pension-transparency

Center & Representative Nunes Call for Pension Fund Protection

FOR IMMEDIATE RELEASE: October 17, 2016
Political Correctness Should be Banned as Investment Criteria 

Providence, RI — The RI Center for Freedom & Prosperity recommends legislative action to end to the cronyism and overt politics that has caused instability to the retirement-security of public employees and that has exposed taxpayers to further risk. The mismanagement of Rhode Island’s public employee pension fund reached new lows last month when the State announced it was changing its strategy yet again, this time to divest of its “hedge fund” investments.

“Enough of the political correctness and insider cronyism. We call on lawmakers to act now to ensure that sound fiscal guidelines are adhered to,” suggested Mike Stenhouse, CEO for the Center. “The mismanagement and dismal performance of the state pension fund, under General Treasurers Raimondo and Magaziner, could have been avoided if sound investment practices were followed.”

Representative Jared Nunes (D-Dist. 25, Coventry West Warwick) has already expressed interest in submitting related legislation: “In order to protect retirees and taxpayers, it is vital that sound investment strategies are undertaken. Some kind of pension-fund protection act is clearly in order.”

Initial research indicates that a number of states have implemented, or are currently considering, provisions that require specific fiduciary guidelines to making pension fund investment decisions. A Pew Charitable Trusts report to the Committee on Alabama Public Pensions indicates that National Association of State Retirement Administrators (NASRA), suggests that pension fund trustees should adhere to “a robust fiduciary standard” in the execution of their duties, and supports the action of setting strong fiduciary standards into law so that the paramount goal of investment strategies should be the financial security of pension assets.

In recent years, conversely, Rhode Island policy has put retirees and taxpayers at increased exposure, because political correctness appears to have been the primary motivation of making certain investment decisions:

  • Treasurer Raimondo announced a divestment strategy in 2013 from high performing “gun” related investments … for political reasons. (In a similar move the City of Providence divested from eight fossil fuel companies.)
  • Treasurer Raimondo divested in 2014 from the states highest performing hedge fund, Dan Loeb’s Third Point LLC … caving to political pressure from teachers unions
  • Instead Treasurer Raimondo invested in other high-fee hedge funds … some of which were associated with her former investment company
  • Treasurer Magaziner announced in early 2016 that state’s proxy votes would be used to influence investment vendors to diversify their boards … to meet an arbitrary politically-correct standard
  • Treasurer Magaziner announced last month a “back to basics” investment strategy to divest of most hedge fund investments … bowing to political pressure from third-party critics
“Each of these fiscally-irresponsible decisions has led to deteriorating performance of the pension fund. There’s little reason to trust that Treasurer Magaziner’s new back to basics strategy will not continue be overly-politicized,” added Mike Riley, Chairman of the Center, and an investment and pension expert. “It is obvious now that the General Assembly must act to ensure proper fiscal due-diligence is conducted, devoid of political correctness considerations.”

In order to protect the security and stability of state retirement funds, Riley suggests that legislation should include the following goals:

  1. Ensure that all investment decisions are made solely in the best interest of the beneficiaries.
  2. Limit considerations for investment vehicles to measurable economic or fiscal factors only
  3. Ban other non-fiscal considerations, except in the most extreme instances (ie, Iran based companies)
  4. Ensure that investment fees and costs are reasonable in relation to the assets of the retirement system
The Center encourages incumbents and candidates for the General Assembly, prior to the upcoming elections, to make a pledge to voters and retirees to support related legislation in 2017.

Statement: Mike Riley (Board member) re. Pension Portfolio Controversy

FOR IMMEDIATE RELEASE  October 21, 2013 

Mike Riley and RI Center for Freedom & Prosperity Concerned That Politics May Trump Good Policy

Statement from Mike Riley, board member for the Rhode Island Center for Freedom and Prosperity:

“While questions about corruption and mismanagement of state public employee pension fund portfolios continue to swirl, our Center is concerned about the larger public policy implications.

