CLOSING THE GAP Education Study Released

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Go to: CLOSING THE GAP Home Page

Testimony of Giovanni D. Cicione, Esq., Senor Policy Advisor, to The Board of Regents of Elementary and Secondary Education. Preview of CLOSING THE GAP education study released on January 9. The RI Center for Freedom & Prosperity submitted written testimony to the Board of Regents at their January 5 meeting regarding elementary and secondary eduacation. Giovanni Cicione, senior policy advisor to the Center, expects to be able to testify verbally at the next meeting of the Regents on Janauary 19.

The full testimony (below), also served as a preview of a major study the Center for Freedom, entitled, Closing The Gap. Visit the Closing The Gap home page here.

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Testimony of Giovanni D. Cicione, Esq., Senor Policy Advisor, Rhode Island Center for Freedom & Prosperity

To The Board of Regents of Elementary and Secondary Education (submitted January 5, 2012)

Good Afternoon. My name is Giovanni Cicione and I am the Senior Policy Advisor for the Rhode Island Center for Freedom & Prosperity. The Center is a nonprofit, nonpartisan organization, dedicated to providing concerned citizens, the media, and public officials with policy research and data, and advancing free-market solutions to public policy issues in the state.

Or intent in coming before you today was not specifically to weigh in on the debate regarding Achievement First. Rather, we intended to preview and share a study we will be releasing next week entitled “Closing the Gap.” This study, which I will reference n more detail in a moment, looks at reforms made in the state of Florida over 10 years ago that led to dramatic gains in educational achievement for some of the most challenged student populations in that state.

What is interesting from the perspective of today’s debate, is that much of the success in Florida over the last decade can be directly tied to the type of approaches advocated by Achievement First and similar organizations. And while I’m sure you will hear many criticisms of the mayoral academy model from the special interests who oppose these reforms, what our study demonstrates is that when these and other related reforms are put in place not only do you see overall gains, but that those gains are strongest amongst those students who are the most disadvantaged.

Non-English speakers, students who rely on free or reduced lunch support, and students with disabilities saw the most dramatic gains under the Florida reform model.

Our study will provide more detail and specific data when it’s released next week, but I’d like to highlight the key findings and recommendations.

Closing the Gap shows, for example, that Florida’s fourth-grade Hispanic students have improved so dramatically that they now perform at the same achievement as the average for all Rhode Island fourth-graders. Both states started out equally far behind, but Rhode Island students’ average score has improved by only (5) points since 1998, while Florida’s Hispanic students have improved by (25) points; equivalent to two-and-a-half grade levels’ of progress.

Imagine the impact if we had taken the same route ten years ago, when our own Hispanic children now preparing to graduate were just starting their grade school careers. Hispanics are the largest minority group in Rhode Island and represent 11 percent of the total population and 19 percent of the public school population. Unfortunately, Rhode Island Hispanic students have among the lowest (NAEP) scores in the nation in both math and reading. Closing the Gap shows the way to improve this ranking.

Closing the Gap cites reforms in evaluations and accountability for teachers and schools in the areas of transparency and parental choice. The study documents how the latest NAEP results strengthen the argument that Florida-style reforms should be considered for Rhode Island.

Closing the Gap explains in some detail why Florida’s reforms, while benefiting all students, have been especially beneficial to disadvantaged students. The study details the key components of Florida’s K-12 education reform strategy and makes specific policy recommendations that will provide more young Rhode Islanders with an opportunity to succeed in school and enhance their chance of pursuing and achieving their dreams.

Florida’s reform model includes:

• Public-school choice for students in low-performing public schools.

• Private-school choice for students with special-needs.

• An open door for new charter schools.

• Selective and effective se of virtual education.

• Performance pay to reward teachers who achieve student gains.

• Alternative teacher certification.

• A through F grading of all public schools; and

• A ban on social promotion.

These reforms were passed by a bi-partisan group of political leaders who faced many of the same criticisms you will hear today. They did it without empirical evidence that it would work, but they also new that to do nothing would be to condemn students to failure.

Your choice is a much easier one. I’d like to ask you to consider something – think for a moment about what you will say to a first grade student today who comes back here in a dozen years if you don’t adopt these types of reforms? What will you tell that student who asks why she is graduating with a 9th grade education after twelve years of instruction? Today you could perhaps claim that you didn’t’ know if the reforms would work, but Florida has shown us that they do – we cannot plead ignorance or even uncertainty when that child stands before you.

