PAWTUCKET — Standing in the City Hall of one of the “highly distressed communities” that he is hoping to aid, Gov. Lincoln D. Chafee unveiled his proposal of a legislative package aimed at reforming municipal pension plans run by the State and by cities and towns and providing other types of financial relief from state mandates.
Flanked by a group of mayors and municipal managers from other Rhode Island cities and towns, the governor noted that the news headlines for that day alone referred to financial problems so dire in Woonsocket that there was a discussion about closing schools and that the bond rating in Providence had been cut by two points. “This is a crisis,” said Chafee. “We have to collectively, as a state, address it.”
Holding a chart, Chafee added, “Here are the facts ... how we got here,” and pointed out how spending on human services had increased by almost 10 percent from 2008 to 2011 while state aid had dropped over 20 percent and “other” sources of revenue also dropped by over 7 percent. “We have some choices in Rhode Island. We can let communities go into bankruptcy and let property taxes go up, up, up, or we can take action,” he stated.
To that end, Chafee outlined several pieces of legislation that he described as “tools” that would empower mayors and town managers to take steps to improve the fiscal health of their communities.
One, called the Critical Plan Empowerment Act, would provide communities with severely underfunded independent pension plans to suspend annual cost-of-living adjustments (COLAS) if certain conditions are met. One key criteria is that the plan must be in “critical” status, defined as funded below 60 percent.
Under this plan, the municipal council must pass an ordinance with the following: numerical data showing what the community's annual required contribution to the plan would be in the coming fiscal year, calculated with and without the COLA benefit, findings demonstrating that alternatives to COLA benefit suspension have been considered and/or are being implemented, and a finding that the suspension is reasonable and necessary to achieve the municipality's fiscal stability.”
The Act also holds that the annual COLAs may resume when the plan emerges from critical status, but they may not exceed the annual consumer price index; and at at least 50 percent of savings from COLA suspension must be reinvested into the underfunded pension plan.
The second proposal is Disability Pension Reform, which makes changes to disability pension benefits under the state-run Municipal Employee Retirement System (MERS). The proposed legislation would reduce the amount of the disability pension from the current 66 2/3 percent of salary to 50 percent of salary if the affected employee is able to perform other employment. It would maintain the 66 2/3 disability pension for people who are permanently disabled and unable to work.
The third proposal is a Local Pension Benefits Cap, which states that locally administered independent pension plans cannot offer benefits more generous than the state-run Municipal Employee Retirement System (MERS). While communities are encouraged to mirror the MERS plan, the legislation provides flexibility to cities and towns to determine the individual criteria of their pension systems, provided that the total benefit to an employee is not actuarially greater than he or she would receive in the state-run MERS system.
Additionally, Chafee noted that, due to various factors, including reductions in state aid, costly state mandates and rising pension obligations, many municipalities are currently on the verge of becoming “highly financially distressed.” As such, the governor is proposing legislation to provide mandate relief and promote cost reductions in cities and towns that fall under the designation of “highly distressed community.”
To rank as a “highly distressed community,” a municipality, would be ranked in the lowest 20 percent of criteria that includes: percent of tax levy to full value or property, per capita income, percent of personal income to full value of property and per capita full value of property. The governor noted that currently, Pawtucket, Providence, Woonsocket and West Warwick fall into this designation category.
The state would then be required to relieve these highly distressed communities of numerous state mandates. These include reducing accidental disability pensions for public safety employees, discontinuing expired public safety collective bargaining agreements, suspending educational incentive pay for municipal police, and requiring municipal chief executive approval of school budgets and contracts. It also would allow for the suspending of teacher step increases, nurse-teacher requirements, school bus monitors and non-public school transportation; participation in the statewide purchasing system, and requiring retiree health insurance to conform to active employee health insurance.
For these “highly distressed communities,” there would also be “taxpayer accountability provisions” in collective bargaining and binding arbitration.
Chafee said that additionally, as part of his municipal aid legislation package, he is proposing two pieces of legislation affecting state aid to schools. The first, a School Spending Accountability Act, would create new reporting and oversight requirements, including that of a standardized budget format. It would grant new powers to the Rhode Island Department of Education to oversee the uniform budget process and to withhold state education aid in cases of non-compliance.
A second proposed piece of legislation, Maintenance of Effort Waiver for Debt Reduction Efforts, would provide cities and towns a limited exemption from the annual education spending “maintenance of effort” requirement if they appropriate additional funds to pay off school system debt.
Also, Chafee is proposing to address the needs of numerous cash-strapped communities with legislation aimed to modify the timing of state aid to cities and towns in the areas of Basic Education Aid, School Construction Aid, and Distressed Communities Aid.
Chafee said he has discussed the pension reform measures with the leaders of both the House and Senate, and while he stopped short of saying he had their endorsement, he said they are aware of the challenges facing the state without taking this type of action. He vowed to “work hard” to sell the proposals to the legislators and said he was “cautiously optimistic” about the chance for passage.
Several of the state's mayors and town managers voiced strong support for the governor's plan and said they wanted to present a united front. Pawtucket Mayor Donald Grebien said that he and his fellow municipal leaders stand “at a major crossroads for the future of the cities and towns in Rhode Island.” He said that while they all have individual challenges, they share in knowing that “the days of “business as usual” are over.
Grebien noted that the governor's legislative package is “not one size fits all” and acknowledged that whatever state support arrives will ultimately take shape under the the give and take of the political process. “But the conversation has begun and needs to continue, because the financial health and prosperity of our state is inevitably tied to the fiscal soundness of our cities and towns,” he stated.
Woonsocket Mayor Leo Fontaine said that he and the other mayors and managers “stand together in light of a crisis,” and said the governor's legislative package “gives us the tools to deal with this crisis.” “What happens in our urban cores spills over quickly to our suburban neighbors,” he stated.
Providence Mayor Angel Taveras noted that while the legislation regarding the suspension of the COLAs would help Providence immensely, he noted that each city and town may have a different need for the legislative relief. The governor's package he said, “gives us the tools” to be on more solid financial footing.