The Banana Peel In Gov Chafee's Municipal Pension Reform Plan
Monique Chartier
Governor Chafee will unveil his "Critical Plan Empowerment Act-Municipal Pensions" today in Pawtucket.
Ian Donnis got an early look at it. As I read through his article, my hands rose to applaud the Governor's initiative.
Governor Lincoln Chafee’s bill to aid struggling cities and towns — slated to be unveiled later this week – would allow communities to suspend “benefit adjustments,” according to a copy of the legislation obtained by RIPR. ...
"In order to mantain the sovereignty and fiscal stability of as many municipalities as possible, as well as to safeguard the well-being, public safety, and welfare of the citizens of the state and their property, it is essential that the state take immediate and proactive steps."
Then I got to the last sentence of Ian's article.
The bill calls for steering at least 50 percent of money resulting from COLA suspensions to be “reinvested exclusively” to increase a plan’s funded percentage.
And my ovation was terminated before it began.
Many cities and towns do not have the revenue to properly fund their pension plans. Some cities and towns do not have the revenue to maintain day to day operations, much less try to make up underfunded and very generous pensions. Accordingly, how could they have the money to reinvest, exclusively or otherwise, into their pension systems?
50% of something could be a lot unless it's 50% of an empty coffer, in which case, it's zero. An adjustment, modest or substantial, of pensions will not magically make money appear where there is none now. How is this component of the governor's proposal at all feasible?
Hey Monique, great follow-up on Matt's show last night, thanks!
All of the Mallox and Pepto-Bismal is empty at my house, fingernail growing back and blood pressure returning to normal-not because i thing the Governor's plan will do anything to stop the impending implosion, rather i have simply accepted the fact that I am powerless to change any of this. I was hired in Providence 20 years ago, when buddy was boss and have been hearing how the city is broke since day 1. As much as I hate the word, it's the only one I have at the moment. Whatever.
When I hear how the state has the money to dump into the Scholar Athlete Games, or whatever that debacle is, and see firsthand the effects of the generous social programs that drain the system, and hear Judge Flanders telling Dan Yorke's audience that Central Falls is a good model of what can be done, I know it is useless to try and make sense of any of this.
Might be time to Go Galt.
Michael - You are wrong about being powerless. Your 20 years of continuous financial support for and advocacy on behalf of the same union that was directly responsible for pushing through 5-6% annual compounding pension COLAs and an 80% disability retirement rate back in the early 1990's, as well as making politically motivated campaign donations to Cicillini and other Democratic politicians responsible for the collapse, has had a direct and proportional impact on this outcome for the city of Providence. Remember - either every member of an organization is responsible for its actions or nobody is.
I again must point out that examples of gross waste in some areas of the state budget are an argument against lavish spending in other areas, not for it.
It seems that the retirees are reluctant to negotiate. Would you still like to bet me that the city of Providence will not declare bankruptcy? How much should we wager? I could use a new HDTV.
"and hear Judge Flanders telling Dan Yorke's audience that Central Falls is a good model of what can be done"
Damn right. After 80 years of failed "representative government", after 80 years of puppets, double agents, stooges, incompetents, double dealers and cowards I say-BRING ON THE DICTATORS.
Sorry Monique but I respectfully disagree. I thought this was all about the pensions. It was supposed to be about not kicking the can down the road. If you're not reinvesting COLA back into the pension plan, then how do you cut down the unfunded liability. If you don't reinvest the COLA, you're just giving bad government more revenue to spend poorly. Not buying it.
"If you're not reinvesting COLA back into the pension plan, then how do you cut down the unfunded liability."
By reducing the size of the unfunded liability - part of this would be cutting COLAs, part would be cutting disability abuse, part would be requiring a higher, more typical level of healthcare contributions, and part would be be revising the pension system itself to something more sustainable - a hybrid system like the Federal plan maybe.
Cutting COLA's is a good idea in itself, particularly the 5-6% COLAs which mathematically must be cut if there is any chance at the city surviving. I guess I disagree with both of you in that it doesn't particularly matter which gap those savings go into plugging since it's all fungible anyway.
The part of your (and Chafee's?) argument that troubles me is that it can be misused by the unions to advance their propaganda that everything would be fine if the city had just funded the pensions. This is nonsense, of course, because the city didn't just burn the money - it used it for other obligations that would have been paid regardless. The worst you can accuse them of is masking the problem for a while under Cianci and Cicillini, but the problem is real and couldn't have been avoided with the union contracts in place. In other words, the contracts have to be broken and this was true from the moment they were signed.
" If you don't reinvest the COLA, you're just giving bad government more revenue to spend poorly."
Max D, it's not at all clear that there will be any revenue even if the COLA's are suspended.
Simply suspending the COLA's didn't give the state any revenue. All it did was rachet back what had become an impossibly high employer contribution.
Do Providence's numbers show that anything different will happen if they suspend COLA's?
Now, if the wording reads
"at least 50 percent of money, if any, resulting from COLA suspensions to be “reinvested exclusively” to increase a plan’s funded percentage"
that would be much more reasonable.
If it doesn't, we're effectively back to the pension escrow suggestion from Rep Dickinson and others. Well, gee, if we had the money for a pension escrow, we wouldn't need to adjust the pension system and we wouldn't need an escrow (which we cannot fund).
My lack of faith tells me that if there wasn't a directive to reinvest that money, then it wouldn't be. I don't agree with Dan in that from their inking the pensions were unsustainable. It was the corrupting of the plans by both union and management that decimated them. They do need to be reformed but that will do nothing for the unfunded liability in the short run. Some of that money needs to be reinvested. Believe me, it's hard enough to actually be on the same page as our bubble-head governor and the unions but I don't see any further reforms coming down the pike.
