Rhode Island’s 2011 pension reform was popular enough to propel its architect, state treasurer Gina Raimondo, into the governor’s mansion (starting in 2015). But the law itself is heading to court, and in an unusual fashion: a state judge just agreed to allow a jury trial. That will make for interesting political theater: will the jurors identify more strongly as beleaguered taxpayers, or as the friends or even relatives of the public employees who took the hit for the state’s pension mismanagement?According to Reuters, this may be the first time that a pension challenge will be tried by a jury, at least during the current pension wars. The case may not make it that far, however. Both parties are reportedly willing to consider a settlement; a previous accord was nearly reached last April, but members of the police union held out. Raimondo has said she is still willing to compromise, though as she told WPRI.com (a Rhode Island news site), she’s not “interested in…going backwards from what was agreed upon in the [previous] settlement.” Even with a few changes, however, this reform would be considered a landmark, all the more so because it was spearheaded by a Democrat. Here’s a rundown of the reform’s substance and benefit for Rhode Island’s budget, courtesy of WPRI:
During a special legislative session in the fall of 2011, the General Assembly enacted a huge overhaul of the system largely designed by Raimondo and her aides. The changes included freezing pensioners’ annual cost-of-living increases and moving most active employees into a hybrid system that partly resembles a private-sector 401k plan.The various changes slashed the state’s unfunded liability for pension benefits from $8.9 billion to $4.8 billion, boosting its funded level from roughly 42% to 56% as of June 30, 2013, according to the most recent analysis by Gabriel, Roeder, Smith & Co., the state’s actuary. It lowered the size of the taxpayer payment for pensions in next year’s 2015-16 state budget from $501 million to $280 million, a 45% reduction.
Reducing the state’s pension payment by nearly half is no small feat. Even so, the state’s budget deficit is expected to climb above $400 million by 2018, which is about what it would have been in 2015 were it not for the reform. The current projected deficit for next year is half that. Meanwhile, if the case is decided by this trial, the losing side will inevitably appeal to the state supreme court. Which means the fight might not end until after 2016.There’s little to celebrate about pension reform even when it’s badly needed. The cuts invariably hurt people who worked hard for the public good and were misled about the safety of their pensions by union and state leaders. Due to these leaders’ complacency and fecklessness and the recent financial crisis, the underfunding of American pensions has begun to look like an iceberg destined to sink many a state budget. A lot of deserving people will be living on much less during their retirement or taking part-time jobs. State and local governments will cut services while keeping taxes high in order to pay for their obligations. Businesses won’t want to invest or expand under those conditions. The financial burden on younger generations will grow heavier.We don’t envy the jurors who might wind up deciding the Rhode Island case. That doesn’t mean these decisions don’t have to be made, and won’t be—in state after state, and city after city, for the next several decades.