Pension reform with resolve
The Rhode Island Retirement Security Act became law on Friday.
It didn’t happen easily and it won’t be implemented on July 1, 2012 without a lot more work and, as the unions pledge, a court challenge. Union leaders concede the battle was lost Thursday when the House and the Senate approved the virtually unchanged pension reform legislation General Treasurer Gina Raimondo spearheaded. But unions fighting on behalf of state and city workers and teachers and about 30,000 retirees whose benefits would also be affected say the war isn’t over.
The bill does nothing to reform municipal pension plans, some of which are in far worse shape than state plans and promise to severely burden local property taxpayers. Conversely, as has happened in Central Falls, some municipalities could face bankruptcy. Municipal workers could face pension reforms and retirees the loss of benefits.
If anything, Raimondo’s resolve and the coalition she brought together of Speaker of the House Gordon Fox, Senate President Theresa Paiva Weed and Governor Lincoln Chafee has set the stage and the lead for municipalities. Raimondo mounted a grassroots effort to underscore the plight of the state and the need for immediate action. She spoke before Rotary Clubs, chamber boards and at gatherings. She met with local and state leaders and she welcomed the support of Engage Rhode Island, a group that rallied chamber members and financed ads for reform.
While municipalities have been left out of the equation, the momentum is there and depending how court action plays out, the road ahead may be cleared of challenges.
Raimondo says 2012 is the year for municipal pension reform.
The momentum for reform was apparent Thursday as the General Assembly convened to deal with this one bill and nothing else.
After all the effort to line up support on both sides of the issue – the rallies, advertisements, e-mails and letters written to legislators and the speeches – one would have thought the chamber galleries and State House corridors would be packed. That wasn’t the case. There were seats to be found in the galleries and there were contingents of union members prepared to cheer and applaud those few who sought to postpone, if not derail, pension reform.
But as the outcome became evident, even the union leadership left to watch proceedings from the television in the basement cafeteria or to make cell phone calls from the corridors.
There wasn’t the scurrying of lawmakers on the floor that typifies the closing days of the legislature when sticky budget matters get worked out. There was passion. But more than anything there was resolve and recognition that reducing the pension liability by $274 million in the upcoming fiscal year and $3 billion over the next 24 years won’t come without sacrifice. This wasn’t happy work.
Key elements to the legislation are the suspension of cost of living adjustments (COLAs) to retirees, the raising of the retirement age for current workers and the creation of a hybrid benefit plan that combines the existing system of a defined benefit with a defined contribution plan similar to a 401(k) plan for most state workers.
From the opening efforts to amend the bill, even the seemingly most benign of changes to the preamble to exempt workers of any blame for the pension mess, it was evident the die had been cast and House leadership wasn’t going to change course.
“You said the public employees did nothing wrong, you said it. The treasurer said it. So what’s wrong with putting it in writing,” Cranston Rep. Charlene Lima asked of Rep. Nicholas Mattiello, also of Cranston and the majority leader.
Mattiello argued amending the preamble would serve to derail the bill and that if nothing were done the taxpayer would suffer. “This problem is so big that we all have to come together,” he said, “no one is assigning blame.”
And even efforts to consider re-implementing a COLA sooner than the five-year review, which is linked to an investment return of at least 5.5 percent on pension assets, was shot down. The COLA would apply only to the first $25,000 of a retiree’s payment. East Greenwich Republican Rep. Robert Watson had asked for annual consideration of COLAs.
“Let’s put the retirees in the equation,” said Watson. He reasoned if retirees witnessed the choices legislators must make, they should, likewise, “be able to come to this building and ask for the cost of living adjustment that seems appropriate.”
Helio Melo, chairman of the House Finance Committee, likened Watson’s amendment to asking people “to beg” for a COLA. The amendment was rejected quickly, as was the effort of Rep. Scott Guthrie of Coventry to postpone action. He reasoned that there are ongoing court challenges to pension revisions and the state would be better served to let that play out and then take action. He speculated legal challenges of the law will take 10 years to litigate and that the measure will turn out to be “a jobs bill for lawyers.” He added when the state loses in the courts it “will have to pony up over a billion to fix this mess.”
His amendment was defeated 68-3.
The House debate started about 2:20 and even before Speaker Fox opened the session, the emotion of the reforms and, in particular, the failure of the bill to address plans run by cities and towns, bubbled. Warwick Republican Rep. Joseph Trillo and Lincoln Rep. Peter Petrarca engaged in a shouting match with Mattiello taking it in and defending Petrarca’s argument that the municipalities be left out of the bill. The face-off was accompanied by a lot of hand waving.
“We’re all Italians, we talk with our arms,” Trillo concluded when the flare-up quieted down. In the end, all three legislators voted for the bill.
As the House leadership held off efforts to amend the bill, the Senate convened.
“The action is all over there,” Senator Michael McCaffrey said pointing in the direction of the House when asked whether the Senate would approve the bill. In fact, the Senate had finished its business before the vote in the House. The Senate approved the bill 34-2, with two Senators not voting. In the House it passed 57-15, with three not voting.
All Warwick Senators and Representatives voted for the reform package with the exception of Rep. Robert Flaherty, who was absent.
The only amendment apart from the correction of typos and wording clarifications to the bill approved by the Senate and House Finance Committees was an amendment enabling more than one firm or company to manage the defined contribution aspect of employee retirement accounts. The state will solicit requests for proposals to manage and invest the millions of dollars that will flow into the plan.
“This is a happy Thanksgiving from elected officials,” J. Michael Downey, president of Council 94 of the American Federation of State County and Municipal Employees, said from the State House basement cafeteria where he and several union members watched proceedings on Capitol TV.
“When they’re done with us we won’t be buying turkeys, we’ll be buying chickens,” he added.
Asked why the governor’s efforts to include provisions enabling municipalities to suspend COLAs in their plans failed, Downey speculated legislators don’t want to incur the wrath of their hometown police and firefighters in the upcoming election year. And he questioned how lawmakers could turn a blind eye to municipal plans, which he said in one case is only 16 percent funded.
By contrast, he said, the Municipal Employees Retirement System (MERS) that most state workers are in is funded at 71 percent.
“They’re punishing the people in MERS,” he said.
With the outcome of a vote apparent Thursday evening, some state workers were calculating what it would mean for them. One of those is a member of the Capitol Police, who has a pension from the year he spent on a local police force plus Social Security. He was looking for his state pension to provide an extra little boost. Now, he lamented, it looks like he’ll be working at least an additional two years before pulling out of Rhode Island for his dream home in the Southwest.