Why does Rhode Island suffer from the largest achievement gap among Hispanic students and other with unique challenges? Is it failing schools, a lack of funding, or is it something much worse … the soft bigotry of low expectations?

The Rhode Island Center for Freedom & Prosperity believes that every student can succeed, and that the only true disadvantage or disability is a rigid and moribund system that stacks the deck against them.

Thank you for the opportunity to be here today.

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Task Force Report used to create Municipal Pension & Debt Map

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Based in-part on the work of the Mercatus Center, which published a detailed report on the true scope of the unfunded pension liabilities facing Rhode Island municipalities as part of the national pension Task Force that our RI Center for Freedom formed, a local organization created an online, interactive map that allows you to click on each of Rhode Island’s cities and town to view information about their finances, people, government, and taxes.

Thanks to Richard C Young and EJ Smith for this compelling tool.

Government Edges into Preschool… Expensively

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As part of government’s effort to edge its way into the preschool market, and the federal government’s slow usurpation of education more generally, Rhode Island will be receiving $12.5 million annually over the next four years.  As it typically goes with government, proponents begin with the positive objective that they seek to pursue and give the impression that the money simply appears for the purpose.  Not surprisingly, though, much of the money won’t go toward services actually provided to children.  According to the Providence Journal:

The grant requires that states adopt an ambitious plan to expand access for disadvantaged students and to develop high-quality standards across the fragmented early childhood education landscape. A significant portion of the grant will be used to train early childhood educators in these more rigorous standards.

That is, taxpayer dollars will be funding bureaucrats’ plans for how government can claim ownership of preschool and adult-education providers’ services for to teachers (for which, one can speculate, the latter will be compensated, as well).  Never mentioned in such stories is any sort of cost-benefit analysis.

Journalist Jennifer Jordan provides some context for government spending on preschool in a subsequent description of a program already existing in Rhode Island:

This year, 108 students are being served. The state’s education-financing formula calls for $1 million to be added each year for 10 years. Next year, the Board of Regents has re quested $1.45 million for six classrooms of 18 students.

A little bit of math shows that to be $242,000 per classroom and $13,426 per student.  For a “pre-kindergarten program for 4-year-olds.”  Speaking from experience, that’s roughly double the cost to parents of excellent programs available from private providers.  One can drape all variety of good intentions around specific programs, but from an economic-theory perspective, inexplicably high costs are about what one would expect when an organization is able to pay itself for services using money confiscated under force of law.

Little State, Big Spending

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In yet more news to file under thank-god-for-pension-reform-but, the Providence Business News reports that while Rhode Island public sector spending is surprisingly lower than the U.S. average, medicare costs are significantly above national averages.

Medicaid-related vendor payments accounted for more than 20 percent of state and local government spending in Rhode Island from 1999 to 2009, significantly more than the rest of the country, according to a new report from the Rhode Island Public Expenditure Council.

“The report from the budget watchdog group found public-sector spending – by both state and municipal government – in the Ocean State rose 68.9 percent over the 10-year period to $8.9 billion per year, a smaller increase than the 77 percent jump nationally.”

While the somewhat slower growth than the national average is welcome, it’s hardly good news. It goes without saying that there aren’t 68.9 percent more Rhode Islanders today compared to ten years ago, and it’s probably fair to say that the Ocean State isn’t 68.9 percent — or half of that? — better or more efficient than it was in 2001. So what justifies the public sector explosion?

And the faster-than-national-average expansion of Medicaid-related payments is definitely a worrying sign. Controlling Medicare and Medicaid cost growth is a major issue nationally anyway, so for Rhode Island to be spending a significantly greater proportion of public funding than the rest of the country – especially in light of the flexibility that was supposed to come with the first in the nation Medicaid global waiver and block grant – indicates that the system here is particularly broken.

Pension reform was a major and necessary step, but it’s becoming clearer day by day that there’s still so much more to be done. Rhode Island may have averted one major crisis in the making, but it doesn’t mean that we’re anywhere out of the woods. Beyond Pensions, Rhode Island still must grapple with its systemic uncompetitiveness.

