Thomas C. Wigand: Bob Walsh’s Risky Scheme
According to the Providence Journal, Bob Walsh of NEARI has been prowling the halls of the General Assembly peddling a “plan” to solve this year’s budget deficit. His protégé Pat Crowley has posted a version of it on the left-leaning RI Future blog. Though his proposal is coated in sugary language, should the General Assembly swallow it, it will indeed be a bitter pill for Rhode Island … perhaps even economically fatal.
We all remember the “tobacco money.” What Walsh proposes resembles that, in that he wants to divest the State of a future revenue stream in return for some quick cash, but his version is far worse, and will cause irreparable damage to Rhode Island.
The tobacco money is essentially “found money,” indeed a windfall, and is going to be paid out for decades to come. But Rhode Island isn’t going to get a penny. Why? Because the General Assembly went to Wall Street and sold Rhode Island’s future income stream at a discount in return for some quick cash. Essentially this was a humungous, public sector “payday loan.” So the tobacco money — “the profit” — is now all going to Wall Street investors. As we also know, within a few short years the General Assembly peed away that cash infusion. As shortsighted and irresponsible as that transaction was, it at least infused some new cash into Rhode Island’s coffers. Walsh’s scheme doesn’t even do that — quite the opposite.
Euphemistically using the term “contribute equity” as a proxy for “transferring ownership,” Walsh portrays his game as, in essence, placing a fallow state asset into productive use. In reality, what he is proposing is the piecemeal transfer of ownership of the Lottery to the state’s pension system (and so, by extension, to the unions). He claims that this will only be a temporary measure, “contributing” only small percentages of “equity” (i.e., ownership) to the state pension system for a few years. If you believe that, I have a bridge I’d like to sell you (and I’m not talking the Pell Bridge). Exhibit 1: the tobacco money. Once the precedent is set, this “camel’s nose” will continue sliding under our fiscal tent until the pension system (and thus the unions) own a major portion of the Lottery, if not all of it.
While these “equity contributions” are being presented as a temporary measure to get us through the “budget crisis” until the economy recovers, the transfer is permanent — the pension system (and thus the unions) will be getting those Lottery revenues forever. The tobacco money now being paid to the Wall Street investors has an eventual end date, while under Walsh’s scheme to direct revenues to the pension/unions continues in perpetuity — a clever gambit on Mr. Walsh’s part, eh?
Each percentage of “equity contributed” to the pension system means that an equal percentage of Lottery revenue will now go into the pension system, meaning that taxpayers will have to make up the shortfall in the general budget. Given that Lottery revenues constitute something like a third of total State revenues, this could eventually mean a 30% tax hike foisted upon the taxpayers of Rhode Island – merely to maintain the status quo in the state pension system. In other words, Walsh’s scheme is a backdoor way of enacting a huge tax increase to force taxpayers to fund a bailout the State pension system.
Mr. Walsh is executive director of NEARI, and his job is to forcefully represent the narrow special interests of that organization (and, to the detriment of taxpayers and public-school students, he seems to perform his duties quite ably). So in promoting this scheme, “he’s just doing his job.” But ultimately it is unreasonable, indeed unconscionable, for public-sector employees to demand that taxpayers incur massive additional taxes just to maintain the status quo of the pension system, the benefits of which exceed by orders of magnitude the retirement benefits available to taxpayers (the vast majority of whom will get no pension whatsoever).
One would assume that Governor Carcieri will likewise “do his job,” representing all of the people Rhode Island, and refuse to be party to such a scheme. It is likewise time for the General Assembly to begin “doing its job,” representing the best interests of all the citizens of Rhode Island, not just placating narrow special interests.
We are at a watershed time in Rhode Island. In recent decades the General Assembly has become addicted to a tax-and-spend and pander lifestyle, a habit maintained in recent years through “fixes” such as the tobacco money. The consequences become ever clearer: a state economy whose performance lags both its neighbors and national averages, to the detriment of each and every citizen … a downward spiral that will continue unless major structural changes occur to state government and the pay and benefit packages of all public sector employees.
The General Assembly has a decision to make. Either it can start “rehab” and set Rhode Island on a path for fiscal and economic rehabilitation … or it can accept the new even more destructive “high” being pushed by dealer Bob Walsh.
Will the cessation of tobacco money signal the start of rehab, or will it prove that the tobacco money was just a “gateway drug” for even more destructive fiscal behavior on the part of the General Assembly? We shall soon see. The economic fate of Rhode Island hangs in the balance.