Gencarella: Public Union Benefits Limit What Our Government Can Do For Taxpayers.

Thursday, April 16, 2015

Pam Gencarella, GoLocalProv MINDSETTER™

Ask Not What Your State Can Do For You, But What Your State Can Do For Public Unions.

“Decisions concerning the allocation of public resources will often leave some parties disappointed." So said Michigan Supreme Court Judge Markman when the teachers union lost a recent pension reform case.

Government wasn’t meant to be a jobs factory nor a source of lucrative benefits, benefits better by comparison than those who pay for them through their taxes. And that’s what the RI taxpayer wanted in writing.  A court decision that said that elected officials have the power to giveth and the power to taketh away in accordance with their duties as elected officials - ultimately with the goal of providing the taxpayer with government services at an affordable price.  No more, no less.  

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Now, with the pension settlement, that will not be in writing in this legal go-around. And that is after a significant amount of energy and resources were spent to end up with the taxpayer shelling out even more for state public pensions and still the door remains open for future lawsuits any time the General Assembly serves the taxpayer by implementing laws to reflect more reasonable costs for the taxpayer. 

The Flip Flop.

In addition to adding significant costs for Rhode Islanders, the same old approach will allow us to pass the costs to the next generation. One of the legislative amendments to the plan will be to allow municipalities to re-amortize, or spread out over a longer period, the unfunded liability. Then-Treasurer Raimondo, a finance expert, was against this concept of putting off until tomorrow.  Now Governor Raimondo is okay with that apparently.  

Expect More, Pay More.

Last month, the Providence Journal reported that the cost to municipalities of this second proposed settlement would be an additional $13.7 million next year. That’s $3 million more than the expected cost of the last year’s initial proposed settlement. One might ask how cities and towns like bankrupt Central Falls will pay their share. Remember, the state taxpayer bailed out their local plans not once, but twice recently.  

Separately, the Journal reported that the total unfunded liability for the state plans will increase by about $290 million as a result of the recent settlement, a little gift for future generations. That represents a $30 million increase over the additional liability that would have been created in the initial settlement deal proposed last year. But no worries, the taxpayers’ pockets are deep.  

What the Near Future Holds.

Here’s the wrinkle.  A recent article by Mike Riley speaks to the issue of a little talked about change in investment return assumption that our state and local governments will be reporting at the end of this fiscal year, June 30, 2015.  He expects it will add an additional $3 billion to the unfunded pension liability.  That’s right, it’s basically the savings that occurred when Raimondo pushed through reform in 2011, plus the additional cost she supports with the pension settlement.  At that time of pension reform, she spoke about a disastrous cost to Rhode Islanders, a cost so high that she felt she could win a court case supporting the pension reform.  What does she think of it now?  And with the municipal pension systems’ funding in worse condition than the state’s, who knows where the $2 billion municipal unfunded pension liabilities will end up with the required pension changes, particularly Providence.  

And these aren’t the only public union retirement benefits that need to be addressed. Russell Moore wrote an article on the less talked about $3 billion OPEB liabilities (Other Post Employment Benefits) that state and local governments owe for public union retiree healthcare. These numbers are startling as well and there has been virtually no money set aside to pay for these benefits.

A False Sense of Security.

Although the public has been lulled into a sense of complacency by the pension reform and the pension settlement, both the pension benefits and the retiree healthcare benefits represent “category five” costs for the taxpayer. And what no one talks about is the impact on younger public union workers. The younger workers are actually getting hit twice, once as a taxpayer and once as a public employee. They are paying for their older counterpart’s retirement at the expense of their own.   

How Will the Pie Be Cut?

These public union costs contribute significantly to the high taxes we experience in our state  and they limit the monies our state and local governments dedicate to basic government services like the maintenance of roads and bridges, yet not one elected official has proposed any further reform.  We need and expect help from the General Assembly in the future on these issues of public union employee costs. Yet, even as we speak, after WatchdogRI’s detailed analysis of the high cost of fire service in the state, legislation is on the table in the General Assembly to increase the cost of fire service. Bills H 5473 and S 533 would include work schedule and platoon structure in the collective bargaining agreement.  This legislation was in response to a RI Supreme Court decision that shot down the firefighters’ suit against the Town of North Kingstown’s effort to maintain management control over firefighters’ shift schedules. The mind set in the General Assembly is there, to continually side with public unions at all costs.  If laws exist that don’t favor public unions, they go to court to change the law.  If the courts don’t side with them, they go to the General Assembly to change the law. And, historically, our General Assembly has obliged. 

It is clear that something’s got to give.  Bankrupt pension plans, bankrupt cities, children in debt the day they are born and severely reduced government services.  Will Speaker Mattiello, President Paiva Weed and Governor Raimondo stand up to the public unions and stand for the taxpayer or will it be more of the same?  Based on leadership’s caving on pension reform, it looks like more of the same.

Pam Gencarella is a member of OSTPA, a taxpayer advocacy organization in Rhode Island.

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