 

How Easily the Hybrid Pension Reform Can Be Undone

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In his Sunday Providence Journal column, Assistant Managing Editor for business, commerce, and consumer issues John Kostrzewa describes the business community’s enthusiasm for the just-passed pension reform:

There was a lot to celebrate because many of the 700 businessmen and women who attended the [Providence Chamber of Commerce] dinner had contributed their money, influence and support to back the reform effort that had been heavily opposed by the labor unions.  It showed that when the business lobby is committed, organized and focused, it can be a potent force in setting public policy.

Myself, I continue to be skeptical that the field broke so cleanly into opposing sides.  That is, I’m not so sure Business faced Union and won a battle, with pension reform.

A few years ago, during teacher contract negotiations in Tiverton, National Education Association Rhode Island Assistant Executive Director Patrick Crowley put forward a proposal for health savings accounts — which are typically seen as key components of serious conservative healthcare reform plans.  A close look revealed that the union’s plan was constructed in such a way that the reform would hardly have saved money, yet it enabled negotiators to proclaim savings with the health benefit so as to argue for other increases, as in salary.  The lesson that stuck with me is that unions are willing to seize on the trappings of reform, but they’ll, first, force reformers to negotiate something, like raises, in order to insert their favored concepts into a contract and, second, work to dilute the effect of the reform of itself.

General Treasurer Gina Raimondo has successfully brought the notion of a defined-benefit/defined-contribution hybrid to the Rhode Island public-sector pension system, but reformers arguably didn’t do enough to ensure that it would be a strong win, and it’s beginning to look like other concessions made in the process may very well outweigh the improvements.  The new 5.5% privatization tax that the General Assembly imposed on state (and perhaps municipal) government was likely a mere first taste, especially if NEA-RI President Larry Purtill’s exhortations are any indication.

The quantitative question that naturally follows such predictions is:  Just how much would it take to undo the benefit of a reform like the hybrid system?  Well, for starters, I’ve already pointed out that the hybrid benefit is more costly than the defined-benefit system alone, if the actuaries’ investment assumptions hold.  Regardless of investment returns, however, it won’t take much at all for the unions to negate the “hit” that they’ve taken with the hybrid through advantageous policies in other areas.  If legislators and other government officials seek to mitigate the backlash from the unions by offering such juicy concession prizes as the privatization tax and binding arbitration, the reform could easily turn into a recidivistic windfall for public employees.

For example, if we assume that the average teacher will work for 25 years and retire for 20, the unions will only have to increase the average annual raise by 2.76% to leave their members retiring with exactly the same defined-benefit pension.  In other words, if teachers’ typical annual raise is 4% (which is the state actuaries’ assumption) and the unions bring that up to 6.76%, a 25-year teacher will see no change in defined-benefit pension whatsoever.

For state workers, the necessary delta is 2.73%.  For teachers and state workers who stay on the job for 30 years, which will be much more common, given increases in minimum retirement age, the delta to erase the effects of the hybrid reform is 2.5%.

That doesn’t tell the whole story, obviously.  Most important, if the unions manage to procure higher salaries for members, then the reward far exceeds the increased pensions, as employees bring home more money each year of work.  The hybrid plan also lowered the amount that employees contribute to defined-benefit portion of their retirements, which provides 5% or more in annual savings for them, and added a 1%-of-payroll employer payment into the defined-contribution portion, which amounts to a 1% raise deposited into a high-yield savings account for future use.  On the other end of the scale, one has to factor in variations in cost of living adjustments (COLAs) based on the size of base pensions.

Taking all of those variables into account, a teacher who works for 25 years and retires for 20 only needs his or her annual raise to be 0.89% higher than it otherwise would have been in order to completely eliminate the adverse effects of the hybrid reform over the course of his or her career and retirement.  If he or she works for 30 years and retires for 15, that delta drops to 0.68%.  For state workers, the parallel numbers are 0.92% and 0.71%.

That is, if the expected 4% annual increase in teacher pay becomes 4.68% based on concessions to the unions, the combined compensation from salary and pension will exactly equal what it would have been had the hybrid reform and the concessions never occurred.  Keep in mind that this doesn’t include the five percent of salary that employees will be putting in their defined-contribution plans or the investment yields from those plans, from both employee and employer contributions.

