Rhode Island pension settlement seen as setback for reformers, raises questions that resonate here

The state of Rhode Island has reached an agreement with public employee unions that had filed six lawsuits challenging pension reforms adopted by the state. The Providence Journal points out that the deal comes with costs:

Details were still emerging on the Friday afternoon of Valentine’s Day,  but it appears the proposed deal would increase the unfunded liability from $4.8 billion to $5.054 billion.

It would also raise the projected cost to state and local taxpayers by an overall $24.2 million, as a direct result of the settlement.

But that does not tell the whole story. The required state contribution would rise from $280 million to $293 million in the year that begins on July 1, 2015. For the cities and towns, it would go from $206 million to $217 million. The overall taxpayer bill would increase from $486 million to $510 million.

If you’re not a Rhode Island taxpayer, you may think this doesn’t matter to you. But as Manhattan Institute senior fellow Steve Eide writes, the deal sets a discouraging precedent.

Regardless of the effect it has on Rhode Island’s own finances, looked at within the broader context of the national pension reform movement, this is a disappointing outcome for at least two reasons.

First, government unions have demonstrated, once again, their ability to play the long game and get results. Even if they won’t get everything they wanted, unions did successfully use the legal process to water down a reasonable and necessary reform passed by Rhode Island’s duly elected Legislature and Governor. 

And,

Second, state Treasurer Gina Raimondo, who designed the pension reform, seems to have gone wobbly. The law itself still polls well, but Providence Mayor Angel Taveras has been leadingRaimondo among Democratic primary voters. Raimondo appears to believe that, in order to prevail in the Democratic primary, she needs to strengthen her progressive credentials…

Pension reform needs politicians, and Democratic politicians are especially valuable.

Eide’s MI colleague Steve Malanga adds his own observations.

 …in about two dozen states it is difficult to make  any changes to pensions for current employees and retirees thanks to the way state courts have interpreted pensions as an unalterable contract between the state and the worker.  That means that government can’t even  just change the rate at which workers accrue new pension benefits for work they haven’t even done yet.

Rhode Island, however, is one of a handful of states where it’s not clear from previous court decisions that there is any precedent on how to treat pension changes for current workers. While this is what encouraged the state in its original reforms, it also put those reforms at risk.

The legal questions have direct implications for our state. Emily has written on this previously, most recently here. And I offer some thoughts on the two pending cases challenging pension reforms adopted by our state Legislature here.

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