Westerly Sun commentaries

Sylvia sent me the text of her piece and I will post mine below. Most disturbing to me was that the Westerly Sun called and asked that we send in essays debating the pension system. I even spoke with Sylvia around July 30 and she asked me about the data I was using. I explained that I found the other regs that increased the contribution rate and reduced the starting salary  and had updated the website. But she ignored that and wrote the following:

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July 20, 2009 the Hopkinton Town Council ratified a new 3-year contract with the International Brotherhood of Police, Local 498. Prior to this, Town Manager, Bill DiLibero and Council President Tom Buck spent many meetings and hours with union representatives. Each time they reported their progress, the council found we needed more information.

What was the total increase in salary for each officer after the yearly step increases, longevity and raises were factored in? Why in 1999 did a council incorporate the compounded COLA provision? Would this item lead to excessive pension payouts that the town could not afford? How could we get rid of it?

For years, residents have relayed serious concerns about the compounded COLA. Even a day before our July 20^thmeeting, it was reported in a local internet blog, this provision would provide $178,924 in an annual pension to a just retired 27-year town police officer when his retirement reaches its 28th year.

Earlier in July the blog reported officers that began employment at age 24, retired at 44, would get an annual pension of $75,000 and after 34 years of retirement, escalate to $198,925. Also it was claimed the police are only required to contribute 1% of their salary each year toward their pensions requiring the town to “…come up with the balance needed to meet the defined benefit”.

July 20 was the first time we had the police contract on the agenda for public discussion. I expected a crowd of concerned residents. Not a single comment or question.

Fortunately for all our sakes, the information in the blog was wrong. The data that follows was taken from town payrolls, RIGL, and a review of provisions of forty RI police department contracts.

An actual 2009 retired 20-year officer’s pension will be just under $31,100 not $75,000. The annual pension amount 34 years into retirement will be $82,487 not $198,925.

The just retired 27-year officer’s beginning annual pension will be just under $32,929 and 28 years into retirement will be $73,143 not $178,924. Also, pursuant to numerous RI pension laws, Hopkinton Police Officers are required to contribute 9% annually to their pension not 1%. The town’s contribution changes year to year and is currently at 18.43%. Also, the town stops paying into the pension when the officer retires.

The financial data reported on the blog was incorrect because pursuant to the RI Laws, the base annual pension is 50% of the highest salary, (derived from weekly salary, longevity, and holidays), not 100% and should not have included over time.

Bottom line, Hopkinton is one of only 4 communities that will pay dramatically less in pension payments than the other 36 cities and towns because they opted to foot the bill for retiree’s health insurance. The 1999 council did not and instead opted for the compounded COLA.

Currently, the cost for a family health care plan is around $15,000 per year. Do the math. Hopkinton could never afford to pay $15,000 per year, per retiree for years.

The agreement reached by the members of the council, in attendance at the July 20 meeting has a long list of subtle changes that will allow the town flexibility in managing the staff scheduling and will insure more control over spending. Due to language added, the police will not receive a raise this year. They will receive 1% next year and 2% the final year.

Steps were reduced, but not eliminated. Longevity was folded into the first year’s hourly wage, but is eliminated in year 2. They will increase their share of health care from 10% to 14% by the third year.

There are many other changes that were detailed page by page by Council President Tom Buck. Nothing was hidden and all was explained. The video of this meeting is not yet posted on the Town’s website (www.hopkintonri.org). However, consider picking up a copy of the contract at the town hall and watch the video when it’s posted to hear about all the changes.

Is it everything we wanted? No. Did the Town’s labor attorney, Dan Kinder assist during negotiations? Yes. Is statewide pension reform desperately needed? Yes. We also know our town’s contract developed over time and can’t be totally reversed overnight, but a little patience and hard work did equal progress.

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Here is the one I submitted:

Unemployment is at a 25 year high. Rhode Island was among the first in the recession and economists predict we will be among the last ones out. During these tough economic times public sector contracts continue to pay double-digit raises and provide benefits that will bankrupt our towns in the coming decades. The recently signed Hopkinton police contract is a perfect example.

The HPD contract, like most other public sector contracts, rewards seniority rather than performance. While the yearly “raises” have been kept low, the underlying “Step” increases combine to make a real “raise” as high as 16% per year – this at a time when we have asked every other employee in Hopkinton to accept a 2% raise.

But the most egregious item in the new contract, which was also passed in the previous three contracts, is the pension.

People that do not work for the state, or town, normally receive pensions that define how much money will be deposited into an account for the employee to draw from during retirement. These are called defined contribution plans.

Public sector pensions are defined benefitplans and they pay out more money for longer periods of time than defined contributions plans. The difference between the average private sector plan and the Hopkinton Police Department’s plan is shocking.

A Hopkinton police officer may retire after only 20 years (as young as 44) and will receive a percentage of their salary increasing at a rate of 3% compounded annually. As Einstein said compound interest is “the most powerful force in the universe.”

As an example, an officer leaving the force after 20 years, with a $70,000 salary, would receive $1,665,139 over the next thirty years. The amount paid by the town could be even more as people continue to live longer.

In a defined contribution plan, using the same employee terms, the maximum amount the town would be responsible for is $80,830, half of the accumulated $161,660 retirement pool. I know we all appreciate our police department, but giving them a pension that pays 10 times that of the private sector is too much.

There was a day when these employees received low salaries so the pensions balanced the deal. Today, the average Hopkinton police officer makes nearly $70,000 while the average Hopkinton income is closer to $47,000.

The Westerly Sun reported the Hopkinton council’s defense of the contract on two points: (1) they claimed “not to alter police pensions because of future pension reforms the state may make,” and, (2) that the town couldn’t change the pension because they “didn’t know what (they) wanted to trade off for something that huge.”

First of all, the council has more faith in Smith Hill than I do. The lawsuits filed by the unions in opposition to the current moderate reforms do not bode well for future more significant reforms.

Secondly, regarding the question of what we have that is “huge” enough to exchange for true pension reform – I can save the council time and say that we don’t have anything. Just because councils of the past made outrageous mistakes doesn’t mean we have to be bound by them.

There are currently 18 people eligible for, or already receiving, the HPD pension. Using the figure above as an average, the town of Hopkinton could reduce its liabilitycosts by over $27 million by simply ending the current program and providing a pension equivalent to those provided in the private market. Why are we mortgaging our children’s future for a select group of employees?

Town councils and school committees can continue to nibble at the edges of contract reform, but drastic measures are needed. It is time to treat public sector employees the same as private sector employees – no better, no worse.

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As an aside, if I used the $32,929 figure (Sylvia says  this is the accurate starting salary), that would make the 30 liability for the taxpayers $28,198,995. The difference between that and the 30 liability of a defined contribution plan would be $25,289,087.  

In my commentary I said it would be $27m.   Again, Sylvia knew I had updated the information because I told her about a week before she submitted her essay. But she ignored the question and decided to attack me instead.

Even though the Sun asked us to debate the pensions, Sylvia said she wrote the oped on the old data because it came out before a town council meeting.  But for those reading the paper it makes it look like I lied in my essay.