Of course, it will be all but impossible to tell whether this effect was actually obtained.  The economy might force the average annual raise for state workers down to 3%, but if, for example, the privatization tax prevents the pressure of competition from driving it down to 2%, then public workers would have ultimately benefited from wave of reform.  (And, yes, it’s tautological to note that taxpayers would have lost out.)

If the business community really does have pull at the State House, then it ought to apply its strength to resist any additional giveaways that legislators are planning to offer unions to buy forgiveness of their pension votes.  Next it ought to strive to repeal the privatization tax as well as the provision of the pension reform that puts future adjustments in the hands of the union-heavy Retirement Board.  Otherwise, any celebrations over the General Assembly’s 2011 special session on pensions will soon prove unjustified.

Pension Reform Bait-and-Switch to Block Broader Reform

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An observer of Rhode Island’s political scene needn’t be excessively cynical to be a bit disconcerted by the unity of purpose displayed toward the end of the General Assembly’s special session on pension reform.  Leading Democrats, including some who double as labor union leaders, were onboard.  The union-backed Independent governor, Lincoln Chafee, was onboard.  From the opposing camp, various good government groups were onboard, almost in unity.

Even the ostensibly neutral media joined the parade.  After an overwhelming vote passed the legislation, the Providence Journal editorial board dubbed the achievement as “Rhode Island rescued.”  An analysis by WPRI’s Ted Nesi called the bill, “an extraordinary — and unlikely — achievement for the three leaders most responsible for shepherding it through.”

Two questions arise from this sea of consensus:  Is it really plausible that the combination of budgetary crisis and strong leadership changed the legislature’s stripes so dramatically as to make it a national example of forward-thinking government?  And should we worry that the issue’s momentum carried forward catches and promises that will ultimately harm the state?

An initial answer comes in the form of the last-minute amendment creating a 5.5% “assessment” (aka “tax”) on privatized workers.

A Long-Running Union/Assembly Goal

Back in 2007, as June 15 turned into June 16, Rep. Charlene Lima (D, Cranston) slipped a midnight amendment into the budget bill that would pass before the sun came up.  The amendment created RI General Law 42-148, “Privatization of State Services,” which requires an elaborate review and appeals process before the state can use private contractors for services previously performed by unionized public employees.

The legislation made its appearance in the midst of efforts by Governor Donald Carcieri to address the state’s structural deficits through such privatization, and within a week, his efforts ended.  As Carcieri spokesman Jeff Neal put it, “Bringing competition to the delivery of state services is one of the key ways Rhode Island will be able to fix its budget problems.  Unfortunately, it appears that solution is off the table now.”  The final nail came a year later, when the state Supreme Court declined to review the constitutionality of the law.

In essence, the legislation required a cost-comparison analysis that would pit the private contractor’s bid (plus all remaining inside and transition costs) against an optimistic “new cost estimate” from union workers, “reflecting any innovations that they could incorporate into the work performance standards.”  (Not that the law required them ever to implement the innovations.)  In order to win the contest, the outside vendor would have to offer “substantial” savings; in her initial legislation, Lima used the margin of 10%.  State workers and their unions could then use an appeals process to delay the contract award for months.

Fast forward to November 2011.  As the pension reform legislation moved toward stunningly smooth passage, the following language slipped into the mix, amidst a variety of “technical amendments”:

42-149-3.1. Assessment on state expenditures for non-state employee services. – Whenever a department, commission, board, council, agency or public corporation incurs expenditures through contracts or agreements by which a nongovernmental person or entity agrees to provide services which are substantially similar to and in lieu of services hereto fore provided, in whole or in part, by regular employees of the department, commission, board, council, agency or public corporation covered by chapter 36-8, those expenditures shall be subject to an assessment equal to five and one-half percent (5.5%) of the cost of the service. That assessment shall be paid to the retirement system on a quarterly basis in accordance with subsection 36-10-2(e).

Government leaders are quite open about the intention behind the new statute.  House Speaker Gordon Fox (D, Providence) has acknowledged it as an effort to prevent future governors from returning to Carcieri’s methods.  Richard Licht, director of the Department of Administration for the current governor, told WRNI’s Ian Donnis that “the purpose of it” is to “curb the state’s use of outside employees.”

