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Public Pension Problems: a Tale of Two Cities in Rhode Island

March 4, 2011 at 7:29 PM EST
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As part of his continuing coverage of Making Sen$e of economic news, business correspondent Paul Solman visits two Rhode Island cities struggling to honor pension pledges to retired public workers.
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JIM LEHRER: Now: our continuing coverage of the battle over public pensions.

A number of cities in Rhode Island are struggling to meet their retirement obligations.

And NewsHour economics correspondent Paul Solman looks at the trail of decisions behind the current problems. It’s part of his reporting on Making Sense of financial news.

PROTESTERS: Kill the bill! Kill the bill!

PAUL SOLMAN: Public sector unions under siege fighting back nationwide. The most visible fight has been in Wisconsin, of course, mainly over collective bargaining. But that’s obscured the dominant issue in many states and cities: retirement promises for which insufficient funds were set aside.

As we have reported, tiny, union-friendly Rhode Island is a case study in under-funded retirement plans. So is its capital, Providence, costly benefits promised, rosy investment returns assumed. Mayor Angel Taveras:

MAYOR ANGEL TAVERAS, Mayor of Providence, Rhode Island: A lot of our previous mayors really decided to not worry about this. This will be somewhere in the future. And now, here we have about an $824 million unfunded pension liability.

PAUL SOLMAN: Taveras is new to the job, but his most famous predecessor was one of the longest-serving mayors in U.S. history, Vincent “Buddy” Cianci.

VINCENT “BUDDY” CIANCI, former mayor of Providence, R.I.: All right, here we are back again on “The Buddy Cianci Show.”

PAUL SOLMAN: Cianci has since taken up talk radio. But, originally a Republican in a Democratic state, he was the mayor when the pension fund was routinely shortchanged.

You were funding something like — I was just looking at the numbers — 60 percent…

VINCENT “BUDDY” CIANCI: Yes.

PAUL SOLMAN: … something like that, during your…

VINCENT “BUDDY” CIANCI: Everybody was guilty of that, every public officer.

PAUL SOLMAN: Including yourself.

VINCENT “BUDDY” CIANCI: Including — everybody was. And I will tell you why — because when you have — there’s only so much to spread around.

NARRATOR: Cianci is so incorruptible, he headed up the anti-corruption strike force in the state.

PAUL SOLMAN: Cianci first won as an anti-corruption candidate back in 1975, was forced to resign in ’84, after stubbing a cigarette in the face of the man he accused of being his wife’s lover.

In the ’90s, voters reelected the so-called “Prince of Providence” anyway. In 2002, however, a federal jury convicted him of running the city corruptly. He spent 4.5 years in prison.

Cianci remains unapologetic about his past, though, including the pension promises.

VINCENT “BUDDY” CIANCI: You know, we put as much as we could afford in. And how much do you want to tax the people? You want to raise the taxes? Our tax capacity is already — our tax effort is far beyond our tax capacity.

PAUL SOLMAN: But you were there for such a long period of time. You were clearly there at a time when you were giving benefits.

VINCENT “BUDDY” CIANCI: Yes, but don’t forget there’s a city council. I’m not the king.

PAUL SOLMAN: Not just you.

VINCENT “BUDDY” CIANCI: We’re here with Paul Solman, the only guy who ever came on my show and interviewed me.

PAUL SOLMAN: Right.

Providence firefighters blame pols like Cianci for a pension system that today is only 34 percent funded.

PAUL DOUGHTY, President, Providence Firefighters Local 799: It’s their problem. They have created it. We have dutifully paid our contribution every week. And, in fact, we have gone to court at least on two occasions to try and order them to pay their contributions. Cities purposely chose not to fund the pension system.

PAUL SOLMAN: But the firefighters share the blame, says Cianci.

VINCENT “BUDDY” CIANCI: You have people who abused the system by going on retirement when they weren’t disabled, and they drained the system. There was a time we didn’t have one firefighter who retired who wasn’t disabled. And that was the problem. They drained their own system. And you know what they get when they’re disabled, don’t you, Paul? They get two-thirds tax-free, no matter how many years they have been on the job.

PAUL SOLMAN: But these guys…

VINCENT “BUDDY” CIANCI: And I’m not here to debate it. I’m here to tell you what they did, because I was there; you weren’t.

PAUL SOLMAN: Firefighters claim no one got a disability pension he didn’t deserve. And the average is barely $35,000 a year.

Phil Payne retired healthy two years ago.

PHIL PAYNE, Retired Firefighter: And don’t forget, in the city of Providence, that’s all I have. We don’t collect Social Security. We don’t pay into Social Security.

PAUL SOLMAN: And what’s your yearly pension?

PHIL PAYNE: My pension is $42,000. If I have to take a hit, myself and my family are going to have some problems.

PAUL SOLMAN: But everybody has problems.

PHIL PAYNE: My entire adult life was spent with the City of Providence Fire Department. I missed nights, weekends, and holidays. I missed Christmases. I missed birthdays with my kids. I missed all kinds of things giving my dedication to the taxpayers of the city. And all I asked for in return was, if I get hurt or sick, you help me. When I retire, you help me.

