Today I join with General Treasurer Raimondo to present our proposal for comprehensive pension reform in Rhode Island.
I’d like to thank Speaker Fox and Senate President Paiva Weed for convening this session, and for their leadership and their desire to take on this important issue.
I also applaud the General Treasurer and members of the Pension Advisory Group for their tireless efforts to raise public awareness about Rhode Island’s pension crisis.
This august body before me solved the credit union crisis. You solved the workers’ compensation crisis. And I am confident that this body is up to the challenge of solving today’s pension crisis.
We all want economic prosperity for Rhode Island. However, our $7 billion unfunded pension liability hangs like a cloud over the state – causing uncertainty for economic development, threatening to crowd out state spending on other important government initiatives, and pushing many of our cities and towns to the brink of insolvency.
Rhode Island’s fiscal situation is part of a larger global and national economic crisis. The prolonged recession and the losses of the stock market have put an extreme burden on our state pension fund. Changes must be instituted. If we fail to act, the state will have to pay an additional $100 million next year in new pension contributions.
But this is about more than just dollars. It’s about people.
I recently met with a woman from Warwick whose son, John, is significantly impaired by autism. His behavioral problems have been challenging for her and her family. After years of searching to find the proper environment for John, where he could be safe and receive help, they were successful. She and her husband visit him daily in a group home, where he receives support and works to achieve a level of independence. But she came to my office recently to tell me that any further reductions in state programs that provide help to John and children like him might force her to institutionalize him.
Think about the recent demonstrations here at the State House – thousands of people circling this magnificent building – by those who have been devastated by developmental disability cuts. Some of them are even here with us tonight. If we do not act, if we do not address the pension crisis, we will all be affected. But none more so than John and his family and those Rhode Islanders with similar struggles. A civil society should care for those with the greatest need.
The plan that the Treasurer and I present today is a comprehensive, long-term approach to Rhode Island’s pension challenges. The fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer.
Let me make this point very clear: our proposal asks each of the three main interested parties to do their share to comprehensively address this problem. Everyone must share in the sacrifice.
To preserve retirement security for those not yet retired, we are asking current retirees to suspend cost of living increases until our pension system is returned to better financial health.
Current employees will retain whatever accrued benefits they have earned, but will move into a hybrid system with a defined contribution component, similar to what the federal government has had since 1983. I have long advocated for a hybrid plan that will help minimize taxpayer risk and will allow employees some flexibility in how they would like their contributions invested. I have strongly urged the adoption of a hybrid retirement system, and even campaigned on it, because I had this benefit as a U.S. Senator and Federal employee.
Finally, all Rhode Islanders will continue to play an important role – but not through new taxes: rather, through a financing plan known as reamortization to repay our existing liabilities over a longer period of time.
Our proposal, which General Treasurer Raimondo will explain in greater detail in a few minutes, spreads the needed reform over all affected populations without asking one single group to shoulder the entire burden.
I have here with me a Providence Journal article from May 30, 2005, in which Scott Mayerowitz, citing growing momentum among state leaders, wrote: “This appears to be the year for pension reform.” Again, May 30, 2005 – 6.5 years ago.
The largest threat to having this story repeat itself would be our failure to comprehensively address pension reform. We all know that there are dangerously underfunded municipal pension plans. As Governor of this great state and captain of the ship, I clearly see these icebergs ahead. If you have any doubts, please read Auditor General Dennis Hoyle’s September 2011 report on municipal pensions. This study is a thorough and very sobering analysis detailing our deeply troubled independent municipal pension funds.
Honest, comprehensive reform means a top-to-bottom effort that doesn’t simply ignore these local plans because they aren’t operated by the state. We can’t have true pension reform if our cities and towns are neglected.
The Auditor General recently determined that 24 of Rhode Island’s independent municipal pension plans are in grave danger because of inadequate funding levels. These include Coventry Police at 16.5%, Cranston Police & Fire at 15.8%, and Smithfield Police at 11.4%. And it is important to bear in mind that these estimates are based on overly optimistic figures for rate of return and mortality expectations, so in reality some are even less adequately funded.