Whatever “substantial savings” might have meant under Lima’s legislation, they now must overcome an additional 5.5% handicap, and as the state’s structural deficits continue, government officials will be nudged even more strongly toward tax increases and/or service reductions.

A Tax for the Pension System

The secondary effect of the 5.5% provision is, obviously, to introduce another taxpayer stream of revenue for the pension system.  The amount that state entities spend on contract employees is not readily available, but Licht puts the annual revenue to the pension system at a projected $2 million (though he admits that no thorough analysis has been performed).

In the context of the pension reform, however, dollar amounts have typically been described in terms of the amortization period.  That is, in the 25 years that it is supposed to take for the pension system to be sufficiently funded, this last-minute money grab will amount to around $50 million paid from the state’s general revenue.

Or Something More Insidious?

Whatever the dollar amounts, a key difference between this latest scheme and the Lima amendment should not be overlooked.  The definitions section of the 2007 law defines “in-house” services as those involving “in-house state programs and employees.”  Section 3 of the law explicitly begins the review process “prior to the closure, consolidation or privatization of any state facility, function or program.”

The new law is not so carefully limited.  It describes the included services as those provided by employees covered by RI General Law 36-8, which establishes the state pension system.  That system is not limited to state workers.  Indeed, subsection 36-10-2(e), which the new law cites for the process of payment, refers to state contributions to teachers’ pensions, as well as state workers’ pensions.  Depending how enthusiastically the various parties wish to press their advantage, it may turn out that the 5.5% assessment applies to contractors hired to perform any service “similar to or in lieu of” any employee in the pension system, whether employed by the state, a school district, or a municipality.

The most financially and politically significant example that comes to mind is that of charter schools.  In general, teachers in such schools are required by state law to participate in the retirement system, but mayoral academies can opt out.  If they do so, will their budgets be subjected to the 5.5% assessment?  Given the fact that the last-minute amendment was not thoroughly vetted before submittal nor thoroughly debated before being voted into law, that may very well be the case.

Pension Reform as a Barrier to Broader Reform

I’ve been arguing against General Treasurer Gina Raimondo’s pension reform on the grounds that it (1) is insufficient by several orders of magnitude to solve the entire problem, and (2) puts future adjustments and reforms fully in the hands of the state Retirement Board, with seven of 15 members appointed directly by unions.  Even when agreeing, supporters of the legislation have proclaimed it as a huge step in the right direction.

The privatization tax may be an early indication that crisis and leadership only yielded a quarter step forward, soon to be followed by four steps back.  At the very least, the state has one less tool to rein in its structural deficits, and the restriction may apply to any other government entity in Rhode Island that participates in the pension system but wishes to explore privatization.

The scope may broaden even more (and more definitively) if reform of municipal pensions brings additional public employees within reach of General Law 36-8.  And reformers would do well also to ponder the relevance of this latest General Assembly bait-and-switch while advocating for another of their favorite notions:  consolidation.  Bringing local services under the purview of state employees will virtually ensure that they remain forever “in house.”

Beyond all of this speculation is the likelihood that the amendment was just the first surprise that helped buy such broad assent and smooth passage for the bill.  It isn’t cynical at all to observe that, whatever else it might be, Rhode Island’s entrenched establishment is sufficiently savvy to see when basic math threatens the application of reality to unrealistic benefits and to make the best of reforms… and with a vengeance.

Task Force ProJo OpEd: Alarming Outlook for Municipalities, even w/ Pension Reform

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As part of our Center’s special pension Task Force, Eileen Norcross from the Mercatus Center, followed up on her recent report by publising an OpEd that appeared in the Nov. 17 Providence Journal, and co-authored by Benjamin VanMetre.

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Even with reform, R.I. outlook alarming

by EILEEN NORCROSS and BENJAMIN VanMETRE

FALLS CHURCH, Va. – The heated debate over how to fix Rhode Island’s pension system — with votes in the General Assembly scheduled for today — begins with a basic question: Just how big are public-sector pension promises?

According to the state’s numbers, Rhode Island is facing a daunting $9.3 billion in unfunded liabilities, and there is no money set aside to pay for them. Unfortunately, like all public-sector plans in the country, the picture is actually much worse. Rhode Island’s unfunded pension liabilities are nearly twice that size, closer to $18 billion — and that’s on the lower end of estimates.

