Russell Moore: Fear and Loathing - RI Style

Monday, April 06, 2015

Russell J. Moore, GoLocalProv MINDSETTER™

J. Michael Downey, President of Council 94

Is there anybody who's happy in Rhode Island right now?

More specifically, with respect to the pension lawsuit settlement agreement, is there no group of people who isn't angry, scared, or both?

It seems like, from the state workers and retirees, to the taxpayers who make the government possible, to the politicians, nobody is happy with the result of the pension settlement. Yet, through fear, and despite anger, they're all forced to sort of accept what's really been the inevitable since this whole saga began about 4 years ago.

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First, those who will be affected the most, the state workers, teachers, and retirees, are upset that they had to begrudgingly accept a pension settlement that, they assert, only gives them a token giveback. The odds of winning their lawsuit against the state, they were told by their union leaders, were stacked against them. In other words, the court battle would be uphill both ways.

Loathing

In a way, it's easy to understand their frustration. The public sector workers were promised one thing, kept up their end of the bargain, but will end up getting much less than they bargained for. And it doesn't help that they've heard that the state has a "moral obligation" to pay the 38 studio's bonds, but none to keep their word to the retirees, as J. Michael Downey, the President of Council 94, the largest state employees union, has pointed out numerous times. (Yes, he has a point.)

But looking at the big picture, and comparing what the public sector workers get compared to those who toil in the private sector, it's not even close. The public sector workers, all things considered, have vastly better retirement packages than their counterparts.

Meanwhile, the taxpayer advocates I’ve spoken with are upset that they're once again going to have to fork over more money to the public sector unions. Thanks to a gag order that remains in place, the details are still fuzzy, but leaked documents say that the state will have to come up with about $32 million more in the current fiscal year alone after the agreement takes effect. (There are already murmurs of re-amortizing the debt to make the plan more affordable, but that would only cost significantly more in the long run.)

So taxpayers are wondering why the politicians they've elected have been eager to agree to a settlement that will end up costing the taxpayers millions extra when all the evidence points to the fact that the state would, in the end, prevail in court.

An Insurance Policy

Speaking of politicians, fear has been their motivation. Governor Gina Raimondo, Treasurer Seth Magaziner and the legislative leaders, have all noted that they'd rather take risk out of the equation and reach a settlement with the employees instead of risking losing all of the savings from pension reform. The pension reform of 2011 shaved off roughly $4 billion of the unfunded liability, and the settlement, which preserves roughly 90-percent of the savings, looks a lot like an insurance plan.

But sometimes, insurance isn’t a wise investment, say the folks at the conservative-leaning Rhode Island Center For Freedom and Prosperity. They argue that the state needed to take the case to court and get a decision that would answer the question, once and for all, as to whether it was legal to for the state legislature to reform the pension system. A settlement, the think tank points out, leaves too many questions unanswered.

Here's the thing: it's a common notion that in any good negotiation, both sides should come away feeling as if they could have done better, and could have given up less than they did. Using that as a barometer here, it seems like the pension settlement agreement is a fair deal, since nobody seems to be happy at this point.

When Nobody is Happy

When all is said and done, the reforms did take the system from roughly 40-percent funded all the way to 60 percent funded. That means if everyone who was entitled to a pension, demanded it today, there would be 60 percent of the funds needed to meet those obligations. That's significant progress.

However, any good financial analyst will tell us that a pension plan that isn't 80-percent funded isn't a well-funded plan. That, coupled with the fact that the pension reform initiative of 2011 didn't touch two sacred cows in Rhode Island--judicial pensions and state police--and that municipal pension plans throughout the state are still in dire straits, it's abundantly clear that while politicians might be saying that our troubles are over, there are really seriously structural issues that need to be addressed. In other words, all is not well.

That means, once again, quote the late, great Hunter S. Thompson - we'll see plenty more fear and loathing in Rhode Island going forward.

Russell Moore: Fear and Loathing - RI Style

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