for any photo of Raimondo!

Comment #1 by tom brady on 2012 12 07

Very complicated issue. If the unions win this case what do they win?? If there is NO money to fund the pensions who is the winner? AND no one is being held accountable for this mess.

Comment #2 by Chris MacWilliams on 2012 12 07

Please stop writing about the same lies, over and over again.
There will be NO pension reform.
You’re asking lawyers, politicians and judges to make this happen.
Hmmmm, all of these people will be effected by this decision. What do you think they’ll do?
Pension will NEVER be changed to 401Ks. Stop writing about it.

Not in the state of “Hurray for me and F you”!!!!!

Comment #3 by pearl fanch on 2012 12 07

Fundamentally the problem is this: government has violated a basic legal maxim. One who enters a lawsuit must come with clean hands. Alternatively, the law will not permit a party to profit by his own wrong.

In other words, if you ask for help about the actions of someone else but have acted wrongly, then you do not have clean hands and you may not receive the help you seek.

Government created this pension scheme and required pension contributions from workers. Workers had no control over the pension or its funding. Now that the system is broke, government wants to renege on a pension scheme it created, failed to fund, and that workers had no control over!

Government created this unfortunate situation and now wants to “profit” by its own wrong by breaking the promises it made.

Having said that, the reality is this: the legal maxim doesn't matter anymore because the damage has been done over a period of years and cannot be remedied in the present day with massive tax hikes and cuts in spending – the under-funding is just too great, benefits too rich, and longevity too great.

In the final analysis, even if the unions win every battle, they lose the war. Think Vietnam War.

Comment #4 by Christopher Lee on 2012 12 07

You gotta love how the unions attempt to tie Raimondo to Mitt Romney. The truth is Romney is a man of character. Raimondo lost hers when she came out and supported David Cicilline. The public sector unions have a bad habit of supporting individuals who later on will do what is best for their own political interest. It tells you something doesn't it? In the end the devil will make a deal with his/her disciples for the seat of power and then later make a deal with someone else. In RI we call this the democrat party and they are all the same. This is what you get when you keep electing the same people and the same party! Trust no one!

Comment #5 by Scott Dickerson on 2012 12 07

If the unions win everyone loses. The give-me state of RI

Comment #6 by Rufus Mikatis on 2012 12 07

“It's almost as if she has written off the working persons' and labor vote," Crowley said. Crowley, stop and think about the working people and laborers who are not government employees. If you win, their taxes will rise and services will suffer - they lose.

Comment #7 by Christopher Lee on 2012 12 07

The Fix is in.

Comment #8 by John Waddington on 2012 12 07

Right on Chris Lee . Call me TM Retired PFD LOL

Comment #9 by THOMAS Murray on 2012 12 07

question?

is the union proposing a total repeal or modifications to the changes that were made.

any reasonable person can understand that its not perfect and there should be soem changes.

whats wrong with open discussion before we expose the state to a possible loss that is a complete mess.

i dont care how right you think youa re... if the state loses.. its a mess.. thats why people settle.

so who's being political here??

Comment #10 by jon paycheck on 2012 12 07

what a mess

Comment #11 by anthony sionni on 2012 12 07

GO LOCAL PROV.. Can you plese publish the Gov pay, pension and health care he recevies for the waste of time he is doing for 4 yrs. Also for the Raimondo woman and all the State Reps. I think this is the perfect time to show the public. This does not affect them so this is why they dont care. THE TAX PAYERS NEED TO SEE... I have no respect for any of these elected officials. They are all phony's and useless.. All the mistakes made in the past and they go after the pensions like its somoe big thing and people are getting rich on them. Go after state aid for the usless waste of breath folks who pay nothing into anything all day and are soaking the system for all its worth. Why cant they take money out of the welfare people or the people on SSI disability to help fund the economy. Say 100 a month.. They wont cause they are all scared to lose their little politcal jobs... Grow some courage

Comment #12 by Billy Santos on 2012 12 07

I am personally uncomfortable with Lincoln Chafee negotiating across the table with the unions on my behalf. Gina Raimondo is right.

Comment #13 by michael riley on 2012 12 07

Christopher Lee has said it well. Government created the pension system took money from the workers and didn't put the money aside.

In the '70's Cranston unions took the city to court for not putting the pension contribution money into an account separate from the general fund. The judge said as long as the workers receive their pension payments the union would not have a case. It appears the unions have a case.

Did we run out of lawyers in RI? Is there a reason we need a NY lawyer to represent RI?

