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Landmark pension reform faces legal challenge


A lawsuit filed by several Rhode Island unions following state municipal pension reform last November goes before Superior Court Judge Sarah Taft-Carter tomorrow. The hearing provides Taft-Carter an opportunity to rule on a state motion to dismiss the case, which, if upheld, would be a major step toward solidifying the pension reform as state law. But if the judge strikes down the state's motion, as most analysts expect, litigation will continue until the parties have expended all their options, including a possible appeal to the State Supreme Court. The process may continue for several months or until the parties negotiate an acceptable alternative settlement. 

"It's a nine-inning game," said Scott Mackay, political analyst for Rhode Island Public Radio. "We're in the second inning." 

Prospects for a negotiated settlement brightened Tuesday when Gov. Lincoln Chafee '75 P'14 expressed willingness to return to the bargaining table with George Nee, president of the Rhode Island AFL-CIO and Robert Walsh, executive director of the National Education Association Rhode Island, a prominent teachers' union, the Providence Journal reported. Walsh told the Journal he wanted "to leave it up to the judge to answer" the question of a settlement, while Nee said he supported negotiations with the state.

Rhode Island General Treasurer Gina Raimondo, an architect of the pension reform and a possible contender for the governorship in 2014, criticized Chafee's offer to negotiate with the unions. "It is not time for closed-door meetings," she wrote in a statement released yesterday. But Raimondo added that "if at some point the court asks the state to sit down to try and reach a settlement, we will do so in good faith."

Chafee said Raimondo was displaying "a real venture capitalist attitude" - a criticism of her Wall Street background, the Journal reported. 

Speaker of the House Gordon Fox joined Raimondo in decrying the negotiations. "It is not appropriate for me to negotiate legislation that was passed by the General Assembly and signed by the governor," he wrote in a statement released yesterday. "This law is critical to securing the state's retirement system and placing Rhode Island on sound financial footing now and into the future." 

"The matter is now in the hands of the judiciary, where it will be appropriately decided," Fox wrote. 

Raimondo has also argued that the governor cannot engage the unions in negotiations without her, since state law excludes employees' retirement systems from the collective bargaining process. Christine Hunsinger, Chafee's press secretary, said that while Raimondo was the "chief architect and cheerleader" for pension reform, the governor has the authority to submit a deal to the General Assembly for consideration. 

Like many states across the country over the past few decades, Rhode Island has neglected to fully fund its pension system, allowing a significant buildup of unfunded liability - the difference between the money the state has promised and the money it has on hand to fulfill its obligations. Before the pension reform legislation passed last year, reducing the unfunded liability by $3 billion, the state was behind by $7.3 billion. The smaller unfunded liability means the state pays about $200 million less in annual required contributions to the fund, according to the non-partisan Rhode Island Public Expenditure Council. The law achieves the cost reductions mostly by suspending the cost of living adjustments - which have in recent years increased the value of pensions faster than the rate of inflation - until the plan is healthier.

Raimondo told WPRI in April that if the courts reject the pension reform law, the state, cities and towns will all face "devastation." John Simmons, executive director of RIPEC, said if the courts overturn the law "the economic impact would be severe." He also stressed that the state's municipalities would be hard hit - the reform saved them a substantial amount of money, and the state would have to cut aid and raise taxes to pay for its increased pension burden. 

Walsh wrote in a June NEARI press release that the pension reform violates the state's "legal and ... moral obligation to the active and retired teacher, state and municipal workers." He added that Chafee's decision to honor the debt the state incurred after 38 Studios, which defaulted on its $75 million loan, went bankrupt while ignoring its promises to its employees reflects misplaced priorities. 

The dispute will eventually be resolved through negotiations, and the current posturing only sets the groundwork for bargaining positions, Mackay said. The unions recognize that winning the case would devastate the state, and they do not want to be responsible for increased taxes, he noted. But union members - particularly the teachers and retirees - are angry about the pension cuts, forcing the legal challenge, he said. 

"I think (the unions) are looking to save face - to chip away at what the legislature took away," Mackay said. "They would like to get a little bit back."

David Boies, an esteemed litigator of Boies, Schiller and Flexner who argued for presidential candidate Al Gore in the 2000 George Bush vs. Al Gore Supreme Court case, recently joined Raimondo's legal team, potentially boosting the treasurer's willingness "to go another round," Mackay said. Boies' involvement demonstrates the extent to which other states are watching Rhode Island's reform effort to better understand the implications of modifying their own pension systems. 

When news broke that the governor was willing to negotiate, Raimondo was in Chicago Tuesday night to attend a fundraiser before heading to New York to receive an award honoring her leadership in the state's pension reform. Chafee called the coincidence "ironic," since Tuesday's news showed the treasurer has far from solidified this signature accomplishment, the Projo reported.

The political side of this fight has lurke
d just below the surface as Chafee and Raimondo begin to draw battle lines for an eventual campaign. "Everyone knows Raimondo is running for governor ... and Chafee's approval rating is 29 percent," Mackay said, the second-lowest gubernatorial approval rating in the country. "You cannot know how much smoke and how much fire is here." 

The case has also received attention due to allegations that Taft-Carter, whose brother and mother both receive state pensions, cannot rule objectively, according to the New York Times. Taft-Carter's mother receives about $22,000 a year from her state pension and stands to have her cost-of-living-adjustments - which raise the value of the pension between three and six percent annually based on factors like inflation - suspended under the new law, the Times reported. 

Taft-Carter has sided with the unions on pensions in the past. The attempts of former Governor Donald Carcieri '65 attempt to reform the pension system in 2009, Taft-Carter ruled that the pension agreements counted as contracts between the state and its workers and were thus inviolable. The Carcieri-era changes were less extensive than the alterations under the 2011 law, which affect more people and save the state more money. 

State pension reform has followed a path similar to Providence's pension reform. Facing untenable payments to the pension fund following years of mismanagement, Providence Mayor Angel Taveras worked with the city council to pass a law that rewrote the pension system for city retirees in April.  But when the unions challenged the ordinance in court, the mayor negotiated a new agreement with local unions and retirees, announced a month after the ordinance passed. 

Cities and towns across Rhode Island are following the state's lead and attempting to reform their pension systems instead of increasing taxes or cutting services. The municipalities often run into the same kinds of legal challenges that the state is currently confronting. "The eventual end of this legal case will set the precedent for how cities and towns can move forward," Mackay said. "If the state can end (cost-of-living adjustments) legally, every city will try to do it."


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