State Report: Rhode Island Pension Reform & Falling Off the Fiscal Cliff

This week, the State House Report primarily centers on the upcoming pension overhaul lawsuit. Not only will this week’s developments be covered, but also the origins of the contentious pension debate.

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In addition to pension news, the looming “fiscal cliff” and a notable government appointment are also on the docket.

With $4 billion in unfunded pension liabilities, it’s no wonder that the pension talk debate became so heated this week. Gov. Lincoln Chafee spearheaded the debate early in the week by stating that he’s in favor of negotiating pension reform, while General Treasurer Gina Raimando and House Speaker Gordon Fox chimed in their discontent just days later. Keep reading to gather all the details.

 

Firstly, here’s some background on the origin of this week’s debate. Last year, the governor signed a law designed to overhaul the state’s public pension system and save billions of dollars in future years. The new system combines traditional pensions with 401(k)-like accounts creating a hybrid system; suspends Cost-of- Living Adjustments (COLA) and raises the retirement age.

 

The law went into affect July 1, and involves retired state workers, teachers and municipal employees.

 

Despite being signed into law, Rhode Island Council 94 and several other unions have filed a lawsuit to contest the pension changes. The union lawsuit was at the heart of this week’s deliberation and here’s where the major players stand:

Although Gov. Chafee signed the pension reform bill into law last year, the governor’s stance seems to have evolved. On Monday, Gov. Chafee, a supporter of pension reform, encouraged both sides of the state pension reform lawsuit to have negotiations even as the suit reaches the courts.

 

“In any litigation it’s common practice to have negotiations,” Chafee said to WPRI-TV. “I’m in favor of that: of having negotiation as litigation goes forward.”

 

Chafee also argued that both sides owe it to the taxpayer to exhaust every possible outlet to solve the pension debate.

 

“We’re the ones stuck with the bill if we fail in court and so we are the ones that really have the responsibility to pursue every avenue possible. That’s fair to the taxpayer,” Chafee added. “That includes negotiations to get this settled so we don’t fall into a deep, deep hole if the court case is adverse to us.”

Despite the governor’s contention, Treasurer Gina Raimondo, a champion of pension overhaul, would rather see the courts settle the matter. According to Raimondo, the updated pension law is already a compromise, which negates the need for any further negotiation. Raimondo specifically cites previous public-sector union hearings in which lawmakers lessened certain provisions, which benefited the unions.

 

‘‘We have a strong case,’’ she said on Wednesday. ‘‘We have to let this process play out. It’s in the courts. I trust the courts. Let’s let it weave its way through.’’

 

House Speaker Gordon Fox also weighed on issue issuing the following statement:

 

“It is not appropriate for me to negotiate legislation that was passed by the General Assembly and signed by the Governor. 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.”

Notwithstanding Raimondo and Fox’s sentiments, on Thursday, Providence Mayor Angel Taveras offered his opinion that the state has nothing to lose by negotiating.

 

“The Governor I think is taking a very reasonable step and that is to engage in negotiations and discussions. It does not mean that you have to settle. You won’t settle if it doesn’t make sense for the tax payers but the idea that you won’t talk to them at all, to me it doesn’t make any sense,” said Taveras.

 

Speaking from personal experience, Taveras also indicated that the city of Providence was able to negotiate with unions outside of court.

 

“Here in the city of Providence you learned that you sit down, you talk, and you listen to people, you might be surprised at how much you can accomplish,” said the mayor.

On Wednesday, President Barack Obama’s National Econmic Council released a report explaining the possible effects that the “fiscal cliff” may have on Rhode Island. According to the findings, the NEC found that roughly 400,000 middle class families would see higher taxes due to the expiration of the Bush-era federal tax cuts. Consequently, the NEC indicates that this hit to middle income families would result in a $700 million drop in consumer spending in the Ocean State.

 

The study describes a “middle income family” as a family of four earning at least $82,100, which is the state’s median income for a family of that size. Such a family would experience a income tax hike of $2,200. Additionally, an “upper middle class” household that earns $130,000 would incur a $4,040 increase in taxes. Lastly, a single mother with two kids that earns $24,000 a year would face a $1,670 increase.

 

In order to avoid tax hikes on middle-income families, President Obama has urged Congress to continue tax cuts for families earning under $250,000 per year. The President has also suggested expanding tax deductions for households earning under $250,000.

 

The term “fiscal cliff” refers to a combination of expiring tax cuts and across-the-board spending cut that are set to go into effect Dec. 31, 2012.

Senate President M. Teresa Paiva Weed announced on Monday that Eugene I. Gessow has been named Senate Fiscal Advisor. Gessow is the current Assistant Commissioner for Field Operations for the Massachusetts Department of Transitional Assistance. Gessow also previously served in various state-level capacities in states like Arkansas, Maine, and Iowa.

 

As for his Rhode Island connection, Gessow served as Director of research for the RI Public Expenditure Council and as Legal Counsel for the RI House of Representatives Finance Committee.

 

“We were very fortunate that candidates of such exceptional caliber sought this demanding position,” said President Paiva Weed. “Mr. Gessow brings a wealth of experience and an impressive record of innovation and vision to the position. The members of the Senate will rely on him and talented fiscal staff to provide sound advice and detailed analysis as we address the difficult financial challenges facing our state.”

 

Gessow educational background includes a BA in Economics from the University of Wisconsin; a JD from the University College of Law; an LLM in Taxation from New York University School of Law; and an MPA from the Kennedy School of Government at Harvard University.