Comment #14 by Wuggly Ump on 2012 12 07

What the state did with the pensions for teachers and state workers is exactly what the U.S. Congress did to federal civil servants in 1984. Prior to that date the millions of federal workers had a defined benefit (DB) pension system just like the old schedule A pension system for R.I. K-12 teachers and state workers. For new federal hires after 1984 that DB pension disappeared and they went under a “hybrid” pension system very similar to the one described in R.I.’s new pension reform law.

Why did the U.S. Congress do this? They did it because they knew the federal government could not afford the DB pension system that had been in effect since WWII. So if Congress can change federal pension for all those federal workers with their “implied Contract,” why can’t R.I. change their state pension DB system? R.I. can’t afford the current schedule A DB pension any better than the federal government could afford its DB pension plan. Furthermore, Walsh, Nee, Downey and all the other public employee union bosses know this and that’s why they are so eager to “negotiate” now.

And Governor Chafee was elected by public employees because he had promised that he would not change their pension system. But he had no choice as the current R.I. DB pension system will go bankrupt without reform. It is simple math, so simple even a dunce can see it. Now he is afraid he won’t be re-elected because he signed pension reform into law, so he is in favor of negotiating now. He is pandering to the same folks that elected him as governor, AND he is doing the state’s taxpayers a disservice by taking this position. Without pension reform, the current R.I. state retirees will wind up just like the retirees in Central Falls. You can only squeeze so much out of the taxpayers before they take up arms and revolt like they did in the 1700’s. Is this the future the union bosses want for their rank and file? If so, they should be thrown out and the rank and file should elect new leaders with some economic smarts instead of a lot of huff and puff.

Comment #15 by robert benson on 2012 12 07

R Benson- I agree with your until you stated "You can only squeeze so much out of the taxpayers before they take up arms and revolt like they did in the 1700’s."
If RI taxpayers were going to do anything that made a substantial difference it would have been in the last election. Sorry. RI's (not all) don't have the brains or the motivation to revolt.

Comment #16 by Chris MacWilliams on 2012 12 08

To Christopher Lee,
You must have drunken too much of Raimondo’s propagandist financial pension view Kool-aid because of the foolish statement you made. This is what you say: stop and think about the working people and laborers who are not government employees. If you win, their taxes will rise and services will suffer - they lose.
How stupid can you be? Union people are working people. They are laborers. They pay the same taxes as everyone else. They are no different except that they have a contractual agreement made with the state that non gov people may not have. Their taxes will also increase and their services will also suffer. Your words are foolish because whatever happens affects every taxpayer in this state. Everyone will lose if this is not sorted out properly and without self serving politicians making political statements to advance their own agendas. And if the other commentator, Murray agrees with you than he is as foolish as you, to think that union people are exempt from the same high taxes as non union workers. Your first comment was good and you should have left it at that.

What really should be bothering RI voters is the adamant authoritarian despotic views both Fox and millionaire Raimondo are taking on the pension issue.
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. And yet you have the 2 arrogant absolutionists refuse to listen to the courts' recommendation to talk and negotiate. Who died and made these hypocrite politicians the despots of pension change?
First of all Gina is a millionaire politician who used the RI pension system to borrow money to start her own venture capitalist business with and then she went to NY for 10 years with her investment business to make big money and gain powerful friends like billionaire Bloomberg and lawyers like the NY one, Boies, she added to her team today…and now she has the audacity to use scare tactics, ( phrases like fiscal calamity scares people) deceit and hypocrisy to say her law was the only way the state could have gone to save money. This is not so. And she with her new best friend Gordon Fox will both be proven wrong. She threw Chafee under the bus. I wonder how long it will be before she throws Fox under the bus. Her association with Cicilline showed she will do just about anything to become the 2014 governor. And she has the support of engageri as well…a coward organization that won’t even identify themselves….spineless wimps they are. So naturally she grew a spine, some balls and now has a boldness to her that she is nurturing to maturity in order to compete in the world of politics with the males who dominate RI politics.
These 2 are very powerful people and they are running this state as we speak. And if they aspire to higher political office, then they need to climb down off that pedestal they put themselves on and learn how to talk at the table…to negotiate…but they both are arrogant and refuse…Let’s see if they refuse a judge’s order to sit down and discuss issues. They are both legends in their own minds…and thankfully not in anyone else’s!

Comment #17 by dis gusted on 2012 12 08

I say let the unions win. Dumb Ri'ers don't seem to care much about anything. Maybe when the sales tax has to go up to 10% and income tax rate doubles to pay for it they'll finally wake up and pull a gomer pyle: "G-o-l-l-y"

Comment #18 by Odd Job on 2012 12 08

Billy, TWO MONTHS AGO would have been the perfect time to publish that info.
Not that it would have done any good. RI voters STILL would have voted in the same thieves.

Comment #19 by pearl fanch on 2012 12 08




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