In the fall of 2011, the General Assembly came together for an unprecedented special session and overwhelmingly enacted major reforms to the state’s pension fund.
An enormous amount of time, energy and expertise was involved in the many months that led up to the passage of the Rhode Island Retirement Security Act. The goal of our bold action was to stabilize the state’s pension fund in order to preserve its solvency and protect against exorbitant increases in taxpayer contributions.
The legislation we enacted truly balanced the costs and risks between employees and the state and it protected the fiscal integrity of the retirement system, the state and our municipalities.
Given the passage of a little more than two year’s time, I am more proud than ever of the men and women in the General Assembly for taking such action. There is no question that without this legislation, some cities and towns in Rhode Island may have gone bankrupt. Need we look any further than Detroit? A federal judge recently allowed the pensions of 23,000 retirees and 9,000 workers to be significantly cut during bankruptcy proceedings.
It broke my heart when so many retirees in the City of Central Falls had their modest pension checks slashed in half. We could not stand by and risk seeing retirees in other Rhode Island communities – and eventually the whole state – perhaps suffer the same fate.
We were proud to work with General Treasurer Gina Raimondo and Governor Lincoln Chafee to preserve and protect our pension fund. At the end of the day, we all felt that it was better to temporarily suspend a retiree cost-of-living-adjustment now than to cut pensions later.
Rhode Island was one of the first states in the nation to take such decisive action, but others are now addressing critical pension issues as well. Earlier this month, the Illinois Legislature approved a plan to eliminate a $100 billion pension shortfall by making deep cuts in retirement benefits, which we were able to largely avoid in Rhode Island.
A few critics have been tying the return of the cost-of-living-adjustments to investment fees, and that is a separate issue that only serves to diminish the actions that were taken and is not fair to any public employee or retiree who is depending on a pension check.
Lost in the swirl about investments are some very important facts. The pension reform immediately reduced the unfunded liability by about $3 billion. It will save Rhode Island taxpayers about $4 billion over the next two decades, and it saved cities and towns about $100 million alone in the last fiscal year. As three examples, Providence saved $13 million, Cranston saved $11 million and Warwick nearly $9 million, all in the first year.
Very significantly, the enactment of reform enabled the state to dramatically reduce the taxpayer cost for the retirement system in our annual state budget. In the current fiscal year, the budget savings from general revenues and local sources amounted to more than $250 million. With the retirement costs now under control, we were able to invest in local schools, roads and bridges, as well as initiating workforce training programs. We were able to hold the line on taxes and even eliminate the sales tax on certain items, while reinstituting the historic tax program.
Addressing the pension liability staved off a crushing financial burden in the coming years for state and local taxpayers. Savings in the Fiscal Year 2015 budget that the General Assembly will soon begin debating are estimated at $275 million. We are still grappling with a slow-moving economy, and without the action we took, the strain on the state budget would have been enormous. Employee layoffs and cutbacks in services that people have come to expect would have been inevitable.
It’s time for the critics to stop the political rhetoric. The reforms we enacted strengthened Rhode Island’s system to make sure that the retirement benefits that have been earned are there when people need them the most. This legislation has truly placed our state pension system on a secure path to fiscal health.
(Rep. Gordon D. Fox is a Democrat representing District 4 in Providence and was the House sponsor of the pension reform legislation)