First, whether or not hedge fund and other alternative investments are a legitimate allocation tool to protect taxpayers and retirees against devastating economic downturns like we saw in 2008: If the answer is yes, it is important that the negative political climate on this topic does not dissuade state and local finance officials from pursuing this course in an open and transparent way.

Second, whether or not this controversy will undermine the positive pension reforms taken by our state in 2011. Rhode Island must continue to move forward with pension reform, not backward.”

Mike Riley is an experienced hedge fund manager and Director of the RI Association of Hedge Fund Managers. He has served on the Center’s board since February of 2013.

The Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, is the state’s leading free-enterprise advocacy organization. The Center works to make a profound, positive impact on the lives of every family and business in the state through the exchange of market-based ideas and reform solutions aimed at restoring economic competitiveness, educational opportunities and – ultimately – hope for a brighter future.

RIRCoC-logo1

Second-Year Report Card: Lack of Bold Action = Lack of Improvement

Related Links: 2012 Report Card

It isn’t surprising that a year of no bold legislative or executive action to free the Rhode Island economy or education system from its shackles, or to lighten the heavy hand of government, was a year of no significant improvement in the RI Center for Freedom & Prosperity’s annual Report Card on RI Competitiveness.

What changes the Ocean State saw in the report card’s ten major categories came in large part due to changes of the subcategories, a technical change in the Center’s methodology, and tiny shifts that were able to cross a line into a new letter grade.  In 2012, Rhode Island had five grades of F, two of D-, two of D, and one of D+. In 2013, the tally is three of F, four of D-, one of D, and two of D+. (One of the lost Fs was purely a change in the method of ranking states.)

The sheer number of below-average grades does much to explain Rhode Island’s continuing economic decline and population exodus.

“For all the talk last year about the positive legislative steps we supposedly took, the state’s dismal grade point average has barely moved”, said the Center’s CEO, Mike Stenhouse. “We’ve all seen the depressing headlines, but when compiled into a single report, the report card shows how poor public policy is strangling economic opportunities for families in our state.”

The report card organizes 53 national rankings into the following major categories:

  • Tax Burden (D-)
  • Business Climate (F)
  • Spending & Debt (D-)
  • Employment & Income (D-)
  • K-12 Education (D+)
  • Energy (D+)
  • Infrastructure (F)
  • Public Sector (D)
  • Health Care (D-)
  • Living & Retiring in RI (F)

Whether the decision is thoroughly researched or simply based on impressions, these are the categories on which the Ocean State is judged when businesses and individuals make important decisions about their lives and their economic well-being. Having the information all in one place may be discouraging, but it gives those with a vested interest in the health of the State of Rhode Island clear guidelines for what problems must be addressed.

Press Release: Public vs. Private Sector Compensation in RI

Press Release
Public vs Private Sector Compensation in RI

High-Pay Government Workers Supported by Low-Pay Private Workers

FOR IMMEDIATE RELEASE

November 28, 2012

Government workers in the Ocean State collect significantly higher compensation than their private sector counterparts – across the board – according to data recently compiled as part of national study for the RI Center for Freedom & Prosperity, a non-partisan local think tank.
Among the findings in the report published today by the Center, Ocean State public sector employees enjoy compensation levels that are 26.5% higher than their private sector counterparts; a rate 41% higher than the New England average and 78% higher than the national norm. These results were calculated via a statistical regression analysis after controlling for factors such as education and experience. On average RI government workers receive 58% more in ‘benefits’ than private workers in RI.

