Providence VS Retirees: Will an Agreement be Reached?
Monday, March 05, 2012
Mayor Angel Taveras on Saturday called for Providence’s retirees to share in the sacrifices needed to address the structural budget deficit that threatens future of Rhode Island’s capital city.
At a town hall meeting with the retirees, Mayor Taveras and Chief of Staff/Director of Administration Michael D’Amico provided an overview of the city’s fiscal emergency, presented a three-point proposal for reform of the city’s pension and health care systems and laid out a timeline for negotiations with retirees in order to restore fiscal stability in the capital city.
The Mayor and D’Amico took questions from the audience for one hour following their presentation.
“Our retirees cannot be successful in a failed city. Central Falls taught us that lesson,” said Mayor Taveras. “We cannot solve our fiscal problems without permanent, meaningful and difficult structural change. It is time to suspend COLAs for all our retirees. This is not only a question of necessity, but one of fairness.”
3 Point Plan
Mayor Taveras proposed the following three-point plan to reform the city’s pension and health care benefits systems:
• All retirees 65 and under pay a 20 percent co-share on their health benefits, just like current city employees already do
• Retirees over 65 move to Medicare and a Medicare Supplement plan paid by the city
• Suspension of the compounded annual raises (COLAs) of retirees until the city’s pension system is healthy
Taken together, these reform measures would save almost $29 million annually – with the plan to have retirees 65 and under contribute to their health benefits saving about $4 million, the switch to Medicare saving about $8 million, and the suspension of compounded annual raises saving about $16.8 million.
The Mayor and D’Amico stressed to the retirees that the reforms would not cause them great hardship: In moving eligible retirees to Medicare, the city will continue to provide a benefit to supplement what Medicare pays. Some retirees may incur cost increases for pharmacy and co-pays. The suspension of compounded annual raises will not in any way reduce any retiree’s current collection – it will simply hold it steady while the city pulls back from the edge of a fiscal precipice. The annual raises will be reinstated when the pension fund is 70 percent funded.
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The Taveras administration has acted decisively to close a $110 million structural budget deficit, and has successfully reduced the deficit to $22.1 million with four months remaining in the current fiscal year. Mayor Taveras cut his own salary by 10 percent, reduced his Mayor’s Office budget by 10 percent, and declined his elected official pension. The administration made cuts in nearly every city department, laid off non-union staff, reduced the city’s workforce by more than 200 employees and negotiated new labor agreements with the unions representing the city’s firefighters, police, laborers and teachers.
With the City of Providence poised to run out of cash by the end of June, Taveras called on the retirees to appoint a steering committee by March 25 to negotiate with city. The Mayor set out a schedule for formal negotiations, in which the city and the steering committee representing retirees will meet at least twice a week, with a May 1 deadline to reach an agreement in time to enable Providence to end its fiscal year with a balanced budget.
Some police and fire retirees are represented by their retiree association and have already started negotiations with the Taveras administration. The city’s other retirees – teachers, laborer and non-union retirees – have no formal or informal association. Those retirees were encouraged to create a steering committee and begin conversations with the city.
If Providence is unable to close a $22.6 million budget shortfall by July 1, Providence faces the possibility of state intervention as has already occurred in Central Falls and East Providence. If Providence falls off the edge, retirees could lose as much as $900 million in benefits – a 73 percent reduction. Retirees in Central Falls saw pensions cut by up to 55 percent during bankruptcy proceedings.
“You will be better served by being partners in our effort to save Providence,” Taveras said. “We can just look up the road to Central Falls to see what can happen.”
Structural Reform Needed
While Providence’s current city workers, teachers, police officers and firefighters are foregoing raises, many of the city’s retirees collect 5 percent and 6 percent compounded raises every year dating as a result of decisions made in 1989, 1990 and 1991. As a result of such annual raises, each of the city’s top 25 retirees collects more than $109,000 this year in a pension. The retiree who collects the highest pension retired in 1991 with a salary of $70,500 and collected $196,000 this year. He collects more than five times the income of an average Providence resident, and he collects more money from the city as a retiree than any working Providence employee.
Without structural reform, Providence’s annual pension payment will grow from $58.9 million to $98.7 million in the next 10 years – a nearly 70 percent increase.
The city spends more than $30 million annually on retiree health care and has an unfunded obligation of $1.2 billion in other post-employment benefits, mostly related to health care. Earlier this year, the Taveras administration moved to shift its retirees over the age of 65 onto Medicare to save $8 million and structurally reduce the city’s unfunded post-employment benefits. In late January, a Rhode Island Superior Court judge prevented the city from shifting their coverage by issuing a preliminary injunction.
Mayor Taveras announced in his February 13 State of the City address that he would seek to negotiate with the city’s retirees to be part of the solution needed to save Providence. All of Providence’s 4,300 retired police, firefighters, teachers and municipal employees were invited to attend today’s town hall meeting. Four hundred eighty five retirees attended today’s meeting in person, and as many as 425 people logged on to follow the proceedings via an Internet live stream on the city’s website.
