Local Pension Problems - Why's That the State's Problem?

Tonight, the pension bill was passed by the Finance Committees in both the House and Senate. In spite of some recent changes to the original bill, one thing that is not included is any help for the municipal retirement systems.

I've seen and heard of some local mayors asking the General Assembly for help with their own locally-administered pension plans. My first thought when I heard of the mayors asking for help was, "Hey, that's your problem, fix it yourself." That is true to a point, but at the same time, some of the plans may have gotten to the point of being unfixable, or if they are fixable, they'll be very expensive to the local taxpayers.

One such city in this situation is Cranston. Mayor Allan Fung was recently on WPRI's Newsmakers where he explained why cities like his are looking for the help.

Cranston transitioned their city employees over to the state plan, however everyone who was employed by the city before then, still fall under the city pension plan. That number today is 490 people, of which 55 are still working, leaving about 435 as retirees collecting their pension. With those numbers, there is no way to negotiate enough of a savings with those 55 to make the pension costs of the other 435 affordable. With that in mind, and due to the fact that retirees are not members of a union and cannot collectively bargain, Cranston took a step the City Council felt necessary. Under Mayor Steve Laffey, the Cranston City Council legislated a freeze on the retirees' cost of living adjustment (COLA).

The retirees sued in RI Superior Court and won, reinstating the COLA, which by ordinance is a compounding minimum of 3%.

So that's where mayors like Allan Fung are left today. They have an unaffordable pension plan that is non-negotiable and the laws are such that he and the Council cannot make the necessary changes to the retirees' payments. His request to the General Assembly is to pass a law that will let him suspend the COLA to retirees immediately or else he has a massive shortfall in the budget to make up.

According to Fung, if he were allowed to freeze the COLA for five years, he'd be able to save $32 million. If it was frozen for ten years, he'd save just under $50 million and if the freeze was for 15 years, he'd save $60 million.

If he's not given this kind of relief by the state, he will need to make up for an 8% gap next year either through increased taxes or service cuts. Over the next ten years, that amounts to approximately $92 million in some combination of increased taxes and service cuts.

According to riliving.com, Cranston already has one of the highest tax rates in the state with a residential rate of $20.26 per $1,000 assessed with no homestead exemption. Only three other towns are higher and also do not offer the exemption, Gloucester, West Warwick and West Greenwich. Their tax rate on commercial properties is sixth highest at $30.39 per thousand and their car tax is $42.44, good for fifth highest in the state. So it wouldn't seem that Cranston has much room for raising taxes by $8-10 million a year for the next ten years.

It appears that Speaker Gordon Fox was prescient last week when he indicated that the pension fixes may be a two-step process, asthe current bill passed by the Finance Committees on both sides of the General Assembly passed the bill in front of them with no help for the locally-run plans.

WPRI's Ted Nesi tweeted yesterday

"Big win for Raimondo, Paiva Weed, Laborers union to keep non-MERS #ripench plans out of bill. Defeat for Chafee, @Angel_Taveras, Fung."

I think I'd have to disagree somewhat. If the Assembly doesn't help mayors like Allan Fung in cities like Cranston, the real defeat will be to the taxpayers that will need to pay for the mistakes of the past politicians.