Scott MacKay Commentary: The New RI Public Pension Reality

Feb 16, 2014

In the famous words of Yogi Berra, `it ain’t over till its over.’ RIPR political analyst Scott MacKay explains why that’s the case with the latest twist in Rhode Island’s public employee pension settlement.

An out of court settlement marks the end of a contentious lawsuit over public pensions.

In many a long legal  battle, a settlement reached out of court marks the end of a contentious lawsuit. The opposing parties shake hands and sometimes share an odd drop. Then they put the dispute behind them.

That wasn’t the case last Friday, when Gov. Lincoln Chafee, General Treasurer Gina Raimondo and public employee union chieftains announced a settlement in union lawsuits challenging the state’s 2011 pension overhaul that cut benefits for public workers and retirees.

There were no high-fives or communal sips of fizzy champagne. That’s because, even after 13 months of tortuous closed-door negotiations, this agreement represents just the beginning of Rhode Island government’s never-ending debate over public employee pension benefits and their cost to both workers and taxpayers.

The settlement  restores a few cuts in public employee pension benefits  and planes down some of 2011 law’s rough edges. Yet its main feature is preservation of the bulk of the pension overhaul that trimmed state employee and retirement benefits, saved taxpayers hundreds of millions of dollars and  launched the multi-billion dollar state retirement fund on a path to solvency over the next two decades.

This carefully crafted compromise gave public workers and retirees a few concessions but nothing that would threaten the viability of the system. It represents a big compromise by the union leaders, who in effect tacitly acknowledged that that the generous benefits they once enjoyed are now consigned to the dustbin of Rhode Island political history because they are no longer sustainable given the size of our small state’s economy and taxpayer base.

Union leaders deserve credit for stepping up for the state they and their workers call home.

This pact,  if approved, would finally remove from the state’s financial future the cloud of uncertainty caused by the six lawsuits filed against state government by unions. For a minuscule increase in state money two years from now – about $13 million in an annual budget of $8.5 billion – taxpayers get insurance against an adverse court decision that could hammer taxpayers and even perhaps bring state government to the brink of bankruptcy. If you think Rhode Island received bad national press from the financial collapse of tiny Central Falls, just think what the rest of the country and the national business community would think of our state if we were mentioned in the same headlines as Detroit.

The deal was along the lines suggested by Chafee. Unlike other state politicians, he isn’t burdened by any near-term political calculus because he isn’t running for reelection.

The settlement represents a reversal  by Raimondo, a Democrat locked in a three-way primary for her party’s gubernatorial nomination. In December, 2012, Chafee urged negotiations to settle the lawsuits. Raimondo, the major architect of the pension changes, protested. She said at the time that she wanted to pursue the matter in court and insisted the state had a strong case.

At that point, Raimondo was the darling of the neoconservative, anti-union right across the country. She was lauded by such reliably conservative outlets as the Wall Street Journal’s editorial page and the Manhattan Institute think tank.

Now Raimondo is running for governor in  primary where union workers and their families are a crucial constituency. Last week the Wall Street Journal editorial page accused her of ``going wobbly’’ in working on a compromise. But you could take all the Rhode Island Democratic primary voters who read the Wall Street Journal and hold their caucus in a room at the Biltmore. You wouldn’t need the presidential suite.

Democratic primary voters will decide whether Raimondo is sincere in her change of course or whether she did it for mere political expediency.

It was state Superior Court Judge Sarah Taft-Carter who forced the talks by ordering the parties into mediation. What emerged last week looks like a reasonable pact. It also has the virtue of ending the lawyers’ Lollapalozza that has sucked millions of taxpayer and worker dollars into  the billable hour coffers of law firms.

It’s far from over. Now, the serious political campaign to win support for the deal kicks off. First, six separate groups of public employees have to vote on it. If any of those groups reject it, the deal  blows up.  These nearly 70,000 workers and retirees, who range from millennial to geezer,   have vastly different economic interests. They do have one thing in common: the desire for a solvent pension system.

Some retirees are already urging no votes on social media. Richard Clemence, who said on his Facebook page that he is a retired teacher, wrote, ``The governor speaks of a future with certainty, my response is that there is a certainty in death but I don’t desire it.’’

For example, retirees, who would get an immediate cost-of-living adjustment of 2 percent on the first $25,000 of their pension benefits, would get checks of $500 each.

Yet, for the retirees to get those checks, a majority of unionized public school teachers, voting as a bloc, have to approve the entire settlement .

Fact is, most of the savings in the original overhaul and this settlement come from slicing cost-of-living adjustments to retirees. This wasn’t done because the union negotiators and their lawyers sold out the retirees. It is just, as Willie Sutton said about banks, where the money is.

The sad truth is that all retirees, except for a handful of the politically connected who got the notorious special pensions years ago, played by the rules. Retirees didn’t cause the 2008 Wall Street crash or devise the medical advances that keep folks, particularly women, living and collecting pension checks well into their 80s and 90s.

There is an old axiom in union negotiations, that labor chieftains ``negotiate for the living.`` That means their most important constituency is the current members who pay the dues. This deal protects them.

Foer this to pass, retirees will have to come to the same pragmatic view as the union leaders did: That it is better to get a 2 percent COLA now than force the system into insolvency and get nothing later.

So the state union leaders have their work cut out. They must convince their members that this was the best deal they could negotiate and  much better than risking a court reversal decision that would hurt their members even more.

If the workers and retirees, about 70,000 voters, approve, the pact goes back to Judge Taft-Carter for further approval. She has to certify that the votes were fair and parties acted in good faith.

If that hurdle is cleared, the settlement would head to the General Assembly just months before all  113 members face election year voters. The Assembly has no choice but to take some kind of an up-or-down vote on the deal. Any amendments would doom the settlement.

So far, House Speaker Gordon Fox, D-Providence and Senate President Teresa Paiva Weed, D-Newport, have made no commitments to take action this year.  They don’t want their members caught between conservatives who are already denouncing the deal as a taxpayer giveaway and union workers and retirees who support it.

Yet it would be highly irresponsible for lawmakers to duck this tough issue. Isn’t that what voters sent them to Smith Hill to do?

One way they can shield members from a tough vote would be to pull the time-honored  Statehouse  maneuver of sticking the settlement into the budget, forcing those who are protest it to cast votes against aid to their local schools and pet projects.

The settlement has already been blasted by some candidates for governor, including Republicans Allan Fung and Ken Block, and Dan Beardsley, the lobbyist for city and town officials. One thing we know for sure. In an election year it won’t matter how reasonable this is.

In the silly season, things are already becoming ludicrous. The cities and towns, for instance, are seeking concessions on police and firefighter pensions that were never part of the original overhaul. (Chafee wanted them included with what is known as enabling legislation but Raimondo refused).  There has been silly media-hand wringing over the secrecy of the settlement mediation.  But this deal  is very transparent; all the details are out well in advance of the campaign to approve it. ( When is the last time a non-union private sector company took into consideration the views of rank-and-file employees before making changes in pension plans).

So prepare for a noisy, even foolish, debate about a topic lots claim to know about but few are expert in

If you’re a state representative, think about it. Hey, rep, do you really wanna tell the elderly gent  at the Portuguese Club guy that he doesn’t deserve his $500 because it might havbe an impact on something called an unfunded liability 20 years from now?  What do you reply  when he says, ``hey rep I’m not going to be eligible again for another four years, and you may be at my wake by then.’’

Ah, the vagaries of local politics in Rhode Island!