The unsustainability of the New York state pension system has now hit very close to home as our neighbors in the City of Peekskill struggle to close the gap caused by staggering pension obligations.
Peekskill’s proposed 2013 budget was released last week and calls for the elimination of 40 full- and part-time city jobs in order to absorb a pension obligation that will increase 40 percent in just one year from $2.2 million to $5 million in the next budget. Even the most solid financial plan cannot anticipate a 40 percent increase in one line item.
I offer the Rhode Island approach, both for the substantive and stylistic approach for reshaping ballooning pension obligations, as a model for New York. Now we just need one of our politicians to come forward as a statesman and confront the problem in the same manner as Gina Raimondo, the treasurer of Rhode Island.
Raimondo, 41, a Yale Law School graduate, Rhodes scholar and daughter of two proud union members, was running a successful venture capital firm in her native Rhode Island when she observed all the public services she used as a child disappearing to cover the budget gaps caused by escalating pension costs.
So, she entered the political arena and only one year after her 2010 election, she had persuaded a Democratic legislature and a Republican turned Independent governor to enact pension reform that cut the state’s unfunded pension liability in half, and will result in a $4 billion savings in just 20 years.
The agreed-upon reform measures included delaying retirement age, suspending cost of living increases and creating a hybrid fund that shared investment risk. The state now guarantees part of each pension and a 401(k) style plan makes up the rest.
Unlike the plan in Wisconsin, which exempted police and firemen, creating a disproportionate burden on all other public sector workers, or New York’s watered down Tier 6 plan which only affects the newly hired, all Rhode Island state employees are affected equally from the judges on down.
Rhode Island was in a particularly perilous position prior to treasurer Raimondo’s arrival. The system covered just 47 percent of future pension obligations, one of the nation’s lowest funding levels, and there were fewer current state workers paying into the Rhode Island pension system than retired workers collecting from it.
Stylistically, Raimondo never promised anything to any group, only to be honest and engage them every step of the way.
The Rhode Island approach – face the facts, get everyone to the table, look to solve the problem and not demonize the participants – could serve New York well.
Being the daughter of two union members, Raimondo knew that those receiving pensions should not be used as “the whipping boy” for poorly managed systems and unrealistic benefits granted by politicians seeking re-election and pensions themselves.
Public employees did not make the rules. They took jobs with a built-in set of expectations and every right to believe they would be honored. Also, the rare “pension abuser” should not be championed to inflame the taxpayers as they are few and far between.
The Rhode Island treasurer also spoke in concrete terms, knowing we all tend to glaze over when discussing unfunded benefit equations and mathematical formulas. Rather, she explained that without reform, property taxes would rise in perpetuity, and services such as library hours, afterschool programs, bus routes and recreational programs would be severely curtailed – a permutation of which has happened in every community including our own.
She also correctly realized that to have an engine of economic growth and in turn reduce unemployment (at the time of the reforms, Rhode Island’s unemployment rate was 10.8 percent, the third highest in the nation), communities must have good schools, libraries, social programs and solid infrastructure.
Not surprisingly, the Rhode Island reforms were not embraced by all constituent groups, and the pending court challenges will likely have national implications as other states follow suit. As Raimondo said, “I expect other states to follow because they have to.”
I would argue which ever politician in New York who has the foresight and courage to address this problem here at home is the true friend of the public sector employee, because without reform, our current system is simply unsustainable long term.