PROVIDENCE – Municipal officials – including Central Falls Receiver Robert Flanders – argued to legislators Tuesday that pension reform cannot be considered comprehensive if it doesn’t include independent city and town pension funds, called the non-MERS plans.
A group of mayors – including Pawtucket’s Don Grebien and Lincoln Town Administrator Joseph Almond – championed amendments to the bill proposed by Gov. Lincoln Chafee and General Treasurer Gina Raimondo that would authorize cities and towns to suspend cost of living adjustments (COLAs) in local plans as is proposed for the state-run Municipal Employees Retirement System (MERS); that would limit benefits in local plans so that they could not exceed those offered in the MERS plan despite any local ordinance, contract or arbitration award, and that new municipal employees hired after a local plan is deemed to be 100 percent funded will be included in the MERS system, which would phase out local plans eventually.
Chafee has advocated including the local plans in pension reform, although the bill presented to the General Assembly does not include the measures the mayors proposed Tuesday, largely because Raimondo questioned the state’s authority to change the provisions of plans governed by local union contracts.
The bill as written provides what officials call a “pathway” for cities and towns to change the local plans on their own, without dictates from the state unless the municipalities prove unable to come up with a workable scheme that brings their independent pension plans to a viable funding level. That includes an actuarial study for each of the non-MERS plans – there are 36 of them in 24 separate communities – to be done by April 1 of next year. If a plan is found to be less than 60 percent funded, the community must develop a proposal for a “solvency review board” that comprises the director of revenue, the general treasurer and the auditor general that would bring the local plan’s funding level halfway from the current level to 80 percent funded. If a municipality does not present an acceptable plan by the end of next year, then at the conclusion of the existing collective bargaining agreement, COLAs in the plan will be suspended and state aid to that community would be diverted to increase funding to the pension plans.
“We want no more Central Falls” situations, said Richard Licht, Chafee’s director of administration, referring to the state’s smallest city that sought bankruptcy protection earlier this year, in large part due to a woefully unfunded pension plan, leading to drastic cuts in retiree’s benefits that are currently being contested in federal Bankruptcy Court. “We don’t want retirees or potential retirees to get 45 percent of their promised benefits.
“Central Falls taught us a very tough lesson,” Director of Revenue Rosemary Booth Gallogly told the Joint House and Senate Finance Committee hearing Tuesday. “We need to be concerned about pension security. Right now, I have some deep concerns that the status of these locally administered plans is not secure at all. We are on the precipice in many communities and we need to address this.”
Licht said he believes it is legal to suspend COLAs because there is a three-pronged test courts use to determine if contracts can be unilaterally changed. One is whether there is a contract involved, which is the case with the local plans. The second is whether the suspension of COLAs would be a substantial impairment of that contract and, if it is considered to be substantial, whether there is a legitimate public purpose for doing so.
Licht said there is. “How can anyone say, in light of Central Falls, that there isn’t a legitimate public purpose to protect retirement security?”
But the mayors want the bill to go further.
“I am here today, along with my colleagues because as municipal leaders we need reforms to the pension system that are both comprehensive and equitable,” Grebien told the lawmakers, “not only for the MERS plans, but for the individual plans which are in some cases a worse scenario than the MERS plan and could threaten not only our financial well-being but our very solvency as municipalities.
“As mayors and town administrators,” Grebien added, “we are requesting that you include the municipally-run plans in the legislation you are now considering. At the city and town level we must take very seriously our legal obligations under collective bargaining and we understand that. That’s why we are asking you for enabling legislation to give us the tools we require to provide all retirees with a secure future under a reformed and stable pension system.”
Under questioning from legislators about the possible diversion of state aid to pension plans if communities don’t adopt a funding plan acceptable to the state, Grebien said, “there has to be mechanism in there to hold municipalities accountable. We all get that. But please be fair on what you do because it is going to impact our taxpayers.”
Flanders told the lawmakers that Central Falls’ bankruptcy has caused “some pretty hard consequences for its employees, taxpayers and retirees. Decades of failed leadership and financial mismanagement have resulted in a devastating toll of human impacts.”
When Central Falls emerges from bankruptcy, the state-appointed receiver said, one-third of its municipal employees will have lost their jobs, dedicated employees will find their salaries and benefits reduced and retirees will have had their pensions cut, in some instances by more than 50 percent.
Later in the hearing, retired Central Falls police officer Bruce Ogni argued that retirees have borne an unfair brunt of the burden. Noting that $2.5 million in pension benefits per year are being cut, Ogni said half the city’s $5 million annual deficit is being taken from 133 retirees.
Flanders acknowledged that there is a “vigorous political debate” over whether the non-MERS plans should be dealt with now, or at a later date.
“This manana strategy will cause yet more fiscal disasters,” Flanders said. “We must help our fiscally troubled cities and towns now, or risk other Central Falls-like failures throughout Rhode Island.”
Former Auditor General Ernest Almonte disagreed with Raimondo’s assertion that, if this bill is passed as is, it will be a permanent, self-correcting fix and the General Assembly will never have to deal with pension reform again.
“This legislation does not solve this problem once and for all,” Almonte said. “If we think we’re not going to be back to talk about the unfunded liabilities, we’re all going to be back. This legislation does not solve the problem at the city and town level (and) the assumed rate of return should be somewhere near 5 or 6 percent” not the 7.5 percent adopted earlier this year by the retirement board.
Almonte agreed with the mayors that no local contract should be able to give benefits that exceed those given to state employees.
Deloris Issler of the RI Tea Party in Action called on the General Assembly to pass the amendments the mayors called for and to remove pension benefits from local collective bargaining.
“You legislate this crap in,” Issler said, “legislate it out.”