June 4, 2008

Lima Gives some budget hints

Marc Comtois

Cranston Rep. Charlene Lima was just on John DePetro's show and in a wide-ranging conversation offered up a couple nuggets. First, she admitted that both sides were at fault for not working together to fix the budget mess and chalked it up to "politics." Gee, ya think? She also is hearing that 90% of budget is the Governor's budget. Yeah, but that 10% different could make ALL the difference! Then again, the unions certainly seem to be worried about something, huh?

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Both sides? What's that? The city democrats and the suburban democrats?

Posted by: chuckR at June 4, 2008 12:27 PM

I don't buy this at all. The Democrats are talking tough and the Unions seem worried. This is all an act to get the Dems re-elected, continue the status quo and then stick it to the taxpayers after the election. Hold onto your wallets and vote them out no matter what they say!

Posted by: BobC at June 4, 2008 12:50 PM

I disagree that the public sector unions are worried. In fact, the real shoes are beginning to drop. Over on RIF, Walsh has posted his convoluted proposal to, it appears, sell, lease or securitize some portion of the state lottery revenues in order to -- drum roll please -- close the gaping hole in the underfunded public sector pension plan (no mention of the OPEB benefit hole).

His logic, of course, is pure flim flam (Bobby is obviously better at being a union flack than he was at being a commercial banker). Given the risk factors involved (e.g., declining economy, competitive threat from casinos in Massachusetts, and some bad demographics -- e.g., lots of women who are 55 today will be kayaking in 15 years, not playing video slots), Walsh's 8.25% discount rate assumption is wildly overoptimistic (i.e., much too low. And the higher the discount rate, the lower the present value received for the future stream of uncertain payments).

Moreover, since the state's contributions to the pension fund will have to increase in the future (due to rising longevity, and a big jump in retirements), his claim that only a constant percentage of lottery revenues would need to be promised to the pension fund is pure fantasy (or more likely just intended to get the camel's nose into the tent). Finally, let's not forget those OPEB liabilities, Bobby (retiree health care benefits that are rising rapidly and funded on a pay as you go basis). They're going to blow your little bit of fantasy completely out of the water.

Frankly, I was expecting a proposal to sell the Pell Bridge to an infrastructure investment fund to figure prominently in the public sector unions' end game. The ideal to securitize future state lottery/video slot receipts is just out of left field.

That anybody would take this proposal seriously only testifies to the desperation of the RI Democratic Party and its assorted interest groups in the face of the train inescapably bearing down on them.

About the only good news I saw today was that Paul Dion is working with Gary Sasse. That gives the good guys in this fight at least a 10:1 advantage in intellectual horsepower over Bobby and crowd.

Posted by: John at June 4, 2008 1:27 PM

One more point. Charlene is clearly a state treasure. Public sector budget problems are increasingly common. Charlene is priceless.

Any chance we could get La Lima to do video and audio spots advertising RI to people and businesses thinking of moving here?

Posted by: John at June 4, 2008 1:33 PM

I haven't examined in detail, Bill Walsh's proposal appears to be nothing but a variation of the tobacco money scheme.

As we know, the Democrat General Assembly sold the future tobacco settlement revenues dream at a discount to raise immediate cash. As we also know, that cash has now all been pissed away.

Walsh's scheme in essence is the same thing: selling a future revenue stream at a discount in return for immediate cash. That cash will then go toward eliminating the unfunded pension liability. Once in the pension system it will remain there, insulated from future years budget cuts.

That is the real endgame for Walsh and the unions: they want the existing gold-plated pension formula/benefit to remain untouched, and dump as much cash into the system as soon as possible so that future General Assemblies can't touch it. Thus their pension will be isolated and immune in future years.

Whether pension obligation bonds; selling the Pell Bridge or other assets in one transaction; or selling off the lottery in piecemeal fashion the result is the same (anyone who believes Walsh that the Democrat General Assembly would stop piecemeal sales as soon as the economy recovers is on drugs). There's no free lunch - the pension-less taxpayers will be left holding the bag to pay the principal and interest while teachers and other public-sector employees will continue to retire in their 50’s at 75% or so of the average of their three highest consecutive years’ earnings.

