Donna Perry: A Real Chance for a RI Recovery Begins
Wednesday, October 19, 2011
It can start with the pensions. Frankly, it has to.
The historic nature of Tuesdays’ presentation of a comprehensively researched, actuarial analysis tested, and broad constituency influenced document that could actually achieve true pension reform for the state of Rhode Island cannot be overstated.
It’s true that the Reform Plan crafted by Treasurer Raimondo and Governor Chafee was not so much proudly marched in, but rather limped its way into the hands of the General Assembly after an eleventh hour plot twist disagreement over municipal plans was finally resolved when some local plan relief components were included.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTIt sounds foolish to even point out that probably no one will find it goes far enough and many will rightfully find great flaws, (the reamortization) but before certain interests begin the predictable descent into the dungeon of tearing it down, it’s important to note the considerable benchmarks that the plan doeshit as it begins the process for legislative review in the run-up to a vote. In the early going anyway, the Plan seems to immediately hit an important benchmark in terms of relieving one of the more significant cost burdens built into the system.
The proposal to immediately suspend COLA’s across the board, including to those already retired, cannot be underestimated. As a detailed report by www.GoLocalProv.com showed last week, the annual cost for the COLA alone to the public workforce retirees and teachers hovers around $175 million presently.($174.6 million)The COLA accounts for a fifth of the overall cost of the pension system, not a small component. Providence Mayor Angel Taveras and Cranston Mayor Allen Fung especially, have been correct to push to the final hour to have some mechanism to allow the deeply troubled local plans adopt the proposed new COLA suspension triggers for their dangerously low funded plans. It seems an important step forward that this critical compromise was forged.
More critically, getting back to benchmarks, the Treasurer has correctly emphasized that COLAbenefits; awarded through state statute, and not in collective bargaining, have a much stronger chance to withstand legal challenge. Not a small insignificant consideration.
The creation of a hybrid defined benefit/defined contribution plan, which would launch next July, 2012, achieves the goal of beginning the process of moving the state away from a defined benefit system once and for all. Though the hybrid structure has been long talked about, only nowdoes the prospect of it actually coming on line seem within reach.
A fourth major component is the hiking of the retirement age to match social security, presently 67. Although the Plan encompasses many variations on how the new age threshold would work, setting state law to force public sector retirement age to match social security age, seems a wise reform.
The encouraging components of the Plan don’t carry over into the reamortization piece, however. It’s destined to start drawing the most fire and there’s no question it sets off red flags. Taxpayer reformers seeing a 25-year reamortization, and knowing that accounts for over $ 4 billion of the present liability being “remortgaged” for a new 25-year period, is an unsettling component to be sure. Upcoming hearings may well venture into tough testimony on it and only the days ahead will show if it stays intact.
Despite those considerable concerns, it’s also fair to state that the chance for this state to ever get back on its economic feet, begin the long, painful climb out of choking debt, and restore vibrancy to a now decimated local business sector in our struggling communities,must begin with this reform process.
In the final analysis, the years of the Legislature making piecemeal and half-hearted pension system reform attempts; the establishment and later disbandment of numerous pension reform study panels; and the vast collection of earlier pension reform reports which now sit collecting dust on book shelves in cluttered statehouse offices—did not translate into a true, organized reform plan that not only could actually be enacted, but one that could actually sustain legal challenge.
Yes, the state desperately needs a more affordable, reconstructed pension system that is sustainable. But it also needed a fix that would be court sustainable. Raimondo’s determined leadership on that central point could end up being the most important element of all in the days and weeks to come.
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