Page 1

3 of 26 DOCUMENTS

Providence Journal November 20, 2011 Sunday

After vote, much work lies ahead; assembly

BYLINE: Mike Stanton, Journal Staff Writer SECTION: NEWS; Local; Pg. 1 LENGTH: 2103 words

HIGHLIGHT: Pension overhaul will likely wind up in court, impact will be felt in Assembly races

PROVIDENCE -- The strains of The Beatles All You Need Is Love echoed through the rotunda of the Rhode Island State House Thursday night, a surreal soundtrack to the denouement of an epic battle to dramatically change the state retirement system. As the House debate wound down, about 200 people filled the rotunda. They were not angry public employees, but participants in an Adoption Rhode Island ceremony marking National Adoption Month. Like most Rhode Islanders, and even most legislators, the organizers of the adoption event didn t envision that the part-time legislature would be convened in a special session when they booked the building months in advance. Nor that their words would offer some balm to a solemn moment in a building that has seen its share of tense moments over the years -- from the Bloodless Revolution in 1935, when urban Democrats wrested power from the rural Republicans, to the banking crisis in 1991, when angry citizens flooded the marble corridors with shouts of We want our money! The tone was somber, not celebratory, as one legislator after another rose to speak regretfully of tough times, hard choices and broken promises. But in the end, in a remarkable show of unity on such a divisive issue in one of the nation s most heavily Democratic and pro-union states, lawmakers voted decisively to overhaul Rhode Island s retirement system and reduce benefits to tens of thousands of public employees and 21,000 retirees. The vote was 57 to 15 in the House, 35 to 2 in the Senate. The reverberations from that vote will be felt in the state s faltering economy and its struggling cities and towns, in the courts where unions will challenge it, and in 2012 General Assembly races, where labor and champions of pension overhaul will renew their struggle. Rhode Island Democratic Party Chairman Edwin Pacheco acknowledged that public-employee unions are upset. It s pretty obvious that a typically reliable Democratic constituency is not happy right now, he notes. We need to work to ensure that in the long term, they understand that this was in the best interest of the state and their retirees.

Page 2 After vote, much work lies ahead; assembly Providence Journal November 20, 2011 Sunday

At the same time, Pacheco says, legislators faced with a difficult decision took the time to listen ... the voices of people across Rhode Island were heard. Democratic legislators elected in 2010 with the support of labor, which had targeted their incumbent opponents for anti-union stances, voted for the bill, such as David Bennett of Warwick, Richard P. Morrison of Bristol, Jeremiah T. O Grady of Lincoln and Teresa Tanzi of South Kingstown. And while labor rallied strongly against the bill, the powerful Laborers International Union of North America, which represents Providence municipal workers, stayed on the sidelines after successfully urging political leaders not to include municipal pension plans in the legislation, over strenuous opposition from Governor Chafee. Senate Majority Leader Dominick Ruggerio, a powerful Laborers union official, voted for the bill. The battle over the bill also marked the emergence of a new and secretive business-backed group, EngageRI, which spent more than $500,000 to support pension changes and has built a war chest said to total $200,000 to back lawmakers who are targeted by labor in 2012. The group, which won t reveal how much money it raised or identify its donors, vows to remain a force in 2012 and to make its voice heard on other economic and business issues. People familiar with the organization say that it plans to form a political-action committee, which would be able to donate directly to candidates and which would have to disclose its financial backers. Rhode Island Treasurer Gina M. Raimondo, the chief architect of the pension bill, has attracted national attention for her pension crusade, eclipsing Governor Chafee, who alienated his union backers by pushing for the changes, yet hasn t received the same amount of credit. The treasurer, whom many speculate will run for governor in 2014, dismisses such talk, saying that the $525,000 she has in her campaign fund will go toward supporting legislators who back pension overhaul. Two years ago, after a legislative study commission had recommended dramatic but less-sweeping pension changes, the General Assembly didn t even implement the panel s first recommendation raising the retirement age to 65. The bill that Governor Chafee signed into law Friday raises the retirement age for many workers to 67, shifts a sizeable chunk of their pension to a non-guaranteed 401(k)-style plan dependent on investment returns and suspends cost-of-living increases for retirees when it takes effect at the start of the next fiscal year, in July 2012. The changes, among the most radical in the nation, have attracted national attention in these financially tough times. Bond-rating services immediately upgraded Rhode Island; Fitch Ratings said that passage of the bill increases financial stability for the state and may set a precedent for other U.S. states. Edward Mazze, former dean of the business school at the University of Rhode Island, said that the vote offered a ray of sunshine in an otherwise gloomy economic forecast he was delivering Friday at the New England Economic Partnership in New Hampshire. Finally, Rhode Island has done something that makes it look like we re serious about moving forward, said Mazze. His audience at the New Hampshire conference economists, bankers, regulators were amazed this was pulled off. Still, much work and many perils lie ahead, both economic and political. The law shaves $3 billion from Rhode Island s unfunded pension obligation, but a $4.3-billion liability remains. Meanwhile, the state s soaring obligations for retirees health care remains untouched. Raimondo argued eloquently that comprehensive pension reform was necessary to preserve money for education, social services and crumbling infrastructure. And that argument resonated with lawmakers. But while the new law eases the burden on state and local taxpayers, it does so by heading off projected increases, not