A fabulous deal for them, a fiscal nightmare for us. The pension system should be “frozen” (as occurs almost daily in the private sector) and public-sector employees placed into a 401(k) type system going forward, just like the taxpayers who pay their salaries.

Posted by: Tom W at June 4, 2008 6:17 PM

1. any state that affords the slightest credibility to a creature like Charlene Lima is in tough shape.

2. I can't imagine they would get much for the Newport bridge. $40 million?

3. I really wish they would sell the lottery. It least it would keep our taxes down for 5-6 years plus it would put any non brain-dead person and business on notice to GET OUT! before the lottery money runs out and the $700 million and growing deficts provide the coup de grace to 75 years of "progressive" economics.

Posted by: Mike at June 4, 2008 7:46 PM

Tom W,

The state is in a 22 year pay down of the pension fund unfunded liability; on track with money to spare if all things are left as they are.

The budget deficit has grown to approximately $434 million and continues to grow because of no real measure to stop spending (including continued new job creations in the executive branch) has been put in place. The only notable action was to dead end and kill for two years the commercial historic tax credit that was highly documented for every $1 in tax credit produced $5.47 state-wide economic income (Governor tried to end program but GA saved program with new restrictions causing some investors to end or scale back projects and investigate investing in CT and MA programs).

You keep talking about freezing the state pension fund and starting a 401(k) or 403 plans. It has already been determined a move in that direction it will cost RI over $100 million more a year.

RI has lost over 6,000 jobs since Jan 1. RI leads the nation in people moving out of state (so much RI will loose a representative). RI leads the New England states with negative growth and subprime foreclosures. The amount of income tax money and federal matching grants (state shutting down programs) is no longer income. Fuel, natural gas, winter salt/sand, utilities, goods and services are rising adding to state overhead costs. Bridges and infrastructure is deteriorating. Sales tax, income tax and property tax receipts are down. RI is running a negative balance sheet on top of the current budget deficit.

You talk a great game but as a taxpayer, just where do you propose the extra money is going to come from to start a new retirement pension plan????

Posted by: Ken at June 5, 2008 1:47 AM

Simple. Put everybody in Social Security and let them save their own money for retirement, health care, etc.
Everybody works to 65 or 62 with a reduced benefit.
"Disability" will be handled by SSDI without costing RI a dime.
How da ya like that plan Ken? make the royalty face the same "RI Future" as the rest of us.

Posted by: Mike at June 5, 2008 9:15 AM

Ken -

Pardon me if I missed it, but do you have a link to a summary of how, in 22 years, the RI pension plan will be solvent? I hope it has all the assumptions included, too.

Posted by: chuckR at June 5, 2008 9:19 AM


>> The state is in a 22 year pay down of the pension fund unfunded liability; on track with money to spare if all things are left as they are.

Even if true, and even if the General Assembly continues to take our money to keep going on that payoff schedule, that doesn’t mean that we shouldn’t reform the pension system to bring that gross amount down.

Quite the opposite – why should I and every other taxpayer be burdened with excessive taxes for the next 22 years just to maintain an unjustifiably generous pension system (not to mention the OPEB’s)?

To borrow one of the public sector / welfare industry’s hackneyed phrases: “Why should the public-sector pension system be bailed out on the backs of the private-sector taxpayers?”

>> You keep talking about freezing the state pension fund and starting a 401(k) or 403 plans. It has already been determined a move in that direction it will cost RI over $100 million more a year.

By whom, and using what assumptions? As another poster indicated, we’d all like to see a link to that data.

And even with such an additional cost, is it temporary and over the long haul would we still save money. Since we're talking about a multi-decade issue, the long haul is the applicable consideration.

In this realm, due to the time of beneficiary payouts, benefit accrual formulas, the time-value of money and compounding, minor changes in assumptions yield huge changes in projections.

For example, is the figure you’ve cited based on an assumption of NO CHANGES to the pension formula for current employees, with any changes occurring only to new hires?

Is it based on an assumption of a freeze only being implemented on employees under 40, or with less than ten “years of service?”