PAUL SOLMAN: Now, some would argue there’s a connection here to Wisconsin. In Providence and other Rhode Island cities, pensions, subject to collective bargaining, have become unsustainable.

In an earlier report, Paul Solman examines how Rhode Island is one of many states looking to cut pensions for public employees in the face of massive budget deficits.

There were major protests here because Mayor Taveras fired all his teachers for next year. He says he will hire most of them back, but, meanwhile, it gives him bargaining clout.

ANGEL TAVERAS: I am negotiating contracts with firefighters, police, with our teachers, with our city employees. But, ultimately, it’s in everyone’s interest to reform the system now.

PAUL SOLMAN: Providence is trying to dodge the fate of Rhode Island’s smallest, saddest city. A mere one square mile, packed with 19,000 residents, Central Falls boasts a proud past, a promising future. Its present, though, is shuttered.

Sinking revenues and a broke pension fund prompted a city bankruptcy filing. But Rhode Island stepped in, took over, sent a state trooper to the mayor’s door.

MAYOR CHARLES MOREAU, Mayor of Central Falls, Rhode Island: Took my car and my keys, my dignity right away from me on my doorstep in front of my 2-year old and my 5-year old, and said that we no longer need you.

PAUL SOLMAN: The mayor’s lawyer, Mike Kelly.

MIKE KELLY, Attorney for Mayor Charles Moreau: The mayor has been prohibited from going to the City Hall, from communicating with employees. He’s not there to handle constituent problems, snowplowing, picking up the garbage, et cetera.

PAUL SOLMAN: Why did the state depose a four-term mayor who won 80 percent of the vote, is now suing to get his job back? It was afraid of cities suddenly declaring bankruptcy.

Central Falls is the canary in the coal mine of Rhode Island, says Moreau.

CHARLES MOREAU: I think that, with all the other cities and towns that are on the brink of it, if one were to fall, all the others would fall right after it, and it would be a financial disaster for the state of Rhode Island.

PAUL SOLMAN: Mark Pfeiffer is the retired judge temporarily appointed to run the city, with him, his successor, Judge Robert Flanders. Pfeiffer squeezed the unions, raised taxes 20 percent — still not enough.

JUDGE MARK PFEIFFER (RET.), Central Falls, R.I.: If you combine the pension obligations with retiree health care, it totals $80 million, with the city having a budget of $17 million, an annual budget. So, the quick arithmetic would suggest, if we provided no services, maintained the same tax and revenue stream that we have right now, it would take almost five years to fund these obligations.

PAUL SOLMAN: In short, the pension fund here has already run dry.

Why did the city keep making promises it couldn’t keep?

JUDGE MARK PFEIFFER: People are going to try to — to get the best deal that they can. And that — there’s nothing wrong with that. It’s just that, when you create these obligations, it has to be done in such a way that there actually is a funding source for it.

PAUL SOLMAN: Mayor Moreau says he did the best he could.

CHARLES MOREAU: I’ve been telling my firefighters and police that we need concessions for the past six years, that we need concessions, we need concessions, we need concessions, over and over. I said, you guys are going to get a 3 percent raise this year, next year, the year after. If I have to give you 3 percent and a full benefits package, I cannot afford to fund your pensions. I can’t.

PAUL SOLMAN: Is collective bargaining what caused the problem? You, the unions, everyone created a situation that was literally unsustainable.

CHARLES MOREAU: It became unsustainable when, obviously, the economy became poor — poorer and the cost of health care and the cost of doing business increased. To say that it’s collective bargaining’s fault, or it’s the mayor’s fault, or it’s the previous people’s fault, I just — I think it’s a sign of the times.

PAUL SOLMAN: Moreau’s mayorship is now dormant, his office deserted, his parking space empty, his pay slashed by two-thirds.

But his bankruptcy idea is very much alive. The city’s new receiver, Judge Flanders.

JUDGE ROBERT FLANDERS, former Rhode Island Supreme Court justice: One of the things that — one of the options that Judge Pfeiffer put on the table is a bankruptcy filing, where, potentially, there could be restructuring of many obligations, including the ones that are most troubling to this community.

PAUL SOLMAN: The other main options: merging Central Falls into its neighbor, Pawtucket; raising taxes further; lowering union contracts through negotiation.

Back in nearby Providence, Buddy Cianci, who presided over pension underfunding, is blunt about its consequences.

VINCENT “BUDDY” CIANCI: We’re not a sustainable economy if we have to keep paying these huge pensions. The city right now has got probably $1 billion of unfunded liability. Now, you don’t have to be Fellini to know how that movie ends.

PAUL SOLMAN: But it looks more like a beginning of battles in cities and states where workers feel that their jobs and retirement promises are being unfairly targeted as the first things to go.

JUDY WOODRUFF: More than 20 states are working on changes this year to reduce their pension liabilities.