Today, the Rhode Island Public Expenditure Council (RIPEC) released an issue brief on the state of pensions and pension reform measures being considered. The report comes as legislators are preparing to vote on a potential reform package this week, and it includes a primer on key pension concepts, a summary of changes to pension plans across the country, and an overview of the pension reform legislation currently before the General Assembly. In addition, the report outlines a set of principles against which proposed legislation should be evaluated. Click here to see the full report.Click here to see the summary.
Pension reform is one of the most pressing issues faced by the state, at both the state and local level. Based on the most recent actuarial estimates, the projected unfunded liability of $7.3 billion and the estimated total contribution for FY 2013 is projected to be almost $700 million. According to RIPEC, the projected rate of growth is unsustainable, and even the current required contributions are out of reach for some communities.
John Simmons, Executive Director of RIPEC said, “funding the current obligations without reform will crowd out spending on other programs or initiatives as pension costs consume a larger share of revenues.” He added, “Alternately, supporting these obligations will require an increase in revenues, which the state can ill afford, particularly at the local level where property taxes are already among the highest in the country.”
It is the opinion of RIPEC that the state must choose between comprehensively reforming pensions, face significant tax hikes, or implement major cuts to services. Marginal changes, or changes that simply push out the problem into the future, such as reamortization or increasing the assumed rate of return, without comprehensive reform, will only serve to ensure that the problem will be more difficult to fix in the future. Failing to act on the pension issue will only serve to increase budgetary stress for state and local governments. Individuals who rely on state and local services may face potential service reductions, while taxpayers may face an increase in their already-significant tax burdens. Moreover, decisions the state makes will have a lasting impact on the state’s business climate as they will be reflective of the approach the state takes to governance. A proactive, principled, long-term approach will signal to businesses, taxpayers and employees alike that the state is dedicated to securing a stable – and sustainable – Rhode Island.
RIPEC has long-advocated for reform of the state’s pension systems and believes that reform should be: sustainable, actuarially and legally sound, comprehensive, transparent and equitable. These principles are not mutually exclusive: a sustainable system is also an equitable and sound system, while an actuarially and legally sound system is also transparent. It is RIPEC’s belief that the proposal before the General Assembly meets these principles and urges passage of the SB 1111A/HB 6319A. The bills, as written, provide an opportunity for the state to comprehensively reform the state’s human resource system into one that is responsive to the needs of the current workforce, while ensuring long-term fiscal sustainability.