KINGSTON, R.I. – April 27, 2011 – Although there are discrepancies in the actual reported amount of statewide pension underfunding, Ernie Almonte cited enormous numbers, about $13 billion, or $13,000 for every citizen in R.I. to pay the promised pensions and health care benefits of retired workers.
As part of their annual Vangermeersch Endowed Lecture series, the University of Rhode Island’s College of Business Administration brought together a panel to help inform Rhode Island residents of the issue.
With that goal in mind, the panel featured Ernie Almonte, former Rhode Island auditor general, Allan Fung, mayor of Cranston, and Gina Raimondo, R.I.’s general treasurer, and Gary Sasse, director of Bryant University’s Institute for Public Leadership, as moderator.
“It’s going to take Draconian measures to fix this problem,” said Almonte who looked at the amount unfunded and lack of options to do so.
“The people want progress without change,” he said. “We want to increase pension funding, but we don’t want to take money away from other services or raise taxes.”
Fung took a look at the problems he faces regarding the pension.
“The problem Cranston is facing in these tough financial times, is that unfortunately, we can’t put in the full $24 million into pension plans that we are required to. If we were to try, pension funding would increase from 25 percent to 34 percent of the city’s budget. The difference, almost $4 million, would have to fall on the taxpayers backs, and I just can’t do that,” said Fung.
Besides lack of appropriate funding, Raimondo has started looking to the future and seeing that the state is headed into a situation where there will not be enough workers to fund the current pension plans.
“The pension crisis isn’t just another issue the state has to deal with; it’s the big issue,” she said. “We have a choice to fix it once and for all that is fair, or we can do nothing and face the consequences later on.”
In order to find a solution, Raimondo says both the public and politicians need to start looking at this issue with honesty. By laying the real numbers out on the line, looking at the longer life expectancies of retirees and their benefits, and taking action now, the state might start to fix the problem and keep past promises at the same time.
“It’s easy to push the problem aside when you don’t have to pay for it until 15 years down the road,” said Raimondo. “That’s what happened in the past and it’s catching up to us now. If we do nothing, in about 15 years $1.2 billion will have to come out of our state budget to pay into the pension system.”
Changing the pension plans to alternative retirement funds, such as 401(k)s, may seem like a quick fix, but it doesn’t help the current situation. A retirement fund change that only impacts new employees will not work since it negates the funding for accrued work and current pension plans.
Fung has run into this problem in Cranston, trying to change pension plans through state law by bringing it to court. The case was lost in arbitration and then again at the Supreme Court.
“The promises in the past made by former administrations are legally binding. Once plans are put into collective bargaining agreements, the only way to make changes is through negotiation and collective bargaining,” Fung said.
The state has started taking initial steps to reduce the intensity of the problem. Working with Governor Chafee, the state has prevented re-amortization, a process that takes money out of the pension system to balance the budget rather than leaving the money to compound interest.
“Rhode Island is not alone in facing this pension crisis; it is a national issue,” said Raimondo. “It’s a monumental problem and one that I would like to see Rhode Island emerge from as a leader.”
From Left to Right: Ernie Almonte and Allan Fung listen as Gina Raimondo discusses her opinions of Rhode Islands pension crisis. URI Department of Communications & Marketing photo by Michael Salerno Photography.
This release was written by Alicia Blain, an intern in URI’s Department of Communications and Marketing and a public relations major.