Donna Perry: The Compounding Problems of Providence

Thursday, February 02, 2012

Donna Perry, GoLocalProv MINDSETTER™

 

It’s understandable if Providence Mayor Angel Taveras wants to accuse a member of the states’ Judiciary of channeling Charles Dickens from the bench based on a ruling coming out of Superior Court this week.

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The judicial fiction served up by Judge Sarah Taft-Carter in a setback ruling on retiree health care plans, implies one of two things: Either the Judge has an inadequate grasp of the severity of the fiscal factors, or embraces a Dickensian portrait of thriving and flush city retirees dwelling among the less fortunate workers within the collapsing metropolis who deserve the dying city’s gold plated health insurance plan, cash flow depletion or not.

Recall that this is the same Judge who issued a preliminary ruling against compelling public purpose in thestate’s defense of its 2009 actions to rein in public employee contracts.

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Prior to the “Tale of Two Cities” style ruling, the news coming out of the state’s capitalalready had potential bankruptcy written all over it. Althoughthe possible collapse of Providence represents a threat to the fiscal health of the entire state, there seems to be a growing sense of inevitability about it and the Judge’sposture ofindifference to the crisis served only to intensify the speculation. (It turns out Charles Dickens, also mentioned in the Governor’s Budget address, is popular around here this week.)

The current projections are that the city could run out of operating cash by June if the present deficit of $22. 5 million is not resolved in the very near term. But it’s the more than $2 billion in combined health and pension liabilities overall that looms largest.

The Judge’s Ruling

The Taft-Carter ruling crushed a key $ 6 million dollar piece of that immediate deficit resolution plan by-- temporarily—halting the city’scost saving move to convert the health plans of police and firefighter retirees from lifelong Blue Cross plans to Medicare at age 65.

It’s true that there are multiple factors driving Providence to the brink, including, the downsizing of many businesses which was exemplified in recent days with the not unexpected announcement by Bank of America that it will pull its headquarters out of the city’s iconic banking building within a year.

But the compounding factor of the compounded COLAs, which represents a separate legal challenge from the retiree health coverage question that was before the court, stands as the central subplot in the wider narrative nowunfolding.

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Enriched by the COLA

In his now very public and aggressive pursuit to have the COLAs suspended, Taveras points out that younger, current public safety workers face a very uncertain retirementif the city gets no relief from paying for the 5-6% compounded COLAs of their retired “brothers and sisters” whose pensions double about every 13 years.As Taveras has emphasized, he was a mere student when the damage was done, and the politically driven granting of the compounded COLAs as well as the tax-free accidental disability pensions occurred courtesy of the city Retirement Board partly during the Cianci years.

As has been reported elsewhere andpreviously, the COLA excess is perhaps best exemplified by the case of former firefighter and one-year chief Gilbert McLaughlin who, should he live to a ripe old age of 100, would stand to receive nearly $800,000 a year in a retirement pension from the city because of the doubling effect of the formula. Though now age 75 and receiving about $186,000 in a tax-free disability pension a year, McLaughlin has already accumulated $2 million in retirement payments under the present system. But he’s not alone, as two-thirds of the city’s roughly 3,000 retirees (2,923) are on compounded COLAs ranging from 3-6%.

Six-figure Retirees Can’t Afford a Health Co-Pay?

It is the “standard of living” of this category of retirees who Judge Taft-Carter fretted could be “impacted” should they now be forced into some type of insurance co-pay if the city switched their health coverage from Blue Cross to Medicare. A clear example of Taft-Carter’s confounded logic is where she projects that: “Absent an injunction, the retirees stand to incur thousands of dollars in new health care costs to retain insurance……expenses that could force them (retirees) to choose between other necessities and forgoing medical treatment.” Doesn’t that seem like a bit of an overreach from the bench to surmise that police and firefighter retirees, on compounded COLA-paddedpensions that often run into the six figures, will have to choose between “other necessities” (like what, a Golf Club membership?) and medical careshould they be forced to make co-pays into health insurance should the city switch them to Medicare?

Little wonder the Mayor’s staff reported he was concerned and disappointed with the ruling.

This shameful and fiscally irresponsible messis unfortunately what Taveras inherited, and at least he and the City Council now appear united in the plan to pursue either state legislation or city statutes to enact the suspension of the COLAs for at least a decade.

The next court round on retiree health coverage is scheduled for May. The city’s number crunchers are projecting Providence could run out of cash in June. Unlessconditions improve, the city will be back in court all right, but next time it probably won’t be to fight a simple injunction.

The “last resort option” chapter may get written after all.

Donna Perry is a Communications Consultant.

 

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