I believe that these debts represent the most alarming aspect of Rhode Island’s pension crisis, with many of the municipal plans in far worse shape than the state system. To ignore the pension crisis gripping our cities and towns would be dishonest and closing our eyes to reality. Failure to address these problems now threatens to leave the local property taxpayer bearing all the burden down the road.
We in this room have three choices when it comes to these crumbling plans:
If you think Central Falls is an isolated case that couldn’t happen again, reconsider. A startling number of our municipalities have had unfunded pension obligations essentially on par with Central Falls. In fact, while I don’t want to sound alarmist, other Rhode Island communities currently qualify for state intervention under the municipal receivership statute passed in these chambers. Allow me to repeat that: other Rhode Island communities currently qualify for state intervention.
I know that you don’t want to hear these words, just as I don’t want to be uttering them. But I also don’t want to have to appoint receivers to take over these cities and towns, receivers who will have no choice but to impose drastic cuts, such as those Judge Flanders has imposed in Central Falls.
By taking decisive steps now, we can avoid future disasters for other municipalities and their retirees. After consulting with mayors and town administrators from across the state, as well as municipal employee and public safety unions, our reform plan proposes an independent review of all municipal pension plans to accurately determine the scope of the existing liabilities.
We must then focus our efforts on the plans funded below 60% -- 5% lower than what is considered “critical” by the Federal government’s Pension Protection Act. Of the 24 locally administered plans considered at risk by the Auditor General, there are 20 below this level of 60%, a number that could grow with more accurate figures.
The plan that the General Treasurer and I present to you tonight respects collective bargaining by giving retirees, union representatives, and municipalities the chance to collectively negotiate their own remediation plan. If this fails, however, the state may withhold aid from those municipalities that do not make sufficient pension contributions. Further, plans at less than 60% would experience a freeze in retiree COLAs until they reach solvency.
This is the same approach we are using with the state system and it ensures that communities move expeditiously to shore up their endangered funds. City and town administrators and councils can then continue to collaborate with municipal union leaders and retirees to develop a plan to improve the system’s funding levels.
I know that in recent years cities and towns have had to grapple with dramatic reductions in state aid, a factor that has exacerbated many of these underlying fiscal issues. But I come from the local level, as a former City Council member and Mayor, and I want to be there to protect the property taxpayer and to help our communities succeed. Even in this past historically difficult budget year, I proposed $17 million in new funding to address the municipal pension crisis, and in the coming years I am committed to continuing that trend of support for our cities and towns.
Members of the House and Senate: many of you know first-hand that that the steps we’re proposing today are not easy. You have been through pension reform before. You have been here in 2005. You have been here in 2009.
Changes to the pension plans are always tumultuous. None of us want to be back here doing this again.
Those of you who were here during those years know the difficulties of what we’re putting before you. You know the pitfalls and the political ramifications. You know the inevitable opposition.
But leadership requires being honest about the challenges we face. Leadership calls for all of us to have the courage to take on not only those issues that are easily resolved, but those that are complicated and difficult. I believe that if we work together now to pass truly comprehensive reform, we can avoid coming back to take up this issue again and again. But more importantly, we can enact genuine reform that returns our state, cities, and towns to fiscal stability.
Today we are poised to put this era of uncertainty behind us and enter a new period of enduring prosperity. Mark my words: the single most effective way that we can market Rhode Island is to get our fiscal house in order. We must eliminate our structural deficit and comprehensively fix our pension system.
It is to confront challenges such as this that many of us were called to public service – to make the best choices for our constituents, to govern wisely, and to leave a better Rhode Island for our children.
All of us – Republicans, Democrats, and independents – have an opportunity today to ensure a brighter future for our state.
I know that you can get this job done. You have taken on tough challenges before. Not because it was easy or politically convenient, but because it was the right thing to do for our great state.
And it is for that same reason that I am asking you to join with me and the General Treasurer today, in a spirit of honesty and cooperation, to take decisive action. The General Treasurer and I urge you to adopt comprehensive pension reform.