SEC Investigating RI

WPRI’s Ted Nesi has broken the story that the SEC is looking into Rhode Island’s muni bonds. Nesi has Gen. Treasurer Raimondo’s statement on the matter and also points to a New York Times article on how the SEC is investigating Illinois’ pension funding mechanism, which is similar to Rhode Island’s. Basically, it has to do with reducing the pension liability for future workers:

Earlier this year, Illinois said it had found a way to save billions of dollars. It would slash the pensions of workers it had not yet hired. The real-world savings would not materialize for decades, of course, but thanks to an actuarial trick, the state could start counting the savings this year and use it to help balance its budget….The maneuver, and techniques that have similar effects, are already in use in Rhode Island, Texas, Ohio, Arkansas and a number of other places, allowing those states to harvest savings today by imposing cuts on workers in the future.
Texas saved millions of dollars this year after raising its retirement age for future hires and barring them from counting unused sick leave in their pensions. More savings will appear in coming years. Rhode Island also raised its retirement age for future retirees last year, after being told it could save $90 million in the first year alone.

Basically, politicians took the easy way out (surprise!):

Struggling states and cities need to save money, but they run into legal problems if they tamper with the pensions their current workers are building up year by year. So most places have opted to let current workers and retirees go unscathed. Colorado, Minnesota and South Dakota are the exceptions, dialing back cost-of-living increases for people who have already retired. All three states have reaped meaningful savings right away, and all three are being sued.
Cuts for workers not yet hired do not save much money in the present — but that’s where actuaries can work their magic. They capture the future savings for use today by assuming, in essence, that 100 percent of today’s work force is already earning tomorrow’s skimpier benefits. When used in actuarial calculations, that assumption has a powerful effect. It reduces the amount a government must put into its workers’ pension fund every year.
That saves the government money. But it undermines the pension fund, which must still pay the richer benefits of today’s retirees. And because the calculations are esoteric, it is hard for anyone except a seasoned actuary to see what is going on.

Oy.

0 0 votes
Article Rating
Subscribe
Notify of
guest
5 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
bella
bella
13 years ago

Brien is going to be the Speaker’s point man on the Central Falls bankruptcy situation, which is going to have a tremendous effect on our state’s municipal finances. Are you completely marginalizing his responsibilities just because one other chair appointed by Fox is “liberal”?

Patrick
Patrick
13 years ago

How to comment on the wrong post, by bella.
—————
Now just imagine if Caprio had won the Governor’s seat and the SEC was investigating the work that he’d been doing for the last few years?
We really never will get away from the image of being a bunch of corrupt scumbags from top to bottom, will we?

Dan
Dan
13 years ago

Not everyone has that image of the state, Patrick.
A lot of older folks think that Rhode Island is a part of New York.

Monique
Editor
13 years ago

“The real-world savings would not materialize for decades, of course, but thanks to an actuarial trick, the state could start counting the savings this year and use it to help balance its budget”
Geez. I thought that the inflated rate of return on pension investments had given us enough problems arriving at the actual amount of the unfunded pension liability.
The big question here is, who implemented this new and highly bogus way of calculating the unfunded liability? The General Assembly? One of the prior Treasurers?

Tommy Cranston
Tommy Cranston
13 years ago

The big question here is, who implemented this new and highly bogus way of calculating the unfunded liability? The General Assembly? One of the prior Treasurers?
Posted by Monique at February 3, 2011 7:00 PM
All of the above-plus.
Bottom Line: The state, and its municipalities, have debts “no honest man can pay” (Springsteen) and must use smoke and mirrors to conceal this from the people.
Nothing new. Just ask the people of Greece, Ireland, Spain and Portugal.

Show your support for Anchor Rising with a 25-cent-per-day subscription.