A Hummel Report InvestigationLast fall's special session of the Rhode Island General Assembly resulted in significant changes to the state's pension system. But the appetite for reform in the municipal systems has waned as lawmakers head into the heart of this year's session. This week Jim Hummel sits down with two veteran union leaders for their perspective on the changes - and the pension system going forward.
Hummel: ``Last fall's special session resulted in substantial changes to the state's pension system. But the appetite for reform seems to have wanted on the municipal pension side as lawmakers head into the heart of the session. This week we sit down with two veteran union leaders for their taken on the changes - and what's ahead.''
Walsh: ``The biggest problem in the last decade was the lousy rates of return.''
Bob Walsh, a 20-year veteran of the National Education Association of Rhode Island, representing about 12,000 active and retired teachers.
Nee: ``There's been a couple of situations where serious errors were made.''
And George Nee, president of the local chapter of the AFl-CIO - a federation of unions representing nearly 60,000 public sector employees.
In many ways Walsh and Nee have been the public face of organized labor in Rhode Island. They have been in the thick of not only of the most recent pension discussions at the General Assembly, but changes over the past two decades. And they've heard assurances in the past that adjustments will fix the system for the long run.
Hummel: ``One of the big pitches last fall was, if we fix this, we're fixing it once and for all. Do you believe that?''
Nee: ``No. I think the intent is admirable. You could only say that based on what we know today. For example, we don't know what's going to happen to the world economy in the next four or five years that's going to impact the rate of return.''
Hummel: ``This is it, we won't have to do that. Do you believe that?''
Walsh: ``No, we've both been around long enough that when political folks say: this is it, we're never going to have to do this again; well this is the fourth time I've heard this is it on the pension issue in the last now seven years.''
Walsh says he is confident the unions will prevail in a court challenge to last year's alterations spearheaded by General Treasurer Gina Raimondo and Gov. Lincoln Chafee.
The changes included increasing the retirement age, freezing cost of living adjustments, and implementing a hybrid 401(k)-style retirement plan.
Walsh's prediction: the courts will look to other states, like Connecticut, which has similar pension problems, but has increased state contributions and refinanced some of the pension debt.
Walsh: ``We just made a significant tax cut on our highest wage earners, 4 percentage point tax cut. We took the highest income tax bracket down from 9.9 all the way to 5.9 percent. At the same time we're crying poverty in the pension system.''
Hummel: ``Don't you also get a little heat when the headline is Walsh and potentially other union people are saying, well one of the key ways to do this is we need to tax people a little bit more? Is that a fair representation of your position?''
Walsh: ``Well I think one of the problems in Rhode Island is the overreliance on the property tax to fund education - it starves our urban core communities. People are funny about their taxes. They can tell you to the penny what their property taxes went up. They have much less idea what's coming out of their paycheck for state and federal income taxes.''
Hummel: ``And is that where you want to see it, a boost on the income tax?''
Walsh: ``Oh yeah, I'm definitely the Buffett tax, definitely not the buffet tax category.''
Treasurer Raimondo warned local cities and towns they need to do their homework before launching into pension reform - and that has resonated this session on Smith Hill.
Hummel: ``What is your prediction, thought about municipal pension reform going through this session?''
Nee: ``My guess at the moment is that it won't. I for two reasons, one is that I think people are pensioned out and don't want another fight, because there will be a big fight on it.''
Hummel: ``Despite the gravity.''
Nee: ``Despite the gravity. But I think secondly, there's another factor. There's a big, big difference between a statutory benefit and a benefit that's achieved through collective bargaining. The General Assembly has always had the power to make the changes to the pension system, that's always been recognized by the unions.'
Hummel: ``Whether they've had the political will to do it or not.
Nee: ``And they actually have. Look at 2005, 2009 and 2010, they did exercise that political will.''
Hummel" ``What is your assessment of a municipal pension reform getting through this session? Do you think that's going to happen in some form or another?''
Walsh: No. I don't think that's going to happen.''
Hummel: ``And why is that?''
Walsh: ``I think Treasurer Raimondo correctly pointed out there's a lot more homework that needs to be done. While I disagreed with the outcome she gets full credit for doing her homework.''
Nee: ``I don't think - there's little or no since November collective bargaining going on.''
Walsh: ``I think there's a growing number of legislators who have figured out what I told you earlier in our conversation: those unions are going to win in court. So why pass another piece of legislation that is going to subject to legal challenge and prolong a problem.'
Walsh admits the economic and government dynamics are a lot different than they were just a few years ago. And, he says, even if the union prevails in court, changes have to be made.
Especially since the past two years the system has been paying out more than it is taking in.
Hummel: ``Those figures are very daunting. Okay, it's going to be $300 million this year $600 million, that it consumers such a huge chunk of both local and state budgets that in the end if you don't get a reasonable compromise or a solution, then that overshadows everything else. Do you think your membership understands that also?''
Walsh: ``I'd say majority understand. I absolutely have people say: your obligation is to get every single penny back that they took away, in not only this last pension change, but the prior two, which is still going through litigation in the court.''
Hummel: ``And your response?''
Walsh: ``And my response is that's probably not a realistic expectation based on the underlying numbers in the economy.''
Then there's the effect Central Falls declaring bankruptcy has had. Nee says while the state isn't going to go bankrupt - it is a wakeup call for union workers in local communities.
Hummel: ``Has Central Falls been a Sword Damocles? If this can happen and we can reduce benefits under the bankruptcy, whether you agree with it or not, doesn't that get people's attention?''
Nee: ``Well, I think it's more on the local level than the state level. It was a dramatic and draconian situation. And it was something people would have never thought could happen. Here you are one month getting $500 a month in your pension and the next month it's $250. All one person made that decision, or was empowered to make that decision. I think it scared the hell out of people.''
Walsh: ``If I was advising my brethren in Providence I'd say: sit down at the table with the mayor and figure this out, because in bankruptcy your rights are severely limited.''
Nee also says decisions made far away from the States House will affect the pension system going forward.
Nee: ``We have a whole different world that investments are made in. Whoever thought five, six, seven years ago what happens in Greece, or Italy, or Portugal will have such an impact on your pension fund, because it's so much part of the global economy now that it really does cause some concerns.''
At the State House, Jim Hummel, for the Hummel Report.