Rhode Island Blue

Rhode Island Gov. Lincoln Chafee, in an interview with the Bond Buyer, looked back at key steps the state has taken to work with local governments in severe fiscal distress—and his efforts to address pension obligations—especially the challenge and importance of a special legislative session late last year in which the legislature enacted a landmark pension overhaul bill: ―The General Assembly convened a special session on pensions. I can‘t remember — ever — a special session on one topic…Sometimes they come back to confirm judges. But they returned in the fall just to tackle this one issue. Tunnel vision, no trading of votes.‖ Gov. Chafee and General Treasurer Gina Raimondo had worked together to sell the pension overhaul to lawmakers and to citizens at town hall meetings. The Governor stated that the special session, and the state retirement board‘s lowering of the assumed rate of return for the pension fund in a narrow vote that year to 7.5% from 8.25%, were key to enabling the legislature to pass the Retirement Security Act. Measures include suspending retirees‘ cost-of-living adjustments until the pension system is 80% funded and moving most current employees into a hybrid plan that combines traditional defined-benefit plans with 401(k)-style plans. (The pension bill faces a court challenge from unions. A loss in the suit could cost Rhode Island ―hundreds of millions‖ of dollars.) Officials say the bill will enable the state to trim its $7 billion unfunded pension liability by $3 billion. Both the state and local governments have confronted epic challenges: the state has experienced a 37% drop in manufacturing jobs from 2001 to 2011--the greatest decline among states, according to the BLS. Rhode Island‘s 10.8% unemployment rate is second only to Nevada‘s. Meanwhile, the state‘s cities and towns have been undercut by both stagnant tax bases and a property tax cap that limits municipal revenue streams. Analysts and government observers alike say few governors if any have spent as many hours on municipal matters. ―Rhode Island has been a relatively bondholder-friendly state and oversight is helping the distressed communities. It seems to have helped the most troubled communities — Central Falls, Woonsocket and East Providence,‖ said Naomi Richman, a managing director at Moody‘s.