Saturday, March 24, 2012

Recognizing Good Government

Today's WSJ ran a great article highlighting the work of Rhode Island's Democratic State Treasurer, Gina Raimondi, who has worked against powerful union interests to prevent Rhode Island's pension liability from ruining the state.

Some highlights:

"The new law shifts all workers from defined-benefit pensions into hybrid plans, which include a modest annuity and a defined-contribution component. It also increases the retirement age to 67 from 62 for all workers and suspends cost-of-living adjustments for retirees until the pension system, which is only about 50% funded, reaches a more healthy state."

"Because there has been little legislative or public support for raising taxes, the Ocean State has been cutting public services to pay its pension bills."

"Soon after she set to work on fixing the state's pension system, flouting the advice of her Democratic colleagues. 'Candidly, most people in my political circle told me not to do it because it is politically challenging and it's kind of the third rail,' she says. 'So most political advice I got was: Don't own the issue. Stay away from the issue. Put it on someone else.'"

It was great to read the article -- not just to learn about what she did but HOW she did it...she reached out to the unions and criss-crossed the state (okay well in RI that part's not hard) to explain why it was important.

The article hits upon the theme that you can't *just* jack up your property taxes endlessly. The problem with that is that people have the freedom to move. Central Falls, RI learned that the hard way -- when more residents then leave, a vicious circle is created by the decline in city revenue.

The second theme that it hits upon is a personal favorite -- preventing the system from falling off a cliff should NOT be seen as being anti-government or anti-government employees. In fact, it should be seen as the complete opposite: by saving the system from imploding, you're protecting the livelihoods and the retirements of the very people whose hard work keeps it running.

1 comment:

JoeS said...

The Lowell retirement system is underfunded, but the more recent hires contribute a greater percentage of their pay so as to mitigate the added liability to the City. Past practices to incentivize voluntary retirements by boosting pension benefits have added to the problem, and should be discouraged going forward.

But the larger problem is the unfunded health care liability for retirees. Unlike the pension benefit which is earned incrementally with years of employment, the health care benefit comes in full at 10 years of service. It is unclear how that is treated when one has some years outside the City, but retires from the City. Does Lowell pick up the full tab, or is it shared with prior community? Since there is a tendency to "move up" into City service, it is likely that Lowell loses in the exchange.

A better way would be to earn health care retirement, say at 2.5% per year with the City up to a maximum of 80%.