Providence Pension Ordinance in The Economist

Further evidence we're on the cutting edge of history here in Rhode Island -- The municipal pension changes proposed by Mayor Angel Tavares have already made the Economist (that's the famous British periodical, not some blogger with that handle)...

Thus this week’s ordinance, in which the city suspended the cost-of-living adjustments (COLAs) by which pensions are increased each year. Some pensioners’ payments were rising by a compounded 6% a year, bringing a fire chief who had earned $63,510 the year before he retired in 1991 to $196,813 now. With such cases in mind, the ordinance also caps yearly payouts at 1.5 times the state’s median household income, which comes to about $78,000. The changes are expected to save the city $19m in the coming year, and to reduce its unfunded pension liability from $900m (the plan currently has only 34% of the assets it needs to cover future costs) to $660m. Should the funding ratio ever reach 70%—something that will take decades under current plans—COLAs will be reinstated.

The bankruptcy of Central Falls is instructive in another sense, points out Matthew McGowan, a lawyer for the city’s pensioners, in that such proceedings are fraught with legal uncertainties. Just 19 days before the city went into receivership, the Rhode Island state legislature passed a law granting priority to bondholders over other claimants in municipal bankruptcy proceedings. Mr McGowan’s clients agreed not to challenge the law thanks in part to the promise of the one-off payment. But a challenge might well be successful. Workers and pensioners who have had their COLAs trimmed in other states have sued their governments claiming breach of contract. “We’ve hit rock bottom in this state,” says Mr Chafee. Perhaps, but a few adverse court rulings could dig Rhode Island much deeper.