Horowitz: Pension Deal is Good for Rhode Island

Tuesday, April 07, 2015

 

View Larger +

Rob Horowitz

The agreement reached last week to settle the law suit, which sought to overturn the landmark state pension reform law, is welcome news. The deal between the State and the overwhelming majority of public employee unions and retirees preserves more than 90% of the projected $4 billion of savings generated by this sweeping reform, maintains the major contours of the original law, creates helpful certainty, and avoids the risk of losing in court.

The restoration of some pension benefits in the settlement is well targeted to the most appropriate recipients: low income retirees and long-time employees who have less time to plan for retirement. Particularly for employees at the lower end of the wage scale, the settlement restores some pension income. For example, cost-of-living-adjustments (COLAs) will now be made every 4th year—as opposed to every fifth year as mandated in the original law. And COLA’s will now be applied on up to $30,000 in annual pension income—a $5,000 boost. It also provides an opportunity for workers with 20 years or more of service to return to a pure defined benefit plan, but in order to do so they must pay more into their pension. 

The landmark state pension reform law, devised and championed by then Treasurer Raimondo with the strong support of former Governor Chafee, substantially reduced annual state budget outlays for pension costs, curbed unaffordable cost-of-living adjustments; converted existing and future employee pensions to a hybrid with a 401(K) component; and raised the retirement age. Adopted in 2011, it not only fixed a broken, unaffordable state pension system; it contributed to putting Rhode Island on a much sounder long-term fiscal course.  As Fitch Ratings, one of the three major credit agencies said at the time, “Approval of broad pension reform by the Rhode Island legislature increases financial stability for the state and may set a precedent for other states.”

By locking in these reforms that are so critical to Rhode Island, last week’s agreement moves us forward. While the likelihood is that the State would have prevailed in court, it was far from a sure thing.

The General Assembly will still need to adopt the agreement once the Judge in the case formally signs-off. However, given the support of Governor Raimondo, State Treasurer Magaziner and the public employee unions, it is just about a certainty to pass.  And preserving this landmark reform is something worth celebrating.

Rob Horowitz is a strategic and communications consultant who provides general consulting, public relations, direct mail services and polling for national and state issue organizations, various non-profits and elected officials and candidates. He is an Adjunct Professor of Political Science at the University of Rhode Island.

 

Related Slideshow: 10 Questions from Rhode Island Pension Reform Settlement

View Larger +
Prev Next

Gag order impact?

While a revised gag order has been put in place by Judge Taft-Carter following the revelation of the pension reform settlement, opponents to the secrecy of the process have continued to rail against the deal having taken place with little information having been made available to the general public.  

"Secret negotiations are where state government does its worst work," said RI Taxpayers Larry Fitzmorris.  "The judge's gag order has kept the decision process secret from those who will have to pay the bill.  Union members and retirees were given information by their leadership but taxpayers were kept completely in the dark about this deal."

With the requirement of confidentiality required until the termination of all the litigation in the case, when will Rhode Islanders get the full information regarding negotiations -- and will they be satisfied with such revelations after the fact?

View Larger +
Prev Next

GA approval?

The deal presented by Special Master Frank Williams to Judge Taft-Carter will soon be subject to approval (or not) by the General Assembly. While the April 20 trial date was vacated by lieu of the settlement, a 45 day "implementation" period was put in place for action on the terms of the agreement by the parties in the suit.  So when will the General Assembly ultimately take it up?  Speaker Mattiello and Senate President Paiva-Weed both expressed their preliminary support of the deal -- and indicated that the General Assembly will be reviewing the settlement -- including taking public testimony - in the coming weeks.  How much input will the public have, and how much information will be provided to the public concerning its impact and when?

View Larger +
Prev Next

Disapproving unions?

What about the unions who didn't approve it? Last time a deal was presented to the unions and retirees in 2014, one union dismantled that previous effort by just 254 votes.  This time it was the unions representing municipal police, along with Cranston police and Cranston fire, that didn't agree to the terms - but their lawsuits are continuing and are slated to be addressed by the court after the settlement is implemented.  What will be the ramifications of those unions' protracted legal battles?

View Larger +
Prev Next

Budgetary implications?

The 2011 pension reform that was intended to save the state $3 billion in the ensuing decade by enrolling public employees in a 401K-style hybrid plan, freezing cost-of-living-adjustments (COLAs) and raising the retirement age for many union workers has been abated - but by just how much?