If by corruption of the plans you mean 5-6% COLAs that continuously double in value every 12 years and an 80% "accidental" disability retirement rate, then we're on the same page. I'm more a supporter of matching 401k-style plans for a lot of reasons, but I suppose a state can have a fixed-benefit pension plan if it wants. It causes lots of problems, but you can do it. However, 5-6% annual compounding COLAs cannot mathematically be sustained by any system and need to be cut.
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Hey Monique, great follow-up on Matt's show last night, thanks!
All of the Mallox and Pepto-Bismal is empty at my house, fingernail growing back and blood pressure returning to normal-not because i thing the Governor's plan will do anything to stop the impending implosion, rather i have simply accepted the fact that I am powerless to change any of this. I was hired in Providence 20 years ago, when buddy was boss and have been hearing how the city is broke since day 1. As much as I hate the word, it's the only one I have at the moment. Whatever.
When I hear how the state has the money to dump into the Scholar Athlete Games, or whatever that debacle is, and see firsthand the effects of the generous social programs that drain the system, and hear Judge Flanders telling Dan Yorke's audience that Central Falls is a good model of what can be done, I know it is useless to try and make sense of any of this.
Might be time to Go Galt.
Posted by: michael at March 15, 2012 2:27 PMMichael - You are wrong about being powerless. Your 20 years of continuous financial support for and advocacy on behalf of the same union that was directly responsible for pushing through 5-6% annual compounding pension COLAs and an 80% disability retirement rate back in the early 1990's, as well as making politically motivated campaign donations to Cicillini and other Democratic politicians responsible for the collapse, has had a direct and proportional impact on this outcome for the city of Providence. Remember - either every member of an organization is responsible for its actions or nobody is.
I again must point out that examples of gross waste in some areas of the state budget are an argument against lavish spending in other areas, not for it.
It seems that the retirees are reluctant to negotiate. Would you still like to bet me that the city of Providence will not declare bankruptcy? How much should we wager? I could use a new HDTV.
Posted by: Dan at March 15, 2012 4:43 PM"and hear Judge Flanders telling Dan Yorke's audience that Central Falls is a good model of what can be done"
Damn right. After 80 years of failed "representative government", after 80 years of puppets, double agents, stooges, incompetents, double dealers and cowards I say-BRING ON THE DICTATORS.
Posted by: Tommy Cranston at March 15, 2012 8:42 PMSorry Monique but I respectfully disagree. I thought this was all about the pensions. It was supposed to be about not kicking the can down the road. If you're not reinvesting COLA back into the pension plan, then how do you cut down the unfunded liability. If you don't reinvest the COLA, you're just giving bad government more revenue to spend poorly. Not buying it.
Posted by: Max D at March 15, 2012 9:30 PM"If you're not reinvesting COLA back into the pension plan, then how do you cut down the unfunded liability."
By reducing the size of the unfunded liability - part of this would be cutting COLAs, part would be cutting disability abuse, part would be requiring a higher, more typical level of healthcare contributions, and part would be be revising the pension system itself to something more sustainable - a hybrid system like the Federal plan maybe.
Cutting COLA's is a good idea in itself, particularly the 5-6% COLAs which mathematically must be cut if there is any chance at the city surviving. I guess I disagree with both of you in that it doesn't particularly matter which gap those savings go into plugging since it's all fungible anyway.
The part of your (and Chafee's?) argument that troubles me is that it can be misused by the unions to advance their propaganda that everything would be fine if the city had just funded the pensions. This is nonsense, of course, because the city didn't just burn the money - it used it for other obligations that would have been paid regardless. The worst you can accuse them of is masking the problem for a while under Cianci and Cicillini, but the problem is real and couldn't have been avoided with the union contracts in place. In other words, the contracts have to be broken and this was true from the moment they were signed.
Posted by: Dan at March 15, 2012 9:49 PM" If you don't reinvest the COLA, you're just giving bad government more revenue to spend poorly."
Max D, it's not at all clear that there will be any revenue even if the COLA's are suspended.
Simply suspending the COLA's didn't give the state any revenue. All it did was rachet back what had become an impossibly high employer contribution.
Do Providence's numbers show that anything different will happen if they suspend COLA's?
Now, if the wording reads
"at least 50 percent of money, if any, resulting from COLA suspensions to be “reinvested exclusively” to increase a plan’s funded percentage"
that would be much more reasonable.
If it doesn't, we're effectively back to the pension escrow suggestion from Rep Dickinson and others. Well, gee, if we had the money for a pension escrow, we wouldn't need to adjust the pension system and we wouldn't need an escrow (which we cannot fund).
Posted by: Monique at March 15, 2012 10:56 PMMy lack of faith tells me that if there wasn't a directive to reinvest that money, then it wouldn't be. I don't agree with Dan in that from their inking the pensions were unsustainable. It was the corrupting of the plans by both union and management that decimated them. They do need to be reformed but that will do nothing for the unfunded liability in the short run. Some of that money needs to be reinvested. Believe me, it's hard enough to actually be on the same page as our bubble-head governor and the unions but I don't see any further reforms coming down the pike.
Posted by: Max D at March 16, 2012 10:16 AMIf by corruption of the plans you mean 5-6% COLAs that continuously double in value every 12 years and an 80% "accidental" disability retirement rate, then we're on the same page. I'm more a supporter of matching 401k-style plans for a lot of reasons, but I suppose a state can have a fixed-benefit pension plan if it wants. It causes lots of problems, but you can do it. However, 5-6% annual compounding COLAs cannot mathematically be sustained by any system and need to be cut.
Posted by: Dan at March 16, 2012 11:24 AM