Pension Promises vs. City Services
Thursday, July 21, 2011
What is a promise?
The measurement and definition of a promise, from legal, employment and local government responsibility perspectives has been bantered about in recent days like never before. Questions revolving around who promised what to whom—and more importantly, is the perception of a “promise” the same thing as a legal obligation—are part of a significant new chapter in the state’s running saga of how to fix its broken pension system.
The venues for this discussion have ranged from a hearing held in Superior Court, to a meeting of the state’s pension advisory panel, held in Warwick, to, of all places, the city pool in Cranston.
The significance of the Superior Court proceedings, which began Monday, can’t be overstated in terms of the ultimate impact the ruling (due in September) could have on the state’s attempt to contain the astronomical costs of pensions promises that were made. The unions filed suit to block modifications to retirement benefits enacted by the General Assembly in 2009, which could save taxpayers about $60 million just this year alone. The changes deal with extending years of service before being eligible for a pension, reducing the actual benefit itself, and reducing COLA’s. The unions’ lawyer, Lynette Labinger, argued that a worker’s pension amounts to a deferred compensation (promise) that cannot be taken away by the Legislature. The state’s attorney, John Tarantino, essentially argued that because the pensions have been created by legislative statute, then they can likewise be reduced or modified by such. There is an important legal distinction, he stated, between an expectation of a certain retirement benefit—and a legal right to it.
On the very same morning these arguments were playing out this week, the Pension Advisory Panel headed by Treasurer Raimondo was meeting. That’s where the Cranston public pool comes in. On a hot July morning, the sole mayor in the Raimondo group, Cranston’s hardworking ally to the taxpayer, Allan Fung, told the panel that the city’s Budlong Pool may soon have to close (again) due to pension draining budget pressures and that’s just the beginning. Fung spoke for city and town leaders across the state when he urged the panel to understand that community budgets will break if modifications to benefits for existing retirees are not recommended. He drew a sobering portrait of the toll the steep jump in pension contributions will have as he ticked off a litany of basic community services that could cease to exist under the fiscal pressure: the senior center, the city library, trash collection. Cranston’s tab for this year’s pension contributions for the retirements of police officers, firefighters and city employees has climbed by $14 million just since actuary assumptions were changed this past spring. Its overall unfunded liability is over a quarter of a billion dollars, at roughly $245 million.
When panel member Alicia Munnell, a former assistant to the Treasury Secretary in the Clinton Administration, was joined by NEA head Bob Walsh in fretting that public employees may not have been saving very much in anticipation of living off their pensions, Fung countered that panel members can’t be expected to worry how people manage their money and savings. What Fung didn’t say, but needs to be stated, is that there will be very little savings or retirement account left for this state’s struggling middle class private sector, as higher property taxes and reduced income opportunity across the state collide to crush the people who are supposed to be providing the revenue for the pensions!
Fung’s red flag warning needs to be recognized. He is right. Cranston is the barometer for many local communities. If changes are not made to the pension eligibility and benefit this fall, that tab threatens to devour most all other spending needs, period.
The discussion of promises can’t conclude without noting the kids in the Cranston pool. They are owed a few promises too. How about the long held and implicit promise a local government makes to its citizens that it does not just provide for retirees, but also provides good schools, sports leagues, community centers, and yes, a public pool for the city’s kids? Maybe the ultimate promise to all of Rhode Island’s children that’s truly at the center of the court battle is this: We won’t let the costs of others’ retirements cancel out your future.
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Donna Perry is a Communications Consultant to RISC, RI Statewide Coalition (www.statewidecoalition.com)
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