November 17, 2011
Pension Reform: It's Like Obama for Rhode Island
Recall the 2008 election season — with its outrageous claims of the world healing and revival that would accompany the election of Barrack Obama to the Presidency of the United States? Some folks appear to desire the same mystique for pension reform in Rhode Island.
Among them, apparently, is Alan Hassenfeld, former head of Hasbro and current EngageRI member, who in a Projo op-ed (not online) declares:
... if Rhode Island becomes one of the first states to tackle this thorny fiscal issue with a progressive and bold reform, it will send a signal we are open for business, because the pension line in the budget will become predictable. Our lovely little state, with its rich history and winding shoreline, will be a magnet for companies looking to relocate. Our tax base will broaden, our schools will continue to improve, and we'll be able to invest in infrastructure and take care of those who can't take care of themselves. It's a future we all want and make no mistake, it is very close. We must not let this opportunity pass us by.
Baloney. In practical year-to-year budget terms, this reform merely keeps the state-level pension bite roughly the same (only a little bigger next year than this). It does so because the Retirement Board exploded next year's pension payment by adjusting the expected rate of return from an outlandish 8.25% to a mildly less outlandish 7.5%, thus increasing the amount that taxpayers must kick in. And the reform achieves its reduction in payment in large part by reamortizing the debt, thus costing an estimated $1.8 billion in lost interest over the amortization period.
The reform doesn't even touch the liability that has accrued thus far, merely reducing the rate at which it expands, and to address this untouched albatross, it all but hands legislative power to an unelected board dominated by union appointees to readjust the payment plan in the future. (My prediction: Increases in taxes and additional amortization unto infinity.)
About the most it is reasonable to say about this reform is that it points in the right direction, but any organization that zips into Rhode Island out of enthusiasm for our "strong leaders" (as the title of Hassenfeld's op-ed puts it) will quickly discover that it's the same old over-taxed, over-regulated, over-mandated playground for insiders, the collective, and the rich that it has always been.
Yes, as Marc and others have noted elsewhere, when discussing government budgets, there is a dishonest propensity to characterize a reduction or slowing of spending increases as an actual reduction of spending.
That has unfortunately been the case with this pension reform bill, which only tackles 44% of the unfunded liability up front and takes X number of years (if it ever even makes it) to hit 80% funded. Meanwhile, as Justin notes, the taxpayers' contributions do not decrease -- on the contrary. However, this little fact has been whisked out of sight by the magic of re-amortization.
Let's pose this question. Stipulating that an equivalent reform is achieved on the local level, where will Rhode Island's ranking for state and local tax burden land three years, say, after pension reform has been in place? How much will we have improved from fifth highest?
"as Marc and others have noted elsewhere, when discussing government budgets, there is a dishonest propensity to characterize a reduction or slowing of spending increases as an actual reduction of spending."
I think Mayor Avedisian is also aware of that dynamic. During the recent WPRI Newsmakers, I caught a comment that he made where he described some of this budgeting as "cost avoidance, not savings". He make that a special point to show that he doesn't believe that increasing your spending by less than expected is "savings".
Posted by: Patrick at November 17, 2011 8:53 AM"Our lovely little state, with its rich history and winding shoreline, will be a magnet for companies looking to relocate."
The lame shall walk, the lepers shall be cured, and the blind shall see. Companies and young professionals will screech to a halt in their mass exodus from the state, turn their moving vans around, and ignore Rhode Island's well-deserved reputation as having some of the highest taxes, the worst regulations, the most abused welfare and disability systems, the most corrupt politicians, and the most radical and hardline labor unions in the country. They will do this all because Rhode Island has a "rich history," and it's... "On The Waterfront," of course.
That's not a bad advertising campaign. Rhode Island should revamp its image with a nostalgic state motto - "We could have had class. We could have been somebody." It's at least on par with Virginia's pathetic "Open for business."
Posted by: Dan at November 17, 2011 8:59 AMI really don't know nearly as much as some folks here on pensions, COLAs, current liabilities, and whatnot -- hence I've stayed out of the debate nearly completely.
That said, when Mr. Alan Hassenfeld steps up to the plate to tell us "little people" what's wrong and what's right, I've gotta get out of my chair and yell "Boo."
Ever since his "Flight of the Earls" Op-Ed in the Projo a while back (and probably before that -- I just had Common Cause with him on 2004 SOP), he's shown a desire to serve no one but the most VERY rich Rhode Islanders. In fact, the notion that he would take such a public stance on the issue *proves* to me that this pension deal is a bad one.
Alan, you have had your head firmly embedded in a deep dark place full of earls, dukes, counts, and maybe the ghost of Mr. Gatsby himself for a loooong time now.
Posted by: jparis at November 17, 2011 9:20 AM"It all but hands legislative power to an unelected board dominated by union appointees to readjust the payment plan in the future"
Correct me if I'm wrong. Wasn't a big part of the original problem that unions got to decide what happened on these "boards"? Ground Hog Day ...here we come.
This bill is a giant step in the right direction for Rhode Island and while I appreciate some of what you have said here don't forget that the system's recipients are people and when these people die, the state's debt to them is cancelled. New employees will pay into a system that is much more closely related to a private sector 401k, and tied to the market. So yeah, it will take a while to get to 80%, but this bill doesn't pull the rug out from under current retirees (regardless of what the union bosses were saying.)
Posted by: Christy at November 18, 2011 8:22 AM