Further, within the New England region, RI public employees: are unique in collecting a higher “base” pay than private employees; work the fewest total hours; receive a higher paid time off value than in the private sector; and benefit from a 41% higher total compensation premium than the regional average.
“Rhode Islanders want a government that works for all citizens. But it may not be so much that state and municipal employees are grossly overpaid, but more that our state’s private sector has such shockingly low compensation levels,” said Mike Stenhouse, CEO for the Center. “This is yet another clear indication of how public policy in the Ocean State has favored certain groups while severely harming our economy and our business sector.”
According to the study conducted by economists William Even, of Miami University, and David Macpherson, of Trinity University, government workers in RI, on average, collect $100,217 in total compensation as compared with $83,419 for private employees. Respectively, base-pay breaks out to $61,046 vs $58,664, with benefits at $39,171 vs $24,755. A preliminary review of the effects of the state’s 2011 pension reform showed its effect to be negligible on these comparisons.
The data raises serious questions about the sustainability of a system where a low-pay private sector is supporting a high-pay public sector. “Are we heading towards a Central Falls type situation where pension benefits have to be cut dramatically, or even worse, a Scranton, PA situation where city worker pay was cut to minimum wage”, inquired Stenhouse. “It is evident that new policies that promote economic growth and increase our tax base are the best way to ensure that we can afford to maintain current public employee compensation levels”, concluded Stenhouse.
The full report, with additional data, tables, analysis, and methodology can be found at http://www.rifreedom.org/2012/11/ri-public-and-private-sector-compensation-comparison/.
The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.

Media Contact:
Mike Stenhouse: 401.429.6115, info@rifreedom.org

RI-NE-US-publicpremium-payandcomp-2010-featured

RI Public and Private Sector Compensation Comparison

Related Media: Report Finds RI Government Workers Out-Earn Private Sector (GoLocalProv), RI public-sector pay outpaces private (Providence Journal), Guest opinion: Public employees would benefit from pro-growth policies (The Herald News), Tie the Public to the Private  (GoLocalProv), Mike Stenhouse on the Helen Glover show (920 WHJJ);  RI Owes $81 Million in Unused Sick, Vacation Time (GoLocalProv)

Download: Executive summary; full report with methodology (PDF)

Executive Summary

State and local government workers enjoy significantly higher compensation levels than their private sector counterparts, according to data compiled for Rhode Island as part of a national study conducted by economists William Even, of Miami University, and David Macpherson, of Trinity University.

Even and Macpherson apply the most complete controls for such variables as education, experience, and broad job category and the most accurate accounting of benefits to date. They find that state and local government workers across the country receive a “premium” above their private-sector neighbors, but Rhode Island amplifies the difference:

  • Rhode Island: 26.5% higher total compensation
  • New England: 18.8% higher total compensation
  • United States: 14.9% higher total compensation

Furthermore, a preliminary review of the effects of Rhode Island’s pension reform suggests that the changes to their retirement benefits did not appreciably reduce government workers’ advantage, only reducing the premium for government work to 26.24%.

Looking at base pay alone shows that job security and better benefits in government do not correspond with lower salaries, at least in Rhode Island and New England, where state and local workers receive:

  • Rhode Island: 10.4% higher base pay
  • New England: 2.8% higher base pay
  • United States: 1.5% lower base pay

Averaging all jobs at every level, total public-sector pay and benefits in Rhode Island are competitive with Massachusetts and Connecticut, but private-sector workers earn nearly 25% less than their peers across state borders. Consequently, comparing averages within Rhode Island yields the following results:

  • Total compensation: 20% higher for government workers
  • Pay (base salary): 4% higher for government workers
  • Benefits: 58% higher for government workers
  • Hours worked: 5% less for government workers
  • Value of paid time off: 5% higher for government workers

Compared with the New England region, Rhode Island’s government employees are unique in having a higher average base salary than the private sector as well as a higher value for paid time off. They also enjoy a total compensation premium well above the regional average, even as they work the fewest total hours.

If there is to be any hope of keeping current compensation levels and benefit promises to government workers, the state must experience an immediate boom in the private-sector economy. Without rapid economic growth and a boost to their prosperity, taxpayers’ tolerance and capacity to pay for government beyond their means will continue to wane.