Rhode Island, like many other state and local governments, misses the mark on calculating its pension liabilities because they are being valued as though they are risky bets instead of a government-guaranteed benefit.

This miscalculation comes from poor government accounting rules …

Read the entire ProJo OpEd here

A Tale of Two States: MICHIGAN vs ILLINOIS, lessons in pension reform

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As part of our Center’s special pension Task Force, Jonathan Williams teamed up with RI Representative Jon D. Brien to publish this compelling piece that discusses how different pension reform decisions by Michigan and Illinois should make clear the path Rhode Island should take as our General Assembly considers the historic pension reform bill before it. 

Read the Press Release here …

Visit our Pension Reform webpage here …

Pension Reform Key for Rhode Island’s Future

By Representative Jon D. Brien and Jonathan Williams

As legendary Supreme Court Justice Louis Brandeis once wrote, we have 50 laboratories of democracy across the states. From these case studies, we can analyze which policies succeed, and which policies fail. Without a doubt, the largest threat to our 50 laboratories across the United States is rapidly mounting unfunded pension liabilities for government workers.

With an estimated unfunded liability ranging from $6.8 billion to more than $15 billion (depending on your actuarial assumptions), Rhode Island faces a huge threat to its financial sustainability. If you assume an unfunded pension liability of roughly $15 billion, which is the estimate that uses generally accepted accounting principles (GAAP) from the private sector, every man, woman and child in Rhode Island currently owes $14,256. This is a reality that is not negotiable.

Realizing that the current pension program is unsustainable, Governor Lincoln Chafee and State Treasurer Gina Raimondo have recently proposed the bipartisan Rhode Island Retirement Security Act of 2011(RIRSA).While some special interest groups may not consider the current pension situation in Rhode Island to be a true crisis, they should look no further than Central Falls, RI, which recently declared bankruptcy, and as a result, cut public pension plans by nearly 50 percent.

Other states have taken fundamentally different approaches to reforming their public pension programs. Michigan directly tackled its pension problem in 1997 by replacing the traditional “defined-benefit” pension plan with a 401(k)-style “defined-contribution” retirement plan for new state employees. The Michigan reforms have been immensely successful. According to a recent report from the Mackinac Center for Public Policy, Michigan’s 1997 pension reform has saved state taxpayers between $2.3 and $4.3 billion in unfunded liabilities. Of course, Michigan isn’t out of the woods yet, but at least their problem has been addressed and steps have been taken towards fundamental reform.

Michigan is not alone. Across the United States, elected officials are quickly realizing that full reliance on the defined benefit pension model for government workers is not sustainable. In 2010, Utah also took the approach of RIRSA, offering a hybrid plan and offering 401k-type flexible retirement accounts for new workers.

Unfortunately, the story in Illinois is not nearly as encouraging. In the last 10 years, Illinois legislators have continuously ignored the pension burden in their state—so much so that Illinois is presently in the worst shape in the nation, with an estimated unfunded liability of $85.6 billion. But that’s not all—according to the Illinois Policy Institute this number doesn’t include the $17.8 billion in pension obligation bond payments that are owed, which puts the total Illinois pension burden at $102.8 billion.

The beauty of the American experiment is that we have our 50 laboratories of democracy, where various policies have succeeded, while others have failed. Rhode Island residents should look not to the failed policies in Illinois, but rather to Michigan’s successful policy reforms, for proof that pension reform is possible and can produce positive results.

Not only will pension reform save Rhode Island taxpayers billions of dollars, but it will provide public workers with the security that their money will be there when they retire. Fundamental pension reform is a win-win for taxpayers and public employees alike. The choice is not between Republican versus Democrat, or Left versus Right. The choice facing Rhode Island is up versus down for economic growth and sustainability.

Representative Jon D. Brien (Democrat – District 50, Woonsocket), Chairs the House Municipal Government Committee and House Commission to Study Municipal Financial Integrity

Jonathan Williams is a member of the RI Center for Freedom’s special pension task force, is a co-author of ‘Rich States, Poor States’ and serves as Director of the Tax and Fiscal Policy Task Force at the American Legislative Exchange Council, a non-partisan membership association of state legislators.

Dead State Walking

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So Reuters reports that Jefferson County Alabama has filed for backruptcy becase of an usupportable $5,000,000,000 debt.  With 660,000 people in the county that’s about $7500 in debt per person.

