Providence Pension Reform: Final Vote Tomorrow

An alert Ted Nesi reports that, in a special meeting tomorrow late afternoon, the Providence City Council will take a second, final vote on pension reform. Note that this would affect not current workers, but current retirees.

The proposal would freeze retirees’ pensions for about 24 years and shave at least $236 million off the city’s unfunded pension liability.

While retirees are not formally represented by a labor union, the reaction from at least one labor leader was predictable in both substance and drama.

Officials emphasized Thursday that negotiations with retirees to craft an alternative compromise deal on pension cuts can continue even if the ordinance is enacted, but firefighters union president Paul Doughty dismissed that idea, warning that approving the changes unilaterally would poison the city’s relations with his members for “a generation.”

This would be a good point to stop and note that one seriously damaging blow to the sustainability of the Providence pension system – 4%, 5% and 6% compounding COLA’s - was implemented in part at the direct hand of labor and via … er, disinformation put forth on their part.

When the union-majority Providence Retirement Board voted to award 6% COLAs in 1989, labor leaders defended the richer benefit as affordable because the city’s pension fund was “one of the wealthiest in the country.” They also incorrectly estimated the COLAs’ cost at only $750,000, while the city put the cost at $22 million."

(These COLA’s do not currently form the basis for new retirees’ pensions.)

It’s been almost two month’s since Mayor Taveras made the Big Ask of Providence retirees. Only a couple of dozen retirees have responded in the affirmative. In that period, Providence has made it onto a list of

cities set to enter default danger zone

If two months are not sufficient, what timeframe would Mr. Doughty like to see for discussions about “bilateral” reform? Does the inexorable ticking of the budget clock and the attendant compounding of a deficit factor at all into such a timeframe?

Providence’s pension system is only 34% funded. If the city goes bankrupt, by one calculation, Providence retirees would face a 73% reduction in pension benefits.

As it stands today, one quarter of the city budget (and one half of the city’s tax income) goes to pension and OPEB alone. Further, as Providence has the second highest commercial tax rate in the country and the seventh highest residential rate, “revenues” are completely maxed out.

Certainly, as Mayor Taveras has repeatedly said, it is far preferable that (retired) labor be a partner in finding solutions to the city’s dismal fiscal situation. I would add: especially as they contributed to the situation in two substantive ways – both via the addition of those exhorbitant COLA’s in the 1980’s and in negotiating contracts which included budget-straining benefits (i.e., pensions). This is not a matter, however, where time is on anyone’s side. Retirees should not take their cue from labor leadership. Foot-dragging will only exacerbate, not improve, the options for rescuing Providence's exceedingly generous and woefully underfunded pension system.