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Rhode Island Pension Reform Showdown - Who Will Prevail?

Tuesday, April 15, 2014


With a September trial date for Rhode Island's pension reform lawsuit looming just months away following failed mediation efforts, GoLocal talked with leaders in the state for their views on what now is the best case -- or worst case -- scenario.

Following last week's "no" vote by 254 police union members -- 1% of the eligible voters -- that sunk the mediated settlement unveiled in February, the contested 2011 change in law to the state's pension system will now go to court.

"As for it being carefully crafted settlement -- it was carefully rejected," said former SEC lawyer and Forbes columnist Ted Siedle, who last fall unveiled his criticism of state's pension system in his "License to Steal" report.   "You can't complain in that case. They should go back to the drawing board.  There should be no settlement with secrecy."

Siedle continued, ""If [Raimondo] still refuses the public access to hedge fund documents, the workers would be idiots that their benefits are conditioned upon secret investments they're not allowed to see."

While Governor Lincoln Chafee and General Treasurer Gina Raimondo released a joint statement following the latest development last week, Chafee's Deputy Director of Communications Deb Rich said the Governor remained optimistic.

"Governor Chafee says the best case there a resolution before trial," said Rich. "The worst is an adverse ruling by the court. The dialogue now is to secure a retirement for our hardworking state employees that’s affordable to our equally hardworking taxpayers."

Looking Ahead

Ray Sullivan, who is the spokesperson for the plaintiffs group, noted that the process will move forward with the current assembly of legal teams who have been involved in the efforts to date.

"The trial will be presided by Judge [Taft-Carter], and will still be the same lawyers," said Sullivan. "We've always maintained the fundamental strengths of the plaintiffs legal argument, and now we're continuing to take the necessary steps."

The mediated settlement, which was announced in February, would have offered retirees a $500 COLA increase and some addition benefits for workers and retirees while maintaining 94% of the original law’s $4 billion savings.

Former Director of Administration Gary Sasse said that the move to the courts was in the best interest of the state.

"The mediated pension settlement represented risk avoidance for both management and labor. However, the Governor and General Treasurer have indicated that the state was in a strong legal position. Therefore as the pension settlement would have raised pension costs by almost $25 million for state and local governments, increasing the unfunded liability by over $230 million, it might be worth the risk of having the court decide the case it merits," said Sasse.  

Sasse continued, "Furthermore it is unclear if a mediated settlement would set a precedent that the since there was a negotiated agreement state employees indeed do have an implied contract.  For these reasons and to resolve the matter once and for all it might be worth the gamble of having the court rule."

Political Implications

Republican gubernatorial candidates Ken Block and Cranston Mayor Allan Fung have both been vocal in their opposition to a settlement. 

"As I have stated since day one, I did not support the secretly negotiated settlement because it added a higher burden on the backs of the local taxpayers of Rhode Island. When so many cities and towns are still facing difficult fiscal conditions, Governor Chafee and Treasurer Raimondo's proposed settlement effectively would have resulted in higher property taxes for the residents of Rhode Island and added a quarter of a billion dollars to our unfunded liability. The entire process was seriously flawed," said Fung.

Block said, "The worst case scenario would be the courts overturning the pension reform, thus costing Rhode Island taxpayers billions of dollars.  The best case scenario is for the Rhode Island courts to find that the pension was legal and constitutional, as we were told from the beginning. This would preserve all the original savings,"

The issue of numbers -- and Raimondo's "Truth in Numbers" report, which served as the basis the landmark pension reform legislation in 2011, was at the crux of Siedle's arguments. 

"The lesson of the failed settlement agreement is there shouldn't be mediation with a liar. That, bluntly, is it," said Siedle. "The truth in numbers report was a lie.   By the time of the settlement vote, there was deep suspicion as to the numbers, and a profound sense that people are being hoodwinked into agreeing to a bad deal, and that [Raimondo] hadn't been honest about how those hedge fund fees would skyrocket."

Recently, Siedle took to Twitter to challenge the information recently released on the Treasury Department's homepage regarding fees . On April 9, Siedle Tweeted, "Rhode Island pension total expense ratio 95 bpts, says @GinaForRI! No COLA for you -  Wall Street needs bonus $."

Interest Groups

"It appears at the moment that the matter will be settled in the courts, as it should be. The soundness of the 2011 pension reform law needs to be determined based upon its constitutionality, not by a mediated settlement reached by third parties," said Monique Chartier with RI Taxpayers.

Chartier continued, "The best scenario is that the law will ultimately be upheld. The worst case, of course, is that it will be overturned. This would be worst case not just for the state but for a number of municipalities which would almost certainly be pushed into receivership due to the sharp increase in pension contributions that would be required."

Similarly, the fiscal fate of the state's cities and towns was central to the Rhode Island Center for Freedom and Prosperity's perspective on the litigation.

"Cities and towns have an even more precarious pension situation them than the state. From a cities and towns point of view, this uncertainty is making it almost impossible to plan their budget," said Center CEO Mike Stenhouse.

Stenhouse continued, "This mediation process predictably was unfruitful, has caused more uncertainty, with Moodys clamping down, it's another indication of how our elected officials and our public are having their voices removed by special interests that are looking to roll back a law."

Taxpayer advocacy group OSTPA offered their perspective on behalf of their membership.

"The public sector unions have done their job trying to protect their union members. The state has done their job trying to protect every RI taxpayer. The time has come to fish or cut bait. The judicial system needs to determine the constitutionality of the pension reform law. Do our elected officials retain the power to make laws that are in the best interests of the taxpayer? The stakes are very high, but our government officials need to know where they stand for today and in the future," said OSTPA's Lyn Jennings. 

"Every year, through the budget process, elected officials set priorities. If the pension law is upheld, the Governor and the General Assembly can go on fighting the current battles for allocation of resources in the face of high unemployment and an unforgiving economy. Both the taxpayer and the union members will have a sense of finality. Members of the public unions can move on knowing that their government has done what is necessary to ensure the pension system is viable for current and future retirees," continued Jennings.  "If the pension law is reversed, there is no doubt that RI’s economy will suffer further. Our current priorities when allocating scarce resources will be thrown out the window to make way for the new priority of funding state employee benefits. At that point, many RI taxpayers will revisit the role public sector unions will play in the future. The RI voter will need to make the decision as to whether we are governed by the people or we are governed by the public sector unions."

Jennings concluded, "We believe the best case scenario in the near term, is for the pension law to be upheld so RI can move on to the business of improving its economy. But if the law is reversed, long term, it may force a change to the status quo political landscape."


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