Rhode Island has somewhere in the vicintiy of $30,000,000,000 in debt when you include the (true) penson liability ($18B) , the infrastructure debt ($9B), the ‘OPEB’ liablities ($??B), and whatever else we’ve yet to identify.  That’s probably well north of $30,000 of debt per person.

If we have four times the per capita debt load and they’re bankrupt, what does that make us?

 

 

 

 

 

Small Pensions; Double (and Triple) Dipping

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The Significance of Small Pensions

In the public debate about suspending cost of living adjustments (COLAs) for retirees holding public-sector pensions, the most compelling argument addresses retirees whose income would drift below the poverty level as inflation erodes their pensions’ value.  It’s important to adjust one’s reaction, however, to account for the variation in individual circumstances.  One cannot assume, that is, that each pension is the sole source of income (even sole pension) for the retiree.

Take the pensioners in the Municipal Employees Retirement System (MERS), which the state administers and which has the lowest average gross pension (including COLAs) among the state’s various plans.  According to data available on RIOpenGov.org, the average for the 3,972 pensions in the municipal system is $13,285 per year.  Of those, 59 pensions are worth less than $1,000 per year — clearly not sufficient as a sole source of income; that’s 1.5% of MERS pensions, and it reduces the average by $192.

Expanding the range to include all pensions under $5,000 — still not enough to be more than supplemental income — brings the total to 799 pensions. Excluding them from the equation — on the grounds that we’re interested in the plight of retirees who live on their pensions alone and therefore cannot be made to suffer COLA suspensions — brings the average MERS pension up to $15,842, which is 45% greater than current poverty guidelines for an individual.

That still isn’t a great deal of money, but the relevant point is that many of these pensions are so small that it isn’t reasonable to present them as the retiree’s livelihood. Among all retirees, the average gross pension is approximately 71% of the final average salary that the person earned while working. That means that a pension of $5,000 would result from an employee’s pay of $7,000; such employees surely had other resources while working and may very well in retirement, too.

Unfortunately, payroll information for public employees has only been readily available to the public for a few years; it often isn’t descriptive of the working capacity of the employee; and very few retirees with low pensions retired recently. That last point, in itself, is very interesting: Among all 26,598 retirees, the average date of retirement is July 1998. For those with pensions under $10,000, it’s August 1994; under $5,000, January 1992; and under $1,000, October 1994. In general, and despite COLAs, those with the smallest pensions have been retired for longer. It would require extensive research to confirm, but the impression given is of the bad old days when pensions were easy rewards to give for minimal service.

Double/Triple Dipping

In some cases, the additional income for retirees derives from additional pensions. Of the 26,598 pensions on the state’s books, 1,195, or 4.5%, go to former employees who have more than one, and the average combined pension for these 574 individuals is $48,911. Five hundred and twenty nine have two pensions; forty-five have three.

(Identity was determined by full name, including middle initial or lack thereof, year of birth, and current city of residence.  Also note that these totals include individuals  who also receive “teacher survivor benefits” as a pension in lieu of similar provisions in Social Security, as well as retirees who receive pensions as “beneficiaries” but are not the original “owners” of them.)

In the interest of privacy, it’s preferable to discuss pensions in aggregate terms, but in this particular case, it’s impossible to convey a sense of things without pointing to at least a few specific examples. For that purpose, here are the twenty highest-paid retirees whose totals involve more than one pension:

