Unions Decry 'Draconian' Pension Reform As Business Leaders Urge Action
The joint House and Senate Finance Committees heard from a long line of residents and union leaders on the governor's and treasurer's plan to fix the state pension crisis.
One union representative after another took the microphone Wednesday to decry "draconian" pension reform, urging the Joint House and Senate Finance Committees to stand pat on the pension crisis, while business executives implored the legislators to stop kicking the can down the road.
"This is not a crisis; this is a problem," said George Nee, president of the Rhode Island AFL-CIO, of the indebted pension system that eats up 10 percent of all tax dollars, a number in danger of rising to 20 percent. "The fund is not going to collapse tomorrow. This is not another Central Falls. Everyone needs to take a pause. We don't need to fix a 20-year problem in two weeks."
Representatives from Council 94, the RI Federation of Teachers and Health Professionals, the National Education Association and other unions echoed Nee's concerns that pension reform proposed by Gov. Lincoln Chafee and General Treasurer Gina Raimondo hits state employees and retirees too hard, and that there's no need to rush to fix the problem.
“If you do nothing, there’s still going to be many years to fix it,” said Robert Walsh, of the NEA-RI. “Nothing is going to explode tomorrow.”
Doing nothing is not an option, according to Paul Choquette, with Engage RI, an advocacy group pushing for the reform. The fiscal integrity of the state is vital to fixing the state economy, he said.
“The pension system is such a dramatic part of that,” Choquette said. “We’ve done the Band-aids before. Now’s the time to resuscitate the patient. We have a real opportunity to do something dramatic here.”
The "dramatic" reform Chafee and Raimondo have proposed includes suspending the Cost of Living Adjustment — an automatic raise for all retirees that matches the rate of inflation — for up to 19 years; changing the retirement age from its current 62 to match an individual’s Social Security age; and adding a defined contribution plan, similar to a 401K common in the private sector. State employees and teachers would contribute 3.75 percent of their pay toward a pension, for which vesting requirements would be reduced from 10 years to five years. They will also contribute five percent of pay into their own retirement account and the state would contribute an additional one percent to that account.
Chafee and Raimondo have said it is critical to enact reforms now. Without immediate reforms, they say impacts on the state’s finances include:
- Doubling of taxpayer costs next year to more than $600 million and more than $1 billion in about 10 years. Much of the increase would likely be passed onto municipalities, which pay for 60 percent of teacher pensions.
- Increases in both state taxes and local property taxes, coupled with budget cuts.
- An increased risk that the pension fund will run out of money before many employees reach retirement.
- A possible downgrading of state and municipal bond ratings, increasing the cost infrastructure projects.
Union officials have pointed to their own plans that they say will fix the pension crisis without reducing benefits to employees and retirees. Robert Walsh, of NEA-RI, among others, called for a reamortization — essentially a refinancing of pension debt — from its current 19 year plan to 30 years, which they say will make up almost all the shortfall. The state plan calls for a 25-year reamortization.
The unions also recommend applying the "hybrid" pension/retirement savings plan only to new employees hired after July 1, 2012; maintaining the current reirement age of 62 for all employees; and decreasing the life expectancy of Rhode Island retirees, which is currently second-highest in the nation after Utah. These reforms, the union leaders told legislators, will allow the state to maintain the COLAs at their current rate.
"Having the second-highest mortality rate in the country doesn't make sense," Walsh said. "In Utah, the majority are Mormons. They don't drink or smoke. I can tell you our members in Rhode Island are not Mormons."
The union leaders and members of AARP decried the state's "draconian" efforts at reform, charging the burden is not shared equitably across the state. Suspending the COLA, they said, is an unfair burden on retirees who will have no way to battle inflation, and breaks the promise the state made to them over their years of service.
"I was figuring I had another 20 years to live," retired Middletown music teacher Ann Gardella told the committee. "I guess I gotta cut it down to five or so."
Despite any promises retirees may feel were made to them, the state simply cannot afford to continue using the same broken pension system, according to Ken Block, head of the Moderate Party and a former gubernatorial candidate.
"It's not fair to taxpayers that more than 20 percent of the state payroll must go to sustain pensions. Taxpayers are already paying a very high number," said Block, who termed pension reform as a critical economic development issue. "If we don't fix this, the wet blanket that sits on top of the Rhode Island economy will never be lifted."
Legislators were expecting to hear from a parade of residents testifying for and against the reform bill, and expect the session that began at 11 a.m. to continue late into the evening. The joint committee is scheduled to resume the hearing on the pension reform bill Thursday at 11 a.m. in room 35 of the Statehouse.