Earth to Paul: Wisconsin is Not Rhode Island!

BY Paul Solman  March 2, 2011 at 10:21 AM EDT

EDITOR’S NOTE: Paul has spent the past few days responding to some of the many questions and comments we received regarding last week’s broadcast story, “In Tiny Rhode Island, a Massive Public Pension Crisis Looms” and the Making Sen$e web piece, “Paying For Public Pensions.

Making Sense

See Monday’s post for Paul’s answers on the subject of taxing the rich to save public pensions, and Tuesday’s post for how states have responded to the pension crunch.

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Jim Upthegrove

Question: I watched your news article featuring Rhode Island’s unfunded pension crisis. You on several occasions referenced Wisconsin as facing this issue. You had better check your facts, for Wisconsin has one of the best-run pension systems in the country. The money is put aside pay period by pay period so when folks like me retire we are not dependent on the deposits of those workers still on the payroll. In light of the situation in our state, you owe us a correction — we have too much misinformation about the benefits of our hard working state and municipal employees already.


Paul Solman: No we didn’t. Jim Lehrer’s introduction to the story said:

The biggest fight in Wisconsin and Ohio remains over new bills to curb or end collective bargaining. In Wisconsin, state police searched for Senate Democrats, who are refusing to return for a vote, even as the Assembly moved closer to passing a bill. But in many states, there are debates as well over demands to change pensions.

The only other references to Wisconsin were:

-”Unionized, Democratic Rhode Island is flying under the radar right now, as Wisconsin and other states openly attack public sector benefits” and

-”The nation’s smallest state, barely a million strong, has a $300 million deficit, mainly due to its pension system, in worse shape per taxpayer than California, Illinois, New Jersey and certainly Wisconsin.”

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Scrubini1

Question: Paul, I would like you to go back to the Treasurer of Rhode Island and have her answer why the public employee pensions were allowed to be underfunded in the first place. She gave a flippant answer about how elected politicians promise benefits but are not in office later. I think that is a cop-out. Please find out if Rhode Island and other state pension funds unwittingly bought the toxic mortgage securities that were sold by Wall Street as AAA-rated securities (fraud if there every was one). If so, why aren’t the various states’ attorneys general suing the Wall Street firms for fraud and getting some of their pension money back from those who have some means (the Wall Street fat cats responsible for this fraud)? Why not go after them rather than some poor defenseless retirees?

Paul Solman: No, mortgage-backed securities are, for once, not the problem. Our next story on Rhode Island looks into the roots of the state’s underfunding problem. But the “flippant answer” is the heart of the story. That and the double whammy of waning prosperity and soaring health care costs, neither of which were expected.

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Barb Peterson

Question: Why doesn’t anyone ever cover the lawmakers and managers who are responsible for the pensions rather than just the union members who relied on management in government to fully fund and invest properly? A possibility would be to cover one state — like Rhode Island — and look into whether the pension cuts will affect the retirement benefits of the lawmakers, upper level management, etc. How many at the upper levels have moved into the private sector and are getting a private sector pension/golden parachute AND retirement benefits earned before they moved on?

With what’s going on in Wisconsin, are the legislators getting their retirement benefits cut?

Paul Solman: Former Providence, R.I. mayor Buddy Cianci tells us, in an upcoming story, that the state’s lawmakers were often union members themselves:

The legislature really controls the pension system of the state and also deals with the labor unions, and frankly if you look at the state legislature on Rhode Island you see that it’s replete with representatives of labor unions. In other words they get a lot of money for representing their unions but they also are state legislators. And for instance, when you deal with a legislature you are most likely be dealing with a member of a labor union. So obviously they’re going to pass laws that are not exactly against the labor movement, and they’re proud of that, and they brag about it.

Cianci’s credibility may be suspect, given that he served four and a half years in prison for corruption. But he described negotiating contracts with union leaders before whom he’d have to appear the next day as the mayor, making requests to them in their other role as legislators. He had to play ball, he said. Quid pro quo.

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Keith Fineberg

Question: I strenuously object to the presentation of the Rhode Island state pension problem. The report suggested that the fact that the group home for homeless boys was no longer in existence was due directly to the state’s pension obligation. In fact, both problems are due to mismanagement of funds. Those who have handled private pension funds so irresponsibly are serving time in jail. Why are the states held to a lesser standard?

Furthermore these state workers which include the people who teach our children and the police and firefighters who keep us safe made contributions through the course of their careers and made life decisions based on promises that apparently will not be kept. At the retirement stage of life in this economy, jobs are just not there.


Paul Solman talks with Margaret Holland McDuff of Family Service of Rhode Island about the closed home for boys. Click on the image to watch the video.

Paul Solman: We didn’t mean to suggest that “the fact that the group home for homeless boys was no longer in existence was due directly to the state’s pension obligation.” It was the head of Family Service of Rhode Island who made the link: “Are they going to continue to fund systems like pension systems that we already know are unsustainable and cut services to the vulnerable?”

What she meant is clearly true, however: budget shortfalls have to be made up somehow and constituencies with the least political clout, like the poor, tend to be at greatest risk.

One note of clarification that makes the situation more immediate at the local level: states, unlike the federal government, can’t freely borrow from the public by issuing bonds to fund their deficits. (In general, states can issue bonds only to pay off specific investment projects.)