General Treasurer Gina Raimondo called on more than a dozen municipal leaders yesterday to embrace comprehensive pension reform to bring stability, businesses and jobs to Rhode Island.
Speaking of legislation she is drafting for legislators to consider when they convene in October, Raimondo said “It’s going to fix the problem once and for all…it’s like putting a giant sign on Route 95 ‘we’re open for business.’”
But she added that enacting comprehensive reform would require political will.
“Now it’s your job,” she said, “I’m going to lay it at your feet.”
But what will it take for a sustainable and affordable pension system, and, what happens if nothing is done?
Rainmondo offered an insight to her premise that all parties need to share in the plan for it to work, when she called the 50 percent cut in Central Falls retired firefighter benefits as “not security” for retirees. Central Falls has filed for bankruptcy protection and receiver Robert G. Flanders Jr. says he has the right to make the cuts under the federal bankruptcy law. The union is contesting his action.
Reductions in retiree benefits, which could be legislated for state pension plans that are set by statute, has been a touchy issue, although many mayors, including those for Warwick, Cranston and Providence agree it must be done.
Yesterday, after an hour-long meeting in Warwick City Hall organized by the Rhode Island League of Cities and Towns, Raimondo called the 50 percent cut “extreme,” although, if reforms are not made, cuts of that magnitude would eventually be required.
“That’s a last resort,” she said.
Raimondo could not say what cuts in benefits retirees in the MERS (Municipal Employees Retirement System) would face under her plan.
Raimondo had an attentive audience and, seemingly, a supportive group of municipal leaders.
“She’s giving the truth,” said Mayor Scott Avedisian after the meeting. “If you want real reform she’ll provide the mechanism to get there.”
Avedisian favors Raimondo’s objective to have all parties impacted give up something, rather than having the burden fall on any one group. Avedisian also said Raimondo is genuine in soliciting suggestions and engaging people in the process.
“She wants options,” he said.
Leaving the situation unchanged, however, is not an option in Avedisian or Cranston Mayor Allan Fung’s opinion. Sheets were distributed showing that contributions to both the employee and teacher MERS would need to increase by $91.5 million next year, a 66 percent increase for the plans to remain sustainable.
Warwick has its own municipal employee, police and fire pension systems. Warwick teachers are in the MERS and Raimondo puts the city contribution going from $11.1 million this year to $17.6 million next year, a 59 percent increase.
For the city to finance such an increase for teachers alone it would come close to exceeding its 4 percent cap increase in the tax levee.
Fung said all of the state’s municipalities are in the same boat. Cranston, he said, would need to raise an additional $10 million for MERS plus $4 million for city plans.
“Reforms have to happen now and it can’t exclude the municipalities,” he said. Without reform, Fung said, Cranston taxpayers would be faced with a $1.60 per $1,000 of valuation tax increase “and I’m not going to do it.”
Johnston would need to increase its MERS contributions by 60 percent in the FY 2013 budget. Those costs would climb $2.5 million to a total of $6.5 million.
If any solace to municipal leaders, Raimondo said her plan, if enacted, would not require the levels of increased funding outlined in her analysis and possibly even a reduction in municipal contributions.
Raimondo said she is looking at a variety of factors including retirement age, cost of living adjustments and how benefits are provided.
In her opening remarks, she blamed the faltering system of decades of bad decisions and “sweeping it under the rug.”
“The legislation I will get behind will be comprehensive…there is no other way,” she said.
Specifics were noticeably absent from her comments. She was not prepared to answer how city plans, like those of Warwick that are outside MERS, might be affected. In response to questions, she noted that benefits in those plans are defined by contract but possibly could be changed legislatively.
Avedisian has raised questions over sweeping city plans into a state system, as there are some features of the city plan, such as COLAs that are tied to the performance of pension funds, that make them financially more sustainable than the current state plan. At issue, too, is equity between municipalities as some cities and towns have been funding their systems while others haven’t.
Raimondo is also thinking long range. She said making adjustments to relieve issues in the next budget cycle would simply postpone a “spike” in contributions down the road.
“We can try changing assumptions...it is what it is, it's a huge problem, it's here, let's fix it. The day we fix this problem we're going to put a giant sign on the state of Rhode Island that says 'We're open for business.'"
“There is no other way out,” she said calling on the municipal leaders to contact their state representatives. “There is nowhere to hide.”
“I will write the bill and then I will need you,” she added. She listed her objective for an affordable retirement system that provides retirement security.
Raimondo will take her message to groups across the state. She will talk to the Warwick Rotary Club next month and is looking to meet with other groups.
She said she would welcome the opportunity to address the League of Cities and Towns again and that perhaps the best time would be once the plan has been drafted.