Data Analysis

Overall Averages

Rhode Island’s state and local government employees receive higher compensation than their private-sector neighbors by every measure, according a study comparing public-sector and private-sector compensation that the RI Center for Freedom & Prosperity requested from economists William Even, of Miami University, and David Macpherson, of Trinity University.

Chart 1 shows the average real earnings and benefits (in 2010 dollars) for state and local workers versus private-sector Rhode Islanders. Benefits take into account pensions, health insurance (including post-employment/retiree), other insurance, legally required benefits, like Social Security payments, and paid time off. The total compensation for the average public-sector employee in Rhode Island was $100,217, which was more than 20% higher than the private-sector average of $83,419.

Rhode Island Average Pay and Benefits for Public and Private Sector Workers, 2010

Rhode Island is inarguably in a high-cost, public-labor-friendly region, but even so, it is unique within New England. Chart 2 shows that Rhode Island is the only New England state in which the average wage earnings (base salary) of all state and local workers, on its own, was greater than that for all private-sector workers.

The most conspicuous reason for Rhode Island’s poor showing, here, is the huge gap between its economy and that of the two states that envelop it. While the Ocean State’s public sector is competitive with Connecticut and Massachusetts (with earnings only $4,294, or 6.6%, below the region-leading Bay State), its private sector has a $15,398 (23.3%) deficit.

New England Average Pay for Public and Private Sector Workers by State, 2010

Even when benefits are factored in, the private sectors in Massachusetts and Connecticut outstrip government employees. In contrast, Table 1 shows that Rhode Island adds a relatively large amount of compensation via benefits in its public sector and a relatively low amount in its private sector.

Another significant perk to working in Rhode Island’s public sector is time off. According to the data collected by Even and Macpherson, Rhode Island is the only New England state in which the value of the public sector’s paid time off ($7,208) is greater than the private sector’s ($6,857). (These numbers are included in the total for benefits.)

And while government workers in all New England states put in fewer hours than their private-sector neighbors, Rhode Island’s public employees put in the fewest. Moreover, only in Vermont is the gap between the sectors larger. (Note: Annual hours are calculated from weekly-hour responses on employee surveys.

Variable-Controlled Premiums

A common objection to such comparisons of average pay is that the types of jobs available within the public sector lend themselves to more-highly educated employees. Therefore, the argument goes, it is entirely appropriate for them to make more than the average of all private-sector jobs, because they skew toward the higher end of the workforce.

To investigate this explanation, Even and Macpherson performed a regression analysis for Rhode Island, the New England Census division, and the United States in order to compare similarly situated employees. Chart 3 shows a summary of the results.

The percentage shown is the premium for working in the public sector — that is, the percentage advantage in compensation from working in the public sector, taking into account employee characteristics (such as education and experience) as well as broad job category (such as management versus office and administrative support). (See Table 2.)

On salary alone, state and local employees enjoy a 10.4% premium in Rhode Island, even when controlling for other variables like education, experience, and broad job category. For New England overall, the premium is 2.8%. Nationwide, the public-sector actually has a salary penalty of 1.5% below the private sector.

Rhode Island, New England, and U.S. Premium for State and Local Public Workers in Pay and Total Compensation, 2010

Adding in the total value of benefits (before pension reform), Rhode Island’s state and local workers receive a premium of 26.5% over their similarly situated private-sector counterparts. That compares with 18.8% for New England as a whole and 14.9% nationwide.

A significant consideration that Even and Macpherson were unable to quantify due to a lack of data is job security. Given higher rates of unionization and the ability to affect their employers through political activities, government workers are generally understood to face less volatility than do private-sector employees. In theory, economists could apply a monetary value to that intangible benefit, but such an investigation would be beyond the scope of this study.

 

Pensions & Pension Reform

One important adjustment that Even and Macpherson have made to the raw compensation data is to determine the current value of pension benefits using a 4% discount rate. In a defined-benefit system, actuaries value the guaranteed level of income that employees will receive during retirement by assuming that investments will produce a certain return.

