4/20/11

Here's An Alternative to Sales Tax Bite

Governor Chafee took so much heat over his ill-considered sales tax plan, especially from the business community, that he was left asking for someone, anyone, to come up with an alternative to hiking taxes. Now that House Speaker Gordon Fox has indicated the House will not support the plan in its present form, let me offer an alternative - one that, if adopted, would demonstrate the type of leadership that has so far been lacking on Smith Hill.

Imposing taxes to boost revenue to deal with the deficit is focusing on the wrong side of the equation to start with, as most people realize. The real problem the state faces is not revenue generation but state spending, especially on pensions (and healthcare) for state retirees. This has been obvious for some time now but it’s received added emphasis and urgency of late by the admission from the new General Treasurer, Gina Raimondo, that the true pension obligation the state faces, which is at the heart of our year-to-year structural deficit, is a lot more than previously thought – to the tune of an extra $1.4 billion – as a result of an independent audit.

For the past decade, despite two recessions ( the second of which we’re still living with), the state has assumed an annual rate of return (8.25 percent) on its pension investments that was way off the mark in five of the ten years from 2001 through 2010. Overall, despite some good years, the rate of return for the past decade came in at only 2.470 percent. That has left the $7.4 billion pension fund with an increasing unfunded liability, which is the difference between the fund’s assets and its obligations to some 50,000 retired and active state workers and teachers. Now the state – meaning us taxpayers of course – will have to put in an additional $260 million to cover pension costs, based on a lowering of the assumed rate of return to 7.5 percent a year, which is considered more “realistic.” Doing that thereby raises the state’s contributions to an estimated $622 million in the fiscal year that starts a year from this July, up from $359 million for the 2011 fiscal year.

Those are staggering numbers for a small state still mired in a post-recession environment, with diminishing revenue lifelines from an all-but-broke federal government. The pension situation, along with lifetime healthcare obligations for state retirees and teachers, is the 800 lb. gorilla in the room. Not surprisingly, neither Chafee nor the legislators are speaking out much about it, for fear of the unions who don’t want the focus on pension reform. Union honcho George Nee has stated that taking a look at the pension problem can wait until next year. But clearly, the situation is unsustainable and is going to sink our state, and there’s nothing to gain and everything to lose by further delay in tackling it. The only roadblock, of course, is political.

So here’s my recommendation for an alternative to the sales tax plan (which, by the way, still requires vigilance on the part of the public because, while it may be wounded, it’s not yet dead and buried): Focus on reducing state spending by reforming the pension system, which is sucking the life out of state finances. How can our state ever recover and grow again, dedicating taxpayer revenues to vital matters of government responsibility like healthcare, education, infrastructure and the like, when so much money has to be devoted, year after year, to paying for services already rendered?

As a report just issued by The Boston Foundation and the Massachusetts Taxpayers Foundation - Gilded Benefits from a Bygone Era (www.tbf.org/Home.aspx) - which deals with the costs of municipal health plans but is just as applicable to pension costs in the Bay State and elsewhere - points out, “…outdated benefit packages to public employee unions have moved our Commonwealth, and our nation, from being an investment society to solely a maintenance society. We are no longer able to invest in local aid or higher education or public safety or the environment, as the resources necessary for these investments are being consumed by the cost of maintaining benefits.”

Governor Chafee could show real leadership by getting all relevant parties to the table without delay to begin the process of reforming the pension system. Nothing is more important to the future of our state – in fact, if we don’t accomplish this, we might not be a state in a few years’ time, having at last fallen victim to consequences stemming directly from a profound lack of political courage.

9 comments:

  1. John,
    The fact that your excellent message has been available for viewing for a day now and has received 0 comments could be an indication that not only do we have politicians and union leaders that won't go near the issue, but much worst, the apathy of our fellow Rhode Islanders is showing its colors. As citizens and taxpayers,we should be shouting our displeasure with the status quo from the roof tops, let alone sharpening our rusted pitch forks to do battle with the captured politicians and union bosses. Come on Rhode Island lets hear it, Change will not happen unless we make it happen, A great way to start is to support the John Hazen Whites of Rhode Island. They can't do it alone.

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  2. Thank you, John Hazen White! This message needs to be heard across the State -- please send your comments to all the papers and online news sources. We taxpayers are ready to push for public employee pension/healthcare reforms, but we need leadership to make it happen. Are any legislators ready to stand with us?

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  3. It is time to make r.i. a right to work state. and here is a fix for chaffee, 10% pay cut for anyone who receives a tax payer ck , police, fire, judges, general assembly,EVERYONE, 2nd 25% co-pay for health insurance, 3rd 12% pension contribution for everybody including judges who now pay 0, 4th 25% cut to anyone now getting a pension, 5th NO more cost of living increases and NO more longevity pay, There the problem is FIXED and we will have a surplas.

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  4. John your article was also printed in this week's Warwick Beacon. I did an article that also appeared in the Beacon on pension reform that you may be interested in.

    It demostrates the problem we have with the politicians not really wanting to address the problem with real reforms.

    #################################

    The Taxpayers' Spin: Reality of pension costs daunting
    by Robert Cushman
    Apr 14, 2011

    Link: http://www.warwickonline.com/view/full_story_columns/12791356/article-The-Taxpayers--Spin--Reality-of-pension-costs-daunting?instance=secondary_stories_left_column

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  5. going to the doctors is now a gilded benefit?

    Spoken like a guy who was born on third base and thinks he hit a triple

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  6. why won't you publish my comments? Afraid of the truth Jonny 3rd Base?

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  7. How about this.. the bankers and lawyers stop screwing everyone. We stop the Mob corruption. Everyone pays their FAIR share (you too Mr Hazen). Really the problem isnt the unions. They are a convenient excuse.

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  8. It's so easy to go in and say 'CUT THE PENSION', you never think about the person who has put in 28 plus years, too young to retire, and is counting on this since it was promised to them, they put in the money. The issue is the money is there, it's just going to cost more. We are taxpayers too.

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  9. I agree with what the first "anonymous" said regarding with the exception of COLA(s).

    Otherwise, the tough issues are addressed and certainly will be should the system go into bankruptcy.

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