A true pension freeze would lock everyone in at what they’ve vested in under the current formula as of a specific date, e.g., someone with 15 “years of service” would get whatever benefit they have earned as if they had quit on that date, but would not continue to accrue further benefits (“years of service” credit) going forward.

I’m no actuary, but common sense indicates that this would yield HUGE savings.

Nobody would lose what they’ve earned (vested in) to date. Thus older workers would still get a nice pension, and younger workers would still have time to accrue assets in a 401K or 403b or whatever.

Yes the public sector workers won’t like it. But it is a fair compromise between their interests and the interests of taxpayers. Their expectation that the pension formula in place on the day they were hired can be increased, but never lowered or “frozen” is simply unjustified, either legally or “real world” common sense. Nobody in the private sector (even if the expect to work for the same employer for their entire career, which is itself now a quaint notion) takes the job thinking that benefit can never be reduced for the next 30 years. It’s a silly notion on its face.

I can understand the public sector employees’ disappointment. But as someone who labors in the private sector, and has done so both as an employee and self-employed individual – and having no pension coming whatsoever - I have a hard time garnering much sympathy for them.

Posted by: Tom W at June 5, 2008 12:39 PM

>> You keep talking about freezing the state pension fund and starting a 401(k) or 403 plans. It has already been determined a move in that direction it will cost RI over $100 million more a year.

By whom, and using what assumptions? As another poster indicated, we’d all like to see a link to that data.

The extra cost of changing to a 401 (k) was reported out in PROJO last year by the GA pension reform study group.

I'ii have to search back to get you the link.

Posted by: Ken at June 5, 2008 6:31 PM


Sorry I was wrong in stating over $100 million in cost of adding a 401 (k) plan.

It’s more like estimated $500 million minimum on top of current $434 million budget deficit which is still growing.

You can’t cut that many programs and layoff that many people (RI state government would be crippled) so I would say only way left is to make a big raise in taxes to create your 401 (k) plan on top of trying to balance the budget deficit which will need the same kind of percent raise in taxes.

See PROJO link:

Posted by: Ken at June 5, 2008 6:47 PM


Thanks for the summary link. But, the $500 million is over a seven year period, not annually. I'd like to see it calculated also assuming that just like normal private sector people, the age at which government workers are eligible to collect is the same as for 401k plans - thats age 59 1/2. That should be part of any new contract negotiations. There are other necessary adjustments that would be considered perfectly equitable by people in the private sector, but we've been through those before. Alternatively,we can limp along selling the present and future for a while more, but eventually, there will be a governor and GA who are trapped by circumstance. Perhaps then we'll see an air traffic controllers moment - all it takes is a spine.

I note also the study just looked at costs of the changeover - no critique of the GA's shameful performance of the past few decades - they wouldn't pay for that, would they?

Posted by: chuckR at June 5, 2008 7:28 PM


The study indicated at least $150 million a year with a total out lay of $520 million on top of what RI must now spend.

If in the long run it saves money I’m all for it as a taxpayer but with such a large budget deficit which keeps growing, lower sales, income and property tax receipts which keep adding to the budget shortfall, no real cap on state spending and hiring in place (governor can only directly control executive branch), I just don’t see where the state can find an additional “ESTIMATED” (which all estimates have been historically low) $150 million to start a 401 (k) plan on top of balancing the budget.

Lets be realistic when all is said and done, taxpayer could be looking at trying to balance a budget short fall of up to $750 million or maybe $1 billion if a 401 (k) plan was put into place.

Where is the money going to come from and how many will be left living in RI?

Posted by: Ken at June 5, 2008 9:00 PM

>>The study was produced by the retirement board's actuary, Gabriel Roeder Smith & Company of Texas. It looks specifically at how much it would cost to freeze the pension system to new employees as of July 1, 2008.


Thanks for the link.

But note that this number is based only on freezing the pension system for new hires ... so this estimate assumes that all existing employees would continue to accrue benefits for the remainder of their career.

We need the numbers for freezing all current participants. That would generate huge savings - indeed the entire unfunded liability might be eliminated just with that step.

And there are other options for savings.

Align first age of eligibility to collect a pension with Social Security retirement ