The Unvarnished History of Rhode Island’s Short-funded Public Pensions, by John
Copied below is an excellent analysis compiled by John (under this post). To it, I would append one item – an additional culpable party: decades of elected officials who possessed the power to implement realistic benefits for tens of thousands of public employees and chose, instead, to further their own selfish political ends by making empty, grandiose promises.
Dear teachers and other public sector union members:
Too many of you are undoubtedly looking at each other over drinks these days, and trying to make sense of what our Democratic General Treasurer is saying.
Let me help you out.
1. Your union leadership has, over the years, negotiated some of the nation’s best pension and post retirement health care benefits for you.
2. Your union leadership has, over the years, agreed to have you contribute some of the nation’s highest percentages of your pay (relative to public sector employees in other states) for these benefits. Given the relative generosity of these benefits, that makes sense. So far, so good.
3. At the same time, your union leadership has, over the years, progressively reduced the power of management in the organizations where you work. This has led to such well known phenomena as parental frustration when their child’s good teacher is bumped out by a weaker teacher with more seniority, and the world class service that every Rhode Islander has come to expect at the Registry.
4. This has led to a growing perception over the years on the part of private sector voters and taxpayers (and not a few of your fellow union members) that they are not getting value for money in exchange for the high taxes they pay in RI.
5. These high taxes, as well as our relatively weak schools and anti-business regulatory and political climate have driven businesses from RI. In turn, this process has drastically reduced the number of private sector union employees in RI.
6. In the face of declining union numbers, for the past 20 years or so organized labor in RI has been in a pact with the devil, so to speak — they have been forced to ally with the progressive wing of the local Democratic Party to retain their hold on the General Assembly.
7. And here is where we get to the crux of the problem. Had your union leadership been looking out for your best interests, they would have insisted that, in the years pension and post-retirement health care benefits were earned by you and accrued as liabilities, they should have been fully funded, not just through your high contributions, but through the State making adequate contributions to pension funds and funds that were not established to provide assets to offset the growing post-retirement health care liability.
8. And what prevented your union leadership from forcing the General Assembly to make these contributions? Their progressive allies had an ever expanding agenda to fund, whether that was RITE Care, expanded programs for immigrants, more special education mandates, or what have you.
9. Up to a point, their failure to look out for the rank and file’s interest could be hidden through such devices as unrealistically high assumptions about future investment returns, retirement dates, mortality, and health care cost inflation. However, we have now passed that point, and everyone can now see the Emperor (your future benefits) has no clothes.
10. While we can all hope that the SEC investigation of possibly fraudulent disclosures made in conjunction with the issuance of RI public sector bonds will produce some indictments, I’m not holding my breath. So that leaves a pretty clear choice about what you can do to preserve your future pension benefits: (a) dramatically reduce spending on the progressive agenda, and spit the benefit between reduced taxes and increased pension contributions; (b) dramatically increase taxes, and hope that people don’t move away resulting in less not more revenue being collected (but keep in mind there’s no guarantee that the progressive agenda won’t eat up most of the new tax revenue that comes in); (c) default on the state’s bonds, and divert the principal and interest payments into the pension fund. That’s it. Those are your choices. The Feds aren’t going to bail out RI (or any other state), and there aren’t enough state assets to sell to close the underfunding gap. That’s why Gina is talking publicly about up to 50% hits for some of your benefits.
Oh, and one last thought: You might want to consider voting out of office the union leaders (and well paid union staffers) who got you into this mess.