Rhode Island pension settlement sets discouraging precedent

Rhode Island will not experience much new fiscal harm from the deal just reached to “soften” the state’s 2011 pension reform. Assuming it’s enacted, after what some have predicted will be a “cumbersome ratification process,”  95 percent of the original savings will still be realized. Instead of reducing the state’s unfunded liability by 46 percent, the settlement’s terms project a 43 percent reduction (p. 31-2). Rhode Island (6th-highest state and local tax burdenhighest state unemployment) may yet go broke, but not because retirees will be able to retire with full benefits at 65 instead of 67, as the original legislation had it.

Taking the long view, wpri.com’s Ted Nesi writes “if the unions had called senior state leaders in early 2011 and said, ‘Hey, we have a proposal we’ll back to slash the unfunded pension liability by more than 40% without a legal fight,’ they probably would have jumped at the chance.”

But the numbers mislead. 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. Taken with other, more significant union courtroom victories over pension reform, this stands as a reminder of how narrow the possibility for reform is in so many blue states, when, even if they experience a setback through the political process, sympathetic judges and unions’ resources and organizational strength strengthen their chances at prevailing ultimately through the legal process.

Coalitions temporarily assembled to effect single reforms are apt to declare victory too easily. “Never let a good crisis go to waste,” reformers have cheerily informed us over and over, but the great strength of unions is that they don’t need crises to fight for or against change. That’s the good thing about being organized.

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 leading Raimondo among Democratic primary voters. Raimondo appears to believe that, in order to prevail in the Democratic primary, she needs to strengthen her progressive credentials. She supports an immediate increase in the state’s minimum wage from $8 to 10.10 an hour. Unlike liberal Governor Lincoln Chafee, Raimondo does not advocate lowering the state’s corporate rate, even though it contributes significantly to Rhode Island’s extremely low business-climate ranking. While she has little hope of winning over the unions from Tavares, perhaps she can limit the passion of her pro-labor opposition by settling up over pension reform.   

Pension reform needs politicians, and Democratic politicians are especially valuable. Raimondo, along with Chuck Reed and Rahm Emmanuel, was the rare Democrat who “got it” on pensions. Members of the party of progressivism above all should understand that, when costs rise at a rate above revenues, pensions undermine the promise of activistic government. You can still tax, but you can’t spend as much on what you want.

Raimondo presumably still believes this and still has a strong record to stand on. But when unions remain so strong within the Democratic party, and with so many state and local governments yet in need of major pension overhauls, any signs of a loss of Democratic leadership on pensions is discouraging. The hope had been that, ten years from now, Reed, Raimondo and Emmanuel would look like the first of a new breed, but, as of now, they still seem like outliers.

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