Rhode Island currently assumes a 7.5% return. Prior to the adjustment that spurred the 2011 pension reform at the state level, the assumption was 8.25%. Because this study uses data from 2010, that is the starting point for this data. By comparison, the average private-sector assumption is 6%.

In all cases, therefore, Even and Macpherson had to mark up benefit values to account for the likelihood that investment profits will fall short of predictions. It may seem counterintuitive that a benefit is worth more when invested money receives less profit. However, in the case of guaranteed pensions, the benefit is defined in the future, not the present.

Therefore, lower profits from investments would require greater payments by the employer, making the benefit of greater value to the employee now. In effect, the employer is promising a greater return to the worker than he or she would be able to achieve by investing on his or her own.

Because pensions make up 10-20% of the typical government employee’s total compensation, compared with 4-6% in the private sector, large reforms can greatly affect the premium that public-sector workers receive over the private market-place. For this study to be complete, therefore, some accounting of the effect of the Ocean State’s pension reform on the value of state employees’ benefit packages had to be included.

However, the imposing complexity of pension calculations is such that an accurate estimate of the reform’s effects would be well beyond Even and Macpherson’s scope. In particular, during the transition from the defined benefits pension to the newly developed hybrid plan, each individual employee’s benefit will be different, and results vary from job to job and across state and local governments. It will be a matter of years before accurate data is available.

Consequently, the public-sector premium given above can be considered the outcome if the lawsuit currently pending on behalf of the relevant labor unions succeeds in overturning the reform. For some sense of the result if the state prevails in its defense of the reform, the Center for Freedom & Prosperity asked Even and Macpherson to provide a rough calculation.

It’s important to note, here, that the pension data throughout this study assumes that all municipal employees are receiving the same weighted average contribution as those in the state’s two largest plans — state workers and teachers — with and without 2011’s reform.

Be that as it may, the effect of the reform on this study was relatively minor. The guaranteed payments provided through the defined-benefit portion of the state’s new hybrid pension system have gone down. But the state has increased the percentage of payroll that it must contribute each year, to make up for the 5% of their pay that employees are putting toward their defined-contribution plans. The state has added a 1%-of-payroll contribution to those plans, as well.

Consequently, the annual value of government employees’ pension benefit has only decreased from $10,692 to an estimated $10,476. In terms of the “premium” that state and local workers receive over similarly situated private-sector Rhode Islanders, the percentage advantage has decreased from 26.49% to 26.24%.

Policy Analysis

Living Beyond Our Means

When a family comes to a decision about purchasing any product or service, it doesn’t merely accept the seller’s sense of what’s reasonable. In addition to the market rate, consumers must take into account the quality of the thing they’re buying as well as their own ability to afford it.

With deteriorating infrastructure, doubts about the quality of government services, and the high-profile specter of unfunded municipal and state retirement liabilities looming over the state during this current period of economic stagnation, the compensation of public-sector employees has become a subject of heated debate about fairness and affordability.

Rhode Island is the only state in New England in which public employees have higher base salaries than the private sector. At the same time, state and local workers in the Ocean State work the fewest hours in the region. When benefits are factored in, Rhode Island has the highest premium for public-sector workers over private-sector workers, even if pension reform survives the lawsuit that unions have filed to overthrow it.

Meanwhile, the state’s economy is reeling, with arguably the worst employment picture in the United States, certainly the region. With dwindling taxable incomes and general economic activity, the state and its cities and towns will not long be able to continue to squeeze more revenue from a population that is losing ground economically and seeing many of its productive residents and college graduates flee to states with healthier economies.

Adjustments around the edges that do not take on the significant public policy issues we face will not be sufficient to turn the state around. Without rapid economic growth and a boost to their prosperity, taxpayers’ tolerance and capacity to pay for government beyond their means will continue to wane. Painful struggles between powerful insiders and the average citizen will worsen. Even more taxpayers may decide that the battle is not worth the benefits of living within the Ocean State’s borders.

