ST. VALENTINE’S DAY FINANCIAL MASSACRE
Enough is enough.
Over the past several legislative sessions, our leaders at the State
House have inflicted significant financial pain on the local taxpayers. First,
they eliminated general revenue sharing monies to local municipalities. Next,
they eliminated the funding to phase out the burdensome car tax. And now, the
taxpayers of Rhode Island are getting hit with another bill due to a closed
door, behind the scenes deal.
Cities and towns have worked hard to withstand the loss of hundreds of millions of dollars in state aid. Services have been cut, employees have agreed to concessions, and property taxes have been increased. In 2011, the Governor and the General Treasurer convinced the General Assembly to enact the Rhode Island Retirement Security Act (“Act”) in order to avoid the huge employer contribution requirements resulting from changes to the investment rate of return and other actuarial assumptions, as well as the realization of investment losses.
Cities and towns, recognizing the importance of needed pension reform, sought to expand these efforts to include the even more troubled locally administered pension plans, many of which had benefits tied in contracts. Unfortunately, local municipalities were again left to fend for themselves as state officials ignored our pleas to address problems festering within our locally administered pension plans.
However, we still supported the passage of the Act because it was the right thing to do for the state pension system and the taxpayers. As expected, the unions and retirees sued the state over the passage of the Act. After mediation was ordered, cities and towns, who were not at the negotiating table as part of the suit, urged our state officials to proceed with extreme caution in their consideration of any potential mediated benefit changes to the enacted law. We felt it would be irresponsible for the parties involved in the mediation process to reach any type of agreement which would increase the employer contribution rate paid by local governments. The implications of higher pension contributions would be disastrous to many cities and towns, some of whom are still teetering on the brink of fiscal collapse.
After months of closed door negotiations, the Governor and General Treasurer have agreed to a settlement that favors the unions and retirees at the expense of the taxpayer. This is a major step backward for the taxpayers of the State of Rhode Island. Beginning in 2016, taxpayers will have an annual bill of $24 million, and the State’s unfunded liability will be increased by nearly a quarter of a billion dollars. The bill to Cranston alone will be almost $1 million. These costs cannot be dismissed by suggesting that 95% of the original package stays intact. Regardless of the percentage of the original savings, this is a significant amount of monies for struggling cities and towns. These municipalities will only have one place to turn for additional revenues; raising property taxes. According to the Tax Foundation, Rhode Island’s property tax burden currently ranks as the 7th highest nationally, far above the national average. Once again, if the General Assembly were to approve this settlement, the taxpayers will have to foot the bill.
Interestingly enough, risk avoidance was given as a justification for the State pursuing a deal with the public sector unions and retirees. Yet the General Treasurer has for years stated that the pension reforms instituted are constitutional, and even the Governor’s Director of Administration, who is also a lawyer, was recently quoted in the Providence Journal saying “we would ultimately win the case.”
If the Governor and General Treasurer believe the state would be successful in litigation, then why settle for an additional quarter of billion dollars in new unfunded liabilities and $24 million in increased operating costs to the taxpayers? Why not fight for the taxpayers and the cities and towns? This is simply outrageous.
In 2011, after an in-depth public debate on the issue, the Act was enacted with overwhelming and bipartisan support in the legislature. The members of the General Assembly must again show courage and leadership to reject this deal. Our state and local budgets have no room for increased spending on pension benefits, whether it is in the short or long term. Let’s permit the court to rule once and for all on the constitutionality of the Act. I’m asking the taxpayers of Rhode Island to stand with me in rejecting this closed door, behind the scenes deal. Enough is enough. Together we can move Rhode Island forward.