Andrew Lyon for General Treasurer, Part 1: Rhode Island’s Unfunded Pension Problem
Andrew Lyon is the Republican Candidate for the office of Rhode Island General Treasurer. Anchor Rising recently had the opportunity to interview Mr. Lyon and ask him about the duties of the office, his qualifications for the office, and his reasons for running…
Anchor Rising: I don’t think that most people understand why it makes a difference who the Rhode Island General Treasurer is. Give us some idea about what the office of the General Treasurer does.
Andrew Lyon: There are a few different facets of the General Treasurer’s office. One is overseeing and managing the state pension fund. People who work for the state, judges, police officers, firefighters, teachers, etc. all pay into the state pension fund. There are other departments that are important; there is an unclaimed property division, for personal property or monies without clear ownership. People can go onto the General Treasurer’s website and find out if some of that property is theirs. There is a crime victims unit, which needs to be made more accessible. The state treasurer’s office is responsible for the Rhode Island College-Bound Fund where people can put away money for their children’s education. But the most important situation is the state pension fund.
If the state pension fund is underfunded, meaning that its liabilities exceed its assets, you have a problem. Unfunded liabilities are the total of the benefits owed to current retirees plus the benefits that will be owed to people who will be retiring soon, compared to the net asset value of the current portfolio. The treasurer has investement advsiors whom he picks to help him manage the assets, but the general treasurer has the final responsibility for overseeing them. The treasurer is integral to how the money is invested.
Right now, Rhode Island rates fourth worst in the country in its ratio of unfunded liabilities to value of current assets. Now, it’s true that 65% to 70% of state pensions are underfunded. However, when RI is fourth worst, there is a looming problem that will become dire for state taxpayers unless something is done. The current General Treasurer, Mr. Tavares, has not kept good oversight over his investment advisors and not kept his eye on the ball over the past eight years. He has not adapted his asset allocation as markets have fluctuated.
This is something I brought up four years ago, when I ran against Mr. Tavares. I pointed out that while the market was going down, he did not change his asset allocation at all. His philosophy was why change in a down market; if the elevator is going down, why get off? I advocated a full audit and review of the investment activities and a change of asset allocation.
Ironically, after the election he did just that. He took my advice. Unfortunately for the taxpayers of Rhode Island, he took my advice too late.
If we wait too long, there will be only three ways of rectifying this problem. Here’s one fix that won’t ever happen; the Federal government won’t come to bail out a state pension fund. What happened with Enron could easily happen with the RI state pension fund and the Federal Government didn’t come to rescue Enron. Eventually, the only choices become cutting programs, raising taxes, or cutting benefits. Let’s be realistic. The benefits aren’t going to be cut. You could make people paying into the state pension fund pay in more of their paycheck. They won’t be happy with that.
Here’s a perfect example. In San Diego, city hall withheld a lot of information regarding their unfunded liabilities. Eventually, the city had to cut a lot of programs, regarding sanitation, education, etc. Those cuts are causing problems. This is what the state of Rhode Island could be looking at. To give you a raw number that shows you what a dangerous situation we are in, Rhode Island’s unfunded liabilities consume 96% of our state budget.
Rhode Island should have made some changes ahead of time. We have one of the oldest workforces paying into a state pension fund. Our state and municipal workers are ranked second oldest amongst state pension participants. We have some of the oldest retirees receiving benefits. In the next few years, there may be more people receiving benefits than people paying in. This is the reason that President Bush is trying to change Social Security, because more people are retiring and fewer people are paying in. We’ve known about this problem for a long time, but we haven’t done anything serious about it.
The General Treasurer is important because, if the office is mismanaged — which it has been — it affects the taxpayers. The treasurer affects our property taxes. He has a bearing on the bond rating for the state of Rhode Island. He affects the business climate in the state of Rhode Island. Businesses aren’t going to come into the state when they see we are already fifth highest in taxes paid and then they see that the pension fund has not been run properly by the General Treasurer’s office. They’re going to say that it is too risky to come here. And all of this effects whether Rhode Island will be paying more or less in taxes in the very near future.