Economic Growth Benefits Public and Private Sectors

With all of the emphasis on improving economic development in Rhode Island, there have been two conspicuous omissions.

The first is the need for a complete change in the way that state and local governments treat taxpayers and businesses — as a matter of regulation, as a matter of spending, and as a matter of taxation.

The second, as emphasized in the data revealed in this study, is the fact that government workers should be out in front of the crowd advocating for change — not for tax-the-rich schemes that will never produce sufficient revenue, but for precisely the policies founded in economic liberty that will close the gap between private-sector Rhode Island’s earnings and those of its nearest neighbors.

If there is to be any hope of keeping current compensation levels and benefit promises to government workers, the state must experience an immediate boom in the private-sector economy.

Even the dramatic pension reform that sent unions to their lawyers and made state Treasurer Gina Raimondo a national policy star barely nudged Rhode Island’s public sector toward the national ratio of public-to-private workers. It hardly even brought the tiny Ocean State nearer to the average for the union-stronghold region of New England.

While additional compensation cuts and even deeper benefit reforms will be necessary in the public sector, the more significant factor in the public-private imbalance, locally, comes from the substandard economic conditions in which the Rhode Island taxpayer in the private sector is forced to survive. That is where dramatic improvement is most necessary, and most attainable, if public policy can be properly aligned.

Central Falls retirees discovered all too painfully that unsustainable compensation arrangements, whether salaries or benefits, are by no means guaranteed if obvious warning signs are not acted upon responsibly. The comparison of the public sector and the private sector in Rhode Island is one such sign of unsustainable compensation levels.

The people of Rhode Island depend upon government workers for the appropriate and necessary functions of government, but those workers depend upon the private sector to maintain a healthy economy and, in turn, sufficient government revenue. The top priority for employees on both sides of Rhode Island’s taxing and spending, therefore, should be reasonable reform that makes public-employee compensation sustain-able combined with the elimination of policies that restrain economic growth in the Ocean State.

Methodology

Download the PDF version of this report for Even and Macpherson’s full methodology.

Member of Center’s Task Force to be Panelist at Brown Univ “Pensions in Peril” Forum

Providence — A member of the RI Center for Freedom & Prosperity’s special pension task force will serve as a panelist at the “Pensions in Peril” forum today, October 25 (Thursday afternoon), sponsored by the Taubman Center for Public Policy at Brown University. The forum will feature national and local experts about how municipalities are dealing with the fiscal time bomb of unfunded pension liabilities.

Eileen Norcross, a senior research fellow with the Mercatus Center at George Mason University and lead researcher on the State and Local Policy Project, was the first national expert to raise alarms about public pension accounting in RI localities in 2011, arguing that municipalities are vastly under-estimating the true scope of their unfunded pension liabilities. Norcross co-authored a report that calculated municipal pension liabilities under various discount rate assumptions.

The Mercatus Center report, which received significant local and national attention, indirectly challenges the more rosy pension assumptions put forth by some local officials in RI, including co-panelist, Mayor Scott Avedisian of Warwick.

The forum, which will take place from 4:00 pm to 6:00 pm at the Salomon Center for Teaching 001 off the main green at Brown University, is free and open to the public and media.

For more information about the Center’s pension task force and Eileen Norcross, click here.

The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.

Media Contact:

Taubman Center: 401.863.2201

Policy Reform: Enact Collective Bargaining Reforms

Up to $250 million per year can be saved in RI

 

 

Collective Bargaining Costs

All workers deserve  fair compensation. However, it is not fair that taxpayers, struggling in a poor state economy, must also be forced to pay for excessively high compensation packages for unionized government workers. With reforms to collective bargaining, undue union influence and election cronyism can be reduced.

The ever-increasing total cost of employment for unionized government labor — annual  compensation plus benefits — is a cost item we simply can no longer afford.

