November 20, 2014
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Pension problems far from solved
John Hazen-White Jr.

Pension problems and complications continue to weigh on Rhode Island. Two communities in financial trouble because of unmet pension obligations – West Warwick and Cranston – are getting resistance from their unions and retirees when it comes to readjusting pension payouts. And the state, in the biggest challenge of all, is attempting to remove the Superior Court judge sitting in judgment on the union challenge to the landmark state pension overhaul that was approved by the General Assembly last fall, citing a potential bias because of family union connections (a state trooper son and a retired mother). The judge, Mary Taft-Carter, says there will be no bias in her decision-making, and she asked for and received a judicial panel review that supported her position in the case.

Contrast these situations with what’s happening in Providence – there the firefighters union has just agreed to cut COLAs for its members, and both police and firefighter retirees previously agreed over the summer to similar cuts. In Providence’s case, you have the public safety unions and retirees agreeing to concessions to help save the city’s finances. In West Warwick and Cranston, just the opposite is occurring – in those communities unions and elected officials are balking at any compromise. As a result, West Warwick, which is in a more dangerous position than Cranston is at the moment, is probably going to get a state takeover, as occurred in Central Falls.

West Warwick’s situation is dire. The town hasn’t made its required pension payments for 10 straight years now and has an unfunded liability of $115 million. The town manager has offered some bitter medicine: raise taxes, freeze salaries, slash overtime and cut payments to retirees and end their COLAs. The town council, which previously ignored a financial consultant’s advice not to invest its pension funds in a less than stellar outfit, doesn’t know what to do and has, in effect, thrown up its hands. The state is poised to intervene, warning that what happened in Central Falls might repeat itself in West Warwick.

In Cranston, where pension costs currently total some 20 percent of the city’s budget, Mayor Allan Fung has asked for pension relief from city retirees – specifically no more COLA payments for a period of 10 years, with renewed COLAs of no more than 3 percent coming after the 10-year time-out period. First reactions came back in the form of a big NO with these offered alternatives: close buildings, cut spending, and raise taxes, even though higher property taxes would affect retiree homeowners, too. As this column went to press, however, the head of the city’s firefighters union, who also represents former firefighters, has indicated that he is willing to meet with the mayor on the issue, so perhaps some compromise can be worked out.

West Warwick’s and Cranston’s pension problems have come to light due to the state’s requirement that cities and towns with troubled pension funds (those with less than 60 percent long-term funding) report to the state on the conditions of their plans and remedies they are taking to rectify the problem. To see how big the pension shortfall is across the Ocean State, it has been reported that 17 municipalities out of 39 are in poor shape with their locally administered plans. Eight of those did not meet the state’s Nov. 11 deadline to report.

It is indeed hard to take back money promised, and for years delivered, to retirees who, in many cases, depend on their set amount each month to get by, and who have also been granted COLAs every year. Some argue – hence the case against the state – that those promises are contractually binding and can’t be taken away without the consent of the recipients. That’s why it is possible that the state will lose in Superior Court, perhaps lose before the state’s Supreme Court, and have to take the case to the Federal Appeals level. If that wasn’t possible, the unions wouldn’t be pursuing it.

But Central Falls shows what can happen when the dollars finally run out. And Providence demonstrates what a community needs to do to avoid becoming the next Central Falls. If a community becomes insolvent, the state can step in and change the rules overnight, forcing everyone to receive less than they could have retained through reasonable compromise. West Warwick, which doesn’t look like it had responsible leaders for some time, may have to go that route. Hopefully Cranston and other communities will find the means to compromise and ride out the storm.


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