After one failed attempt at a negotiated settlement, the potential impact of the second deal reached will soon be made more clear (the changes from the original law, to the first settlement, to the second, can be found here). 

"Remember that this is a second, enhanced settlement," said Monique Chartier with RI Taxpayers. "So we are now two steps removed from the original pension reform at a cost of an additional $232 million for state taxpayers alone."

View Larger +
Prev Next

Re-amortization?

If the pension deal goes through, and Rhode Island cities and towns are faced with major budgetary implications -- what would re-amortization -- i.e. stretching out the debt over time -- look like?  How will cash-strapped municipalities, already facing harsh fiscal realities, factor in the new obligations -- and how long will future generations be paying for them? While the settlement is expected to maintain most of the savings achieved by the 2011 reform, the concessions will have significant impact.  Just how will the state and the cities and towns will have to address it, and over what duration?

View Larger +
Prev Next

Opposition?

Following the announcement of a deal, a number of individuals -- and groups -- came forward to oppose the agreement, including advocacy group RI Taxpayers.

"These secret pension reform negotiations have amounted to an unconstitutional, alternative law-making process unaccountable to the people," states R.I.Taxpayers' Chair Larry Fitzmorris.  "Further, under a settlement, the critical matter of whether the pensions represented an implied contract would remain unresolved and might even jeopardize the state's legal position if this matter comes up again down the road."

"Far from being an awesome achievement, as the Special Master describes it, this settlement is a bad deal for taxpayers," said R.I. Taxpayers' spokesperson Monique Chartier. 

Senate President Paiva Weed indicated that public testimony will be part of General Assembly consideration -- how vocal will the opposition be?

View Larger +
Prev Next

Constitutionality?

While the pension reform deal addresses a number of points of contention, the precedent for any future reforms is being called into question by some in Rhode Island. Following the announcement, the Center for Freedom and Prosperity questioned the leeway lawmakers now have in light of the decision. 

"Regardless of the details of the negotiated settlement of the state's 2011 pension-cutting law, Rhode Island lawmakers and taxpayers will be left in limbo as to whether or not future pension reforms at the state and local level can be legally conducted," said the Center in a release. 
 
"We don't need a backward looking pension deal, we need a forward looking pension ruling on its constitutionality," commented Mike Stenhouse, CEO for the Center. "We all know that the 2011 law was just a band-aid and that massive reforms are still required at the state level, and especially in municipalities."

View Larger +
Prev Next

Political implications?

The landmark pension reform legislation of 2011 was a defining moment for then-General Treasurer Gina Raimondo, heralded by supporters for addressing the state's burgeoning pensions costs, and blasted by detractors for cutting what appeared to be iron-clad agreements.  

Whether Raimondo seeks a second term as Governor (or a higher office), the legacy of now supporting a settlement to avoid trial will be lauded by some for its fiscal prudence of avoiding costly litigation with an uncertain outcome, but for the union members who had hoped to undo the reform in its entirety is another matter of local -- and possibly national -- implications.  How will history, and voters, view this chapter of Raimondo's career?

View Larger +
Prev Next

Second investigation?

Outspoken Raimondo critic Edward Siedle, the former SEC-lawyer turned forensic pension investigator and Forbes' contributor who took a scathing look into Raimondo's 2011 pension reform back in 2013, is toeing the waters to see about conducting a second follow-up investigation in Rhode Island.  Siedle was highly critical of Raimondo's hedge fund strategy -- and since his initial report, the state has pulled out of a number of beleaguered hedge fund investments -- and Raimondo's Point Judith fee structure has since been disclosed, among other developments.  Would a second look by Siedle uncover new information that could have an impact on past and present oversight of the state's pension fund?

View Larger +
Prev Next

Bond ratings?

Will the settlement have an impact on the Rhode Island's bond ratings? Following a year that saw ratings agencies threaten to downgrade Rhode Island's general obligation bonds if the state defaulted on the 38 Studios Bonds, Raimondo seems to think that this pension deal will have a favorable outcome for the state. "We anticipate that removing the uncertainty will have a favorable impact," said Raimondo Press Secretary Marie Aberger. While the announcement of the settlement is the first step in the process, will any developments on the ratings front be forthcoming following General Assembly action?

 
 

Enjoy this post? Share it with others.

 
 

Sign Up for the Daily Eblast

I want to follow on Twitter

I want to Like on Facebook

X

Stay Connected — Free
Daily Email