It’s time to face the facts: public-sector unions drain precious resources away from Rhode Island’s sick, elderly, youth, and poor.

See “Collective Bargaining Reform” policy brief …

 

 

 

 

 

Policy Reform: Require Accuracy In Pension Accounting

 

Municipalities are understating the true cost of unfunded pension liabilities

Government employees need to properly plan for their retirements. Municipal officials need to have predictable budgets from which to provide quality education and city services. Taxpayers need to know that budget shortfalls will not raise their property taxes. Before local pension funding formulas can be effectively developed, it is essential that Accuracy in Pension Accounting be required of all municipalities.

The assumed rate of return that most government entities have traditionally used to estimate pension liabilities has been widely discredited as overly optimistic. A more conservative market rate, similar to what is used in the private sector, is generally seen as a more accurate measurement.

When a private company, like Enron, used improper accounting practices, the wrong-doers ended up in jail. When our local governments understate pension liabilities, retirement plans are put at risk, our schools suffer, local services are cut, and taxpayers pay more from their pockets.

At an October 2012 pension forum state and local officials openly admitted that it would be politically inconvenient to disclose the true scope of the problem to their constituencies.

This can all change with accurate accounting.

Read more about our “Truth in Pension Accounting” movement here … 

 

RI out-Migration to border Counties in MA and CT

County Out-Migration Should Be Alarm to Municipalities

For nearly a decade, taxpayers have been leaving Rhode Island. With cities and towns facing wave after wave of difficult decisions, a change of policy course is critical. Between 2003 and 2010, the net migration out of the state has left Rhode Island with 24,455 fewer income-tax-paying households with a total of $1.2 billion of annual income.

The Whole Truth

Task Force Stirs Controversy in Warwick

Are local governments unknowingly or purposely hiding the truth from their residents?

How do you solve a problem if some don’t think there is a problem?

An debate is underway, and the sides are taking shape. On one side are the City of Warwick, its local newspaper, and state officials. On the other side are current and former Warwick city council members, a scholar from a nationally recognized think tank, National Review, and our own Center for Freedom & Prosperity.

A locally published interview with a member of the national pension task force, assembled by the RI Center for Freedom & Prosperity, has caused a stir in Warwick, puzzling the Mayor, confusing the local paper, and leading to an online rebuttal. Even the Providence Journal has covered the action.

On May 24, the Warwick Beacon published an article from an interview with Eileen Norcross senior research fellow and lead researcher on the State and Local Policy Project with the Mercatus Center at George Mason University, attempting to refute her warnings that the City of Warwick is not accurately representing the true scope of the liabilities in its locally administered pension plans. Norcross published a pie-chart depicting what she calculates as the true budget snapshot for the city. See the pie-chart here.

In citing Mayor Avedisian’s puzzlement by Norcross’s figures, and in misstating facts itself, the article is an example of the complexities involved in this important issue for cities and towns in Rhode Island.  A point-by-point clarification, “Wake Up Warwick,” was subsequently posted by Norcross as a rebuttal to the Warwick Beacon article.

Further, National Review Online has also published an article in support of Norcross’ perspective.

At question is the “discount rate,” or “rate of return,” utilized by most government agencies to value long-term pension liabilities. Many economists believe that government actuaries use higher rates than they should, which ends up understating the scope of the liability. If rates that are commonly used in private industry were to be utilized, the pension liability would be 2-3 times larger in many cases. What politician would want that kind of information to come out?

Is this arbitrary accounting practice done out of habit, or ignorance or, worse, is it done to purposefully deceive the public by kicking the can down the road and forcing future administrations to deal with the true scope of the problem?

The Center for Freedom & Prosperity takes the position that this debate — and this level of transparency — should take place in every city and town in Rhode Island. We strongly urge concerned citizens to publish or otherwise distribute the Open Letter to Municipalities: Tell Us The Truth previously published by our Center.