Page 3 After vote, much work lies ahead; assembly Providence Journal November 20, 2011 Sunday

by finding new money for schools and libraries and roads and other services that have already been slashed in recent years. Under the old system, the state was going to have to pay $621 million into the retirement system next year, up from $358 million this year. Now, savings projected under the new pension law means that that contribution will be $414 million for the fiscal year that begins July 1, 2012 -- $56 million more than this year. House Finance Chairman Helio Melo, D-East Providence, said Rhode Island still faces a structural deficit, though one that the new pension law will reduce from $140 million to $80 million. I wish that were the case that the pension changes will immediately mean more money for services and struggling communities, said Melo. But we still have a structural deficit. This [new pension] plan helps, but it doesn t solve all our problems. In 2012, Melo says, tough decisions will have to be made either to raise taxes or cut services and spending, and we don t like to do either. It s a balancing act. Fiscally, [the pension law] was something we had to do, not only to save our pension system, but to save the budget of the State of Rhode Island, says Melo. Meanwhile, legislative leaders have vowed to take up another important piece of the pension puzzle in 2012 -municipal pension reform. Cities and towns whose workers participate in the state-run Municipal Employers Retirement System, or MERS, will not face daunting increases in their contributions. But with 24 of 37 municipal systems still seriously underfunded, mayors say those savings will be eaten up by growing contributions to local pension funds unless they receive similar relief and the right to suspend costly COLAs. Mazze calls fixing the non-MERS piece critical. With Central Falls in bankruptcy and other cities like East Providence and West Warwick in trouble, he says, distressed communities are lining up like bowling pins. If one or two tumble, they could all come crashing down, further dragging down Rhode Island s anemic economy. The political implications of Thursday s pension vote are huge heading into 2012. In one of the most unionized states in America, with union members sprinkling the ranks and leadership positions of the General Assembly, particularly in the Senate, the Democrat-controlled legislature just passed the kind of bill that sparked angry statehouse sit-ins and protests in more conservative states like Wisconsin earlier this year. The vote, says Mazze, shows that the legislature is not controlled by the unions to the extent that people believe it is. Yet, labor remains strong, and can still turn out the vote in a low-turnout Democratic primary. Labor leaders vow to fight on in the courts, in the 2012 legislative session and at the polls. It remains to be seen whether the presence of EngageRI will alter the dynamic. In the weeks leading up to the pension vote, EngageRI was telling lawmakers nervous about angering labor that it would be there in 2012, unlike past business groups who have no continued presence. But with 91 representatives and senators voting for the pension bill, EngageRI s Jon Duffy wonders, are they going to take 91 people out? We re not going away, vows Duffy, who believes EngageRI played a significant role in the debate. Look at how many times we were mentioned during the hearings on the bill -- positively, negatively. You only get mentioned if you

Page 4 After vote, much work lies ahead; assembly Providence Journal November 20, 2011 Sunday

re relevant. Labor is not monolithic, though. While several unions, including the teachers, Council 94 and the Service Workers, were vocal in their opposition, the powerful Laborers union was not. And AFL-CIO president George Nee, whom Senate President M. Teresa Paiva Weed called a key union official in negotiations on the bill, took a more behind-the-scenes approach in trying to soften the blow, as reflected in the amended version of the law that passed. A key to passage was excluding the non-MERS plans. Inclusion of those plans was opposed by Ruggerio and Armand E. Sabitoni, the Laborers general secretary-treasurer and New England regional manager. Sabitoni, known as the guy on South Main Street in Providence, site of the Laborers offices, was a key player behind the negotiations. While several labor leaders are angry with Raimondo, Sabitoni served on her transition team and has defended her to other members of labor, according to people familiar with the talks. Paiva Weed discounted talk that she and Ruggerio went to meet with Sabitoni at a critical point in negotiations on the bill. She says that she discussed the bill with numerous labor leaders, including Sabitoni. Republican Sen. Dawson Hodgson of North Kingstown says he believes that some labor leaders resigned themselves that the state [retirement system] was lost, but said, Our real strength is in the municipal unions. That s where we ll make our stand; you won t penetrate our armor down there. J. Michael Downey, president of Council 94, the state s largest public-employee union with 4,000 workers, called it one of the worst days I ve seen in my 31 years doing this. I don t think it s courageous -- I think it s cowardly, taking away a COLA from someone with a $25,000 pension. But beneath labor s unified public front was an overlooked fissure between older and younger public employees. Jason Becker, 24, of Providence, a second-year research specialist at the state Department of Education, joined Young Rhode Islanders for Pension Reform. He views the 8.75 percent deducted from his paycheck for the retirement system as an interest-free loan to the state. If he left before the 10-year vesting period and he and his young coworkers can t imagine staying in one place for so long he would get back the principal, but no interest. Under the new law, 3.75 percent of the deduction will go into a 401(k)-style plan, with a 1-percent match from the state and a chance to grow with positive investment returns. When union leaders announced that they would be willing to contribute a higher percentage of their salary to preserve benefits, Becker says, he contacted his state representative, Christopher Blazejewski, to object. Before that, I never bothered contacting him I figured he was a lost cause, Becker said of the Providence Democrat, who is married to a public-school teacher and was elected in 2010 with union support. But Blazejewski e-mailed him back, writing that he had heard from a lot of younger state workers who preferred the 401(k). On Thursday night, Blazejewski voted for the bill. LOAD-DATE: November 20, 2011 LANGUAGE: ENGLISH NOTES: mstanton@providencejournal.com (401) 277-7724 GRAPHIC: Rep. Helio Melo, D-East Providence, chairman of the House Finance Committee, during Thursday s

Page 5 After vote, much work lies ahead; assembly Providence Journal November 20, 2011 Sunday

debate. The house vote was 57 to 15 in favor of the pension-overhaul legislation. Senate President M. Teresa Paiva Weed presides during debate. The Senate voted 35 to 2 for the pension-overhaul bill. The Rhode Island Retirement Security Act of 2011, legislation that will overhaul the state s current pension system. Rep. John Carnevale, D-Providence, center, talks with labor leaders as he enters the House chamber Thursday for the special session. PUBLICATION-TYPE: Newspaper

Copyright 2011 Providence Publications, LLC All Rights Reserved