PROVIDENCE, R.I. — Just weeks after overhauling the state’s public pension system, Rhode Island lawmakers plan to consider giving cities and towns the power to revamp municipal pension plans.
Mayors around the state warn that without the ability to cut pensions, their cities will have to raise taxes or slash services to keep up with the ever escalating cost of providing the retirement plans for municipal employees.
“This lingering albatross around the necks of many cities and towns is going to drain our resources,” said Cranston Mayor Allan Fung, whose city faces an unfunded pension liability of $256 million, slightly larger than the city’s entire annual budget. “It has to be resolved.”
Lawmakers predict the debates over local pensions will play a key role in the 2012 legislative session, which begins next month. Gov. Lincoln Chafee said the state could see more of its towns and cities fall into fiscal crisis if lawmakers fail to act.
“2012 has to be a year we focus on the cities and towns,” Chafee said.
Collectively, the local pension systems would need $2 billion to cover the gap between the money that is available now and what the governments have promised to pay out in the future.
Last fall, lawmakers passed sweeping changes to the pension system that covers state workers, teachers and many municipal workers. The new law is designed to save billions of dollars in future years by suspending annual pension increases for retirees, raising retirement ages and creating a new hybrid system that combines a 401(k)-style plan with a traditional pension.
Mayors from Providence, Cranston and other cities and towns unsuccessfully pleaded with lawmakers to apply the changes to the state’s 36 locally run pension plans, too. They warned that cities would have to raise taxes or make cuts if local leaders weren’t given greater authority to cut pension costs, largely by suspending annual increases for retirees.
Lawmakers balked at the request, saying the local plans vary too much from city to city for a one-size-fits-all remedy. And unlike the state’s pension system, the municipal pension plans are subject to collective bargaining, making changes more legally difficult.
Public-sector unions that unsuccessfully fought the state pension overhaul said city leaders should try to negotiate new agreements with unions before turning to the Legislature for help.
“I would think they have an obligation to meet with labor leaders and start the process of collective bargaining,” said Rhode Island AFL-CIO President George Nee. “They keep trying to push this into the legislative branch, but these agreements were created through collective bargaining in the first place.”
Lawmakers who worked closely on the state pension overhaul said it’s time to focus on the local plans, even if they’re reluctant to reopen a contentious and complicated debate. Rep. Frank Ferri, D-Warwick, said he’s optimistic that lawmakers can craft a solution that’s palatable to both city leaders and workers who want retirement security.
“It needs attention sooner than later,” he said. “Will we have the stomach for it? I think we have to.”
Chafee and the mayors cite Central Falls and East Providence as examples of what will happen if nothing is done. Central Falls is now under the control of a state receiver who is seeking bankruptcy protection for the insolvent city. One key reason for the city’s fiscal problems: $80 million in unfunded pension and benefits obligations.
A state budget commission now is overseeing the finances of East Providence after that city faced chronic deficits. Aggravating the city’s precarious finances is a $65 million unfunded liability in the pension fund for firefighters and police officers.
“It’s a problem for every city and town,” said East Providence Mayor Bruce Rogers.