Fire Union Leader Claims Treasurer 'Cooked Books' to Exaggerate Pension Crisis
Paul Valletta accused Rhode Island General Treasurer Gina Raimondo of "cooking the books" to push through pension reform.
The head of the Rhode Island firefighters' union accused General Treasurer Gina Raimondo of “cooking the books,” lying to the General Assembly in an attempt to push through pension reform.
Paul Valletta, head of the Rhode Island Association of Firefighters, said Raimondo created an artificial crisis where there is none in the pension system in order to convince legislators and residents that “draconian” changes were needed in the state pension system.
“The General Treasurer cooked the books on this issue,” Valletta told the joint House and Senate Finance Committees Thursday. “This is not a crisis; it’s a problem. She created the pension problem and dropped it in your laps.”
Specifically, Valletta said Raimondo changed two key assumptions that made the pension crisis look much worse than it is. She raised the assumed mortality age for Rhode Islanders from 65 to 87, increasing the expected liability to the state; and dropped the anticipated rate of return on state investments to 7.5 percent, decreasing the state’s expected income. Social Security expects Rhode Islanders to live only to 78, Valletta noted. Worse, he said, Raimondo used numbers from 1994 in making the life expectancy assumption instead of new numbers released in 2008.
“Why wouldn’t she use the 2008 numbers? Because they weren’t the numbers she wanted,” Valletta said, further charging Raimondo with ignoring the fact that the rate of return prior to 2001 was averaging 9.4 percent. “So they took a snapshot in time of the last 10 years. People should be mad at the General Treasurer.”
Raimondo’s office did not immediately return calls for comment.
Valletta said the pension crisis could be solved simply by returning those two assumptions to their previous numbers. “You should scrap this legislation that will destroy lives,” Valletta said. “This can be solved by working together. We can get out of this problem and lives will not be destroyed.”
The pension reform proposal of Raimondo and Gov. Lincoln Chafee includes suspending the Cost of Living Adjustment — an automatic raise for all retirees that matches the rate of inflation — for up to 19 years; changing the retirement age from its current 62 to match an individual’s Social Security age; and adding a defined contribution plan, similar to a 401K common in the private sector. State employees and teachers would contribute 3.75 percent of their pay toward a pension, for which vesting requirements would be reduced from 10 years to five years. They will also contribute five percent of pay into their own retirement account and the state would contribute an additional one percent to that account.
Chafee and Raimondo have said it is critical to enact reforms now. Without immediate reforms, they say impacts on the state’s finances include:
- Doubling of taxpayer costs next year to more than $600 million and more than $1 billion in about 10 years. Much of the increase would likely be passed onto municipalities, which pay for 60 percent of teacher pensions.
- Increases in both state taxes and local property taxes, coupled with budget cuts.
- An increased risk that the pension fund will run out of money before many employees reach retirement.
- A possible downgrading of state and municipal bond ratings, increasing the cost infrastructure projects.
Valletta also opposed the move to a defined contribution plan, worrying that Rhode Island will only be giving money to the investment banks that created the damaging recession from which the state is still trying to dig out. He also took issue with the fact that Raimondo herself would sit on a committee responsible for hiring the investment firms to manage the 401(K)-style retirement plan.
“There’s going to be some green flying around this state, folks,” Valletta said.