This week on Newsmakers: Former General Treasurer Frank Caprio.
Your Guide to Rhode Island's Crisis
Left to right: Cranston Mayor Allan Fung, Providence Mayor Angel Taveras, Pawtucket Mayor Don Grebien and Providence City Council President Michael Solomon testify before the joint finance committee about pensions on Nov. 1, 2011. (Photo: …
This week on Newsmakers: Former General Treasurer Frank Caprio.
Engage Rhode Island has raised slightly more than $900,000 …
Treasurer Raimondo is defending the state's pension investment …
Union groups led by the Rhode Island State Association of Fire …
A Superior Court judge handling the labor union's legal …
Updated: Wednesday, 02 Nov 2011, 10:17 AM EDT
Published : Tuesday, 01 Nov 2011, 6:19 AM EDT
PROVIDENCE, R.I. (WPRI) - State and local officials warned lawmakers on Tuesday that Providence and other cities could go the way of Central Falls without major changes to their pension systems.
"We are on the precipice in many communities and we need to address this," said Richard Licht, director of the R.I. Department of Administration and a top aide to Gov. Lincoln Chafee. Cities and towns could face higher borrowing costs if they can't fund their pension plans, he said.
Licht's comments came during a 10-hour joint finance committee hearing on the Raimondo-Chafee pension bill, the last one currently scheduled. House Finance Committee Chairman Helio Melo said afterwards "it would be nice" if the committees voted on the bill by Thanksgiving, but there's "a lot of homework" to do first.
Treasurer Gina Raimondo said she's not concerned about the time frame. "I think it's a good process," she said. The treasurer plans to spend the next few weeks "continuing to educate legislators" about the bill through one-on-one meetings, telephone calls and other outreach.
Raimondo told lawmakers actuaries tried 115 different versions of the pension bill and found this was the one that worked best. She said the proposed suspension of cost-of-living adjustments (COLAs) for up to 19 years is necessary because they inc cost a significant amount of money.
Most retirees with smaller pensions will receive Social Security benefits, which will continue to increase with inflation, she said.
As a partial alternative to the Raimondo-Chafee proposal, Rhode Island AFL-CIO President George Nee suggested lawmakers should instead raise taxes to offset some of the proposed cuts in pension benefits, saying it's time for Rhode Island to "tax the people who can best afford and can most afford it."
'Attack on collective bargaining'
A number of individuals representing companies and nonprofits appeared before the committee to testify in support of the bill, saying it will help the state economically and protect its most vulnerable residents. Rank-and-file retirees and workers said they would be suffering for others' mismanagement.
The main topic on Tuesday was the 36 locally run pension plans that aren't state-managed, 24 of which are at risk of running out of money, according to the auditor general's office. The bill would require cities and towns to run new actuarial studies of the plans, then get the state to approve proposals for dealing with them.
Providence Mayor Angel Taveras, Cranston Mayor Allan Fung and Pawtucket Mayor Don Grebien told lawmakers that falls short of what they want - legislation allowing an immediate suspension of cost-of-living adjustments (COLAs) in their independent plans. They also want it to be illegal to offer more generous benefits locally than at the state level.
But Paul Reed, president of the Rhode Island State Firefighters Association, lobbied a fierce counterattack against the mayors' proposal later in the day.
"This is an attack on collective bargaining - plain and simple," said Reed, whose brother is U.S. Sen. Jack Reed. "And it's wrong."
Reed said changes to the locally run plans should be negotiated between communities and unions, and should go to binding arbitration if they can't reach a deal. "That's the process," he said. "It's worked for over 40 years."
The Rhode Island League of Cities and Towns swung its support behind the mayors' proposed amendments for the locally run plans. Dan Beardsley, the league's executive director, said state law does not now allow municipalities to negotiate benefit reductions with those who have already retired, contrary to what labor says.
"We've tried to do it," Taveras said, citing a 2007 Rhode Island Supreme Court decision that blocked the city from suspending generous COLAs granted in 1989. "We've tried it. Believe me. ... If we could do it, we would."
Raimondo said she's not certain it's legal for the state to approve COLA suspensions in plans that aren't under its authority and "it would be a mistake to rush into a particular reform." But the mayors said they only want lawmakers to give them the power to do so if necessary.
Pensions double every 13 years
COLAs are a particular problem in Providence's locally run pension plan, where one in four of its retirees gets a 5% or 6% compounded COLA, which doubles the value of a pension every 16 or 13 years, respectively. Those notoriously generous benefits were granted in December 1989 without a funding plan.
In Cranston, some retired firefighters' contracts give them either a minimum 3% COLA or the same pay raise awarded to active firefighters, whichever is greater, Fung said.
Central Falls receiver Robert Flanders agreed with the mayors that the locally run plans must be addressed, saying the "mañana strategy" of wait-and-see suggested by some is untenable.
Flanders said the crisis Central Falls, which filed for bankruptcy in August, "was foreseeable and could have been avoided." The city's $80 million unfunded liability for pensions and retiree health benefits was a key reason for its insolvency.
Central Falls' "slide into bankruptcy was not a fluke and it could well happen to other cities and towns if we don't take action now," Flanders said.
Warwick Mayor Scott Avedisian, who has questioned the proposals from Taveras and Fung, spoke separately from them in support of the current version of the bill, saying it would "help alleviate the increasing pension burdens on our cities and towns."
'Actual scope of the problem'
Under intense questioning from lawmakers, Raimondo and state actuary Joe Newton maintained the pension system's recent history is what led the state Retirement Board to lower its investment forecast from 8.25% to 7.5% and to raise its estimate of retirees' lifespans to as high as 87 for female teachers.
The new 7.5% target is at "the top of the range" recommended by the state's investment experts - who proposed 7.59% on average - and reflects a "very challenging market" in an era of low bond yields where markets are "high risk, high leverage, high volatility," Raimondo said.
The actual life expectancy for individuals in Rhode Island's pension system once they reach age 65 is 83 for male state workers; 86 for female state workers; 85 for male teachers; and 88 for female teachers, according to data collected over the past decade by the system.
"I believe we revealed the actual scope of the problem," Raimondo said. "I know this is a challenge ... but to pretend that our problem is smaller than it is only hurts the beneficiaries," because it would result in less money than needed getting deposited into the pension fund, she said.
Raimondo said she's open to amendments to the bill to fix technical problems and other minor issues, but she will "vigorously oppose" any effort to change its underlying structure.
Bill is only 'a down payment'
Paul Valletta of the Cranston firefighters union, who last week said Raimondo "cooked the books" to create a pension crisis, said Raimondo and Newton should "do us a favor" and recalculate all the numbers they used to prepare the legislation. He also questioned why some of the bill's supporters did not speak out before now.
Former Auditor General Ernest Almonte, who served on the pension advisory group convened this summer by Chafee and Raimondo, told lawmakers he supported the bill but disagreed with Raimondo that it would solve Rhode Island's pension funding challenge once and for all, describing it instead as "a substantial down payment."
Among those in attendance for part of the hearing was Rep. John Carnevale, D-Providence, a member of the House Finance Committee who was charged with sexual assault last Friday. He will be arraigned Nov. 16.
"I want to thank you for your support ... and your leadership here," Taveras told Carnevale as the embattled representative asked the mayor questions about his proposed amendments to the pension bill.
An earlier version of this story misspelled Rep. John Carnevale's name.
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