Sgouros: The Disadvantages of Power

Monday, May 30, 2011

Tom Sgouros, GoLocalProv MINDSETTER™

 

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This year, our state has the benefit of two new faces in important executive positions. Providence Mayor Angel Taveras and General Treasurer Gina Raimondo come into office unencumbered by associations with the mistakes of the political past. They both have big problems to face, and both seem committed to facing them head-on. This is good news, but unfortunately, both also seem committed to an approach with considerable risks for the rest of us.

Let's take them one at a time. Gina Raimondo has shaken things up by very clearly, loudly, and insistently outlining the dimensions of the funding issues in our pension system. It is certainly true, as she pointed out in a much-publicized report put out last week, that our management of the big pension system that handles state employees and teachers has been far less than ideal. Years of poor deals and wishful thinking have put the system in a bad place and— like a lot of our government—it is more expensive now than it would be if we'd been smarter in the past.

But tell me this: what's the worst thing that might happen to the pension system in the short term? In the long term, of course, the worst thing is that we'll run out of money in the fund and the pension obligations will become more expensive. But in the short term, the absolute worst that can happen is another big wave of retirements. Retirees that weren't part of the actuaries' assumptions create liabilities they didn't anticipate, and unanticipated liabilities are almost the whole problem.

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Pension reform has backfired

In 2008, Governor Carcieri proposed a change in the rules about health care for retirees, causing a huge wave of retirements as people accelerated their retirement to beat the rule change. In a matter of months, many more people were receiving pension checks and many fewer were paying into the system. Result: our pension problem got suddenly much worse. The situation is helpfully illustrated in the chart on page 10 of the treasurer's report. According to that chart, in 2008, the system was paying out $649 million while it took in $525 million, not counting investment income. The very next year, after the wave of retirements, we paid out $726 million and only took in $457 million. That is, we took a $124 million per year problem and turned it into a $269 million problem in the space of three months—in order to save $9.8 million per year. Doubtless it was Governor Carcieri's vast business experience that allowed him to seize opportunities like that.

We absolutely don't need that to happen again, but what will be the completely predictable result of beating the drum so loudly about "reforming" pensions? I'll bet you a tax bill it will be another big bump in the number of people retiring, which will only make a bad situation still worse. The drumbeat might be intended to reach legislators, but they're not the only ones listening.

State, not Cicilline responsible for Providence’s problems

Turn now to the City of Providence and its "Category 5" financial storm. Mayor Taveras has made much of the fiscal condition he inherited, and playing up the problems has given him the political freedom to act in ways I never imagined he would. Perhaps he sees this as necessary, but a mayor's words have consequences. Despite the opinion polls and the cloud of dust thrown up by the Mayor's fiscal commission, the state precipitated the Providence fiscal crisis and Providence isn't going to get out of trouble without the state's help. I simply don't see how the Mayor's portrayal of the city as a near basket case makes it more likely the state will become engaged in a positive way. Already, the state seems inclined to treat Providence like a ward rather than partner in figuring out how to develop the land freed up by moving the Providence River I-195 bridge.

The Mayor's insistence on not explicitly allocating blame, but allowing so much of it to rest on his predecessor, seems to me perfectly designed to allow legislators to wait and see how Providence works out its own problems. After all, they're off the hook. It discourages businesses from investing in the city, makes it more likely that recklessly cut state aid will be replaced solely by property tax revenue, and furnishes a ready excuse for inaction by people who aren't really interested in the health of our capital city.

Real problems demand real solutions. You can't debate arithmetic. But there is real risk to playing up the problems. High offices are powerful, but the thing about power is that it has to be wielded with care. Words can make a difference, and it's not always the difference you intend. Not only can accentuating the drama make solutions more difficult, but it feeds what I think of as Rhode Island's toxic culture of civic self-loathing, the idea that there is nothing to celebrate about our state.

On Saturday I brought a visiting cousin from Manhattan to have supper dangling our feet in the fountain at DePasquale Square, where we listened to three guys in purple shirts sing their hearts out on old Johnny Mathis and Smokey Robinson songs. Then we bought dessert at Pastiche and strolled downtown to eat it at Water Fire (originally commissioned by a city employee, incidentally), where I saw some of the many smart and talented people I know here. My guest was charmed, and to tell the truth, so was I. There's a lot to love here, and we have a lot to be proud of. No one is served by ignoring our flaws, but that coin has another side: are we really served by letting the flaws blind us to our strengths?

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Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net. Contact him at [email protected].
 

 

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