Top 20 Retirees with Multiple Pensions, 2010
Age at Retirement Former Employer Year of Retirement Gross Pension 2010 ($)
Carmine DiPetrillo
$164,795
67
 Legislators (O)
1994
12,252
67
 State Police Judge – Family Court (O)
1994
152,543
Peter O’Connell
$134,907
69
 State Police Judge (O)
1990
92,776
72
 State (O)
1993
42,131
Deborah Jones
$130,926
50
 Cumberland School Dept. (B)
2002
40,083
50
 TSB
2002
22,500
56
 Cumberland School Dept. (O)
2008
68,343
Elizabeth Vendituoli
$130,598
54
 Bristol Warren Reg. School Dist. (B)
2005
42,401
54
 TSB
2005
22,500
55
 Bristol Warren Reg. School Dist. (O)
2006
65,697
Mary McCabe
$127,781
43
 State (B)
1984
44,940
63
 State (O)
2004
82,841
Audrey Carnevale
$125,330
47
 Legislators (B)
2000
9,501
47
 State (B)
2000
68,498
52
 State (O)
2005
47,331
Robert Gerus
$124,520
60
 Cumberland School Dept. (B)
2003
35,989
60
 TSB
2003
17,930
61
 State (O)
2004
70,601
Clifford Cawley
$121,082
59
 Legislators (O)
1987
19,896
59
 State Police Judge – Superior Court (O)
1987
101,186
Vincent Cullen
$120,542
55
 Cranston School Dept. (B)
1989
4,667
55
 TSB
1989
16,137
68
 State (O)
2002
99,738
Samuel Greenstein
$120,246
57
 Providence School Dept. (B)
2002
42,527
57
 Providence School Dept. (O)
2002
77,719
Marcia Clifford
$118,956
38
 State Police Judge (B)
1987
56,229
52
 State (O)
2001
62,727
Susan Browning
$116,254
53
 Providence School Dept. (O)
2001
57,996
54
 Coventry Public Schools (B)
2002
42,388
54
 TSB
2002
15,870
Livia Giroux
$112,609
48
 Smithfield School Dept. (B)
1990
33,534
48
 TSB
1990
13,500
62
 West Warwick School Dept. (O)
2004
65,575
Francine Gonnella
$109,369
63
 Judges – Superior Court (B)
2007
34,666
63
 Providence School Dept. (O)
2007
74,703
Rita Munzer
$107,113
63
 Warwick School Dept. (O)
1983
29,936
66
 State (B)
1986
55,896
85
 State (B)
2005
21,281
Geraldine Guglielmino
$106,838
63
 State (B)
1998
39,156
64
 State (O)
1999
67,682
Sydney Williams
$106,371
58
 Newport School Dept. (O)
1986
64,752
63
 Newport School Dept. (B)
1991
23,689
76
 TSB
2004
17,930
Gladys Thomas
$105,769
53
 State (B)
1989
34,887
61
 State (O)
1997
70,882
Nancy Cunningham
$104,988
58
 State (B)
1989
69,074
59
 North Kingstown School Dept. (O)
1990
35,914
Marcella Delnero
$102,464
59
 State Police Judge – District Court (B)
1988
49,997
61
 Newport School Dept. (O)
1990
52,467
Notes:
“O” = owner
“B” = beneficiary
“TSB” = Teacher Survivor Benefit
Identity was determined by full name, including middle initial or lack thereof, year of birth, and current city of residence.

 

The Individual Stories

Sifting through the pension list in order to understand the decisions behind the numbers is fascinating, but time consuming — not the least, as noted above, because the available data is sparse, recent, and incomplete.

For example, trying to figure out the lives and deals behind the very low pensions, one might come across John Marchant, who receives $609 per year based on work with the Town of Scituate. He appears to have “retired” in September 2007, so he shows up on a payroll filing from that town available on The Money Trail, showing his pay as $2,000, without description of his job. Another angle comes into view with Joseph F. Cassidy, who receives $333 annually for a non-teaching role in the Pawtucket School Dept., which he left in 1979. An Internet search for Mr. Cassidy turns up an RI House resolution from June 2010 congratulating his son upon his retirement as Director of Planning and Redevelopment for the City of Pawtucket.  (The pension rolls are full of repeated last names.)

The double- and triple-dip pensions are even more intriguing but require some delicacy, because the better part of them appear to involve a deceased spouse. Deborah Jones, for instance, has been receiving a pension as a “beneficiary” and a TSB since 2002, totaling $62,583. She then retired from the same district, adding another pension in 2008. The payroll for her final year has her receiving $73,334 as a substitute teacher.

None of this should be taken as evidence of wrongdoing on the individuals’ part. Behind the pension statistics are people trying to make the best decisions that they can as they deal with the unpredictable events and opportunities of life.  But as Rhode Island’s retirement system devolves into further crisis and state officials come forward with proposals to resolve (or at least postpone) it, honest assessment and tough judgment are the order of the day.

After all, behind the “employer contributions” are taxpayers struggling to get by in an atrophied economy while public decision makers treat retirements that are both long and lavish by private-sector standards as inviolable commitments.