RI Supreme Court Decision Is Million Dollar Payday for Former Fire Chief - Budget Buster for Prov
Wednesday, July 01, 2020
Former Firefighter Union head Steven Day said that while in office, then-Providence Mayor Joseph Paolino struck deals with the Providence Police and Firefighters Union to provide 5% and 6% compounded COLAs -- an agreement that was a major windfall for some city workers.
Tuesday's decision by the Rhode Island Supreme Court is just the latest in this 30 year plus political and fiscal odyssey.
Paolino was running for governor and wanted peace with the unions. Then, his successor, Mayor Vincent "Buddy" Cianci successor kept the COLA agreement going.
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"I hired [Attorney Joseph] Cavanagh to defend and undo what the retirement board did. Mayor Cianci ended up signing a consent decree. Our case never went to the Supreme Court because of the consent decree," said Paolino.
Cavanaugh, one of the founders of the law firm Blish and Cavanagh, did not respond to requests for comment.
Day, however, said Paolino wanted the issue resolved as he faced a difficult primary fight for the Democratic nomination for Governor against Bruce Sundlun and then Warwick Mayor and now-Supreme Court Justice Frank Flaherty.
Regardless of the origin, the COLA provisions were budget busters.
Windfall for Retirees
The top recipient, former Fire Chief Gilbert McLaughlin, retired in 1991 at a salary of $63,510.72. By 2014, he was receiving annual payments of $196,813.08 — three times his annual salary.
By 2011, the City of Providence was facing economic collapse and then-Providence Mayor Angel Taveras was pressing to reform the “pension abuse.”
As GoLocal reported in 2012, "that the top 25 pension recipients in the city all make over $109,000 each year, mostly due to five and six percent compounded COLAs that were granted two decades ago. At the time, Taveras said his administration believed the city could save $16 million annually by freezing COLAs -- and indicated he wished to cap pensions.
Then in 2013, the Providence City Council reformed the pension structure to try and keep the underfunded Providence Pension Fund from collapsing.
The Council’s action was overturned by the Rhode Island Supreme Court on Tuesday.
Supreme Court Chief Justice Paul Suttell in writing for the court centered his decision on that the City Council’s attempt to reform the COLAs was a violation of the Takings Clause.
The case has been remanded back to Superior Court Judge Sarah Taft-Carter. The case impacts 68 retirees.
The City will be required to pay millions in retroactive payments and the pension payments like those of McLaughlin’s will be restored. The total cost to the City is yet to be determined and may be impacted on how the case travels as it reverts back to Taft-Carter.
As of November of 2019, the City of Providence’s pension fund — the largest municipal plan in the state of Rhode Island — is in ”Critical” status. Providence is underfunded by more than $1.356 billion. And, the majority of municipal plans across the state are also designated as critically underfunded, a total of twenty other municipal pension plans.
Critical funding status is defined by Rhode Island General Treasurer Seth Magaziner as pension funds that are forty percent underfunded.
The Providence pension plan is only funded at 26.3 percent, with more than 2,800 active members in the plan and 3,200 retirees.
Day, one of the retirees impacted said of the decision, "It is a sin it took this long. It is a tired and long track. A lot of men have died while this court battle carried on and they were denied their benefits."
Implications Are Devastating for Providence
Providence Mayor Jorge Elorza said in a statement, “The Supreme Court decision will ensure that the unsustainably generous pensions that were doled out in the past will continue to be an albatross over our city for decades to come.”
“This decision will force the City to make very difficult decisions about how to pay for ballooning pension payments at the risk of short-changing critical needs like public education, social services and infrastructure investments,” added Elorza.
City Council President Sabina Matos said, “The outcome of [the] Rhode Island Supreme Court decision is at a minimum disappointing. At a time with so much fiscal uncertainty, this decision augments the need to be creative with our pension obligations while not sacrificing the City’s duty to pay debts and provide basic needs and services.”
Judge William Robinson writing in a concurring opinion blistered Paolino and Cianci for their policymaking.
“I conclude by observing that one of the most distressing featured of decisions like the one in Cranston (a reference to another decision) or in the instant case is that they in effect reward or immunize prior governmental ineptitude," he wrote. "To be blunt, the elimination of annual cost-of-living adjustments (COLAs) that has brought this case to the Court was deemed be necessary because of what the fiscal irresponsibility of previous municipal administrations had brought about.”
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