PROVIDENCE - Despite jeers and the threat of a union lawsuit, Rhode Island lawmakers approved extensive changes yesterday to one of the nation’s most underfunded public pension systems.
The state’s heavily Democratic General Assembly defied its traditional union allies to pass the landmark changes.
The legislation is designed to save billions of dollars by backing away from promises to state and municipal workers that lawmakers say the state can no longer afford.
Lawmakers said yesterday’s vote was one of the most wrenching they have had to cast, though the fight might not be over if unions follow through with promised lawsuits.
“It would certainly be a lot easier to walk away from this reform,’’ said Senate President Teresa Paiva Weed, Democrat of Newport. “However, it is clear that doing nothing only puts our retirees’ and our active members’ benefits at greater risk. We owe it to them, as well as to all other taxpayers, to attack this challenge head on.’’
Governor Lincoln Chafee, an independent and one of the bill’s original authors, said he will sign the bill.
Public workers said they felt betrayed and some interrupted the debate with jeers.
“They should be ashamed of themselves,’’ said Dean Brockway, a Cranston firefighter with 28 years on the job.
“These were Democrats voting to do this. They’re trying to solve a 40-year-old problem in one day. They didn’t have to do this.’’
The landmark legislation could have big implications around the nation. Nearly every state is confronting the same problem, caused by escalating pension costs, huge investment losses, and recession-induced budget deficits. The Pew Center on the States released a report this year that found that states face a collective gap of $1.26 trillion between what they have promised public workers and what they have set aside to meet those promises.
Rhode Island needs $7 billion to fully fund the pension fund that covers state workers and many municipal employees - roughly the same amount as the state’s entire annual budget. Under the current system, the state must pour more and more into the pension system annually, from $319 million in 2011 to $765 million in 2015 and $1.3 billion in 2028.
The pension system covers 66,000 active and retired public teachers, state employees, judges, and police and firefighters. Fifty-eight percent of retired teachers and 48 percent of retired state workers receive more money in their pensions than they did in their final years of work. Their benefits are set by state law.
The legislation passed yesterday would suspend automatic, annual pension increases for retirees for five years and then award them only if pension investments perform well. The bill also raises retirement ages for many workers and creates a benefit plan that mixes pensions with 401(k)-style accounts. The changes would not apply to municipal pension plans, which are typically the result of collective bargaining.
The measure is projected to reduce the state’s unfunded pension liability by $3 billion immediately and save taxpayers $4 billion over 25 years.
‘It is clear that doing nothing only puts our retirees’ and our active members’ benefits at greater risk. ’Senate President Teresa Paiva Weed
Passage of the bill is a political victory for legislative leaders, Chafee, and Treasurer Gina Raimondo, a Democrat who was the main architect of the legislation. For months, Chafee and Raimondo warned that unless the state reined in pension costs, lawmakers would have to raise taxes and slash funds for education and other services.
“Rhode Island has demonstrated to the rest of the country that we are committed to getting our fiscal house in order,’’ Chafee said.
Leaders of public sector unions aren’t giving up and vow to overturn the legislation in the courts.
“The attorneys are going to make a lot of money,’’ Philip Keefe, president of Local 580, which represents social service, administrative, and technical workers. “If this is overturned, it will be you, me and every other taxpayer that is on the hook for billions.’’
Opponents of the bill pushed unsuccessfully to weaken its impact, but the measure easily passed.
The Senate passed its version of the legislation 35 to 2. The House voted 57 to 15 a few hours later.