SMITHFIELD — There is nothing stopping mayors and city councils from passing an ordinance right away that stops COLAs (Cost of Living Adjustments) on municipal employee pensions, General Treasurer Gina Raimondo told a business forum Friday morning.
Her remarks came in response to a question from a Cranston woman, who said her city faces property tax increases of 8 percent a year for each of the next 10 years despite the changes in individual municipal pension plans (called non-MERS plans in pension jargon) in the comprehensive pension reform legislation introduced this week by Raimondo and Gov. Lincoln Chafee. MERS is the state-run retirement system for city and town employees, but some communities have individual plans with various groups of unionized workers that are the responsibility of the respective cities and towns.
Chafee and Raimondo were addressing a forum hosted by the business-backed group RIPEC (RI Public Expenditure Council and Fidelity Investments at Fidelity’s Smithfield campus.
Raimondo told the lady that Cranston Mayor Alan Fung, “if he should choose to, could work with his city council tomorrow to pass a city ordinance stopping the COLA. In so doing, he would face the identical legal challenge that a state statute would face.”
Fung and other mayors have complained that the proposed legislation does not go far enough in helping cities and towns
“The legal test to whether that ordinance, or a statute, holds up in a court of law is whether there is a necessary public purpose behind passing such a law,” the treasurer explained.
“At this point in time, I don’t believe the state of Rhode Island could make that case. We haven’t done an actuarial study around every one of these plans, we haven’t laid the groundwork for necessary public purpose. But if any mayor, in his or her judgment, believes it is an urgent problem and they should stop these COLAs immediately, then they should lead and do that. I believe the proposal the governor and I have put forward does help these municipalities get themselves on a path to responsibly and legally solve their problems.”
That proposal requires all municipalities to get an actuarial experience study of each non-MERS pension group and to develop a plan to make them solvent. That plan will be reviewed by a state-appointed “Solvency Review Committee.”
If the plan is not accepted, then at the conclusion of the collective bargaining agreement of which the plan is a part, COLAs would be suspended and state aid could be withheld from the community.
“Just to keep this rooted in the facts,” Raimondo added, “should this reform bill pass, the City of Cranston will save $12 million next year, and more the following year. All municipalities together will save $1.5 billion in the coming years and over $100 million next year. So this bill provides substantial relief for cities.”
Chafee has championed the idea of fixing the non-MERS plans. He calls them “icebergs” that endanger the finances of cities and towns.
The governor told the group, “Mayor Fung wanted the COLA suspensions granted yesterday, that’s what I phrased it as. Mayor Fung wants to get at those retiree COLAs immediately. We went back and forth on this. I’ll be honest, I wanted to be more aggressive on this and keep the mayors on board. The treasurer had some legal questions, which I respect, so that COLA suspension for non-MERS plans occurs after a succession of events – an actuarial study being done, a solvency review team, a period of time in which the city and union can negotiate a solvency plan – and if all that doesn’t happen, then there’s a suspension of the COLA, that’s not fast enough for Mayor Fung, which I understand.”
Woonsocket City Council President John Ward, who is also finance director for the town of Lincoln, said if the legislation crafted by Raimondo and Chafee doesn’t pass, it will be “extremely inconvenient” for relatively well-off communities such as Lincoln and “devastating” for financially challenged municipalities such as Woonsocket. But even if it does pass, he said, Woonsocket “would be overwhelmed dealing with the non-MERS plans.
“You will see glaring differences between the haves and have-nots,” Ward warned. “Cranston is one example, Pawtucket is another example, the stress right now is almost overwhelming as we sit here.” He said Woonsocket has raised taxes 29 percent in the last four years.
Ward suggested that Woonsocket is in such rough shape financially that it might be able to win a court judgment suspending the COLA on its non-MERS plans.
“This is the beginning, this isn’t the end by any means,” Ward said, noting that other post-employment benefits (OPEB) such as retiree health care benefits that money has not been put aside for must be dealt with next. “We’ve got about 10 years of work to do before we see the light.”
Chafee acknowledged that, “in the last four years, the cities and towns have taken the biggest hit” in cuts in state aid. “Cities and towns have been hammered in the last number of years, $195 million in cuts. That’s why Woonsocket, West Warwick, Central Falls, Providence and Pawtucket are really reeling. Those are just the facts.”