Consolidating the Pension Problem for Whose Benefit?

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Not that long ago, I might have been supportive of Rhode Island General Treasurer Seth Magaziner’s initiative to move the remaining municipal pensions into a group under state control.  Among the positives would be getting them all together so that Rhode Island could make a decision about how to resolve the problems once and for all and move forward.

I’ve shed a bit of naiveté since then, and information like this, from Ted Nesi’s WPRI article has disconcerting undertones:

Magaziner emphasized that the proposal does not involve putting state money into the local pension plans, and said allowing them into MERS would not impact the funding of plans that are already in the state-run system. He also suggested joining MERS could force communities to be more responsible about making their annual required pension contributions.

“There are some pretty strong sticks to get communities to be responsible” in MERS, he said, such as withholding state aid or taking legal action if they fail to make their contributions.

This means the state will pressure municipalities to raise taxes as pensions prove to be unfundable through reasonable payments plus investment returns, which is almost certainly going to happen.  The bill will go up, and local governments will turn to voters and say, “We have no choice.  The state is making us pay more toward pensions.”  This will defuse some of the local push back, both on pension payments and the deals being offered to active employees.

Meanwhile, the looming catastrophe at the state level will be that much more threatening, and compromises on the employees/pensioners’ side will come later (meaning the promises will be bigger).  In short, my thinking is increasingly that, as with most budget items, the more local the decisions and the pain can be, the better.  The people paying the bill have a more-fair hand locally (if only slightly), and if one municipality slips into the abyss, the others may have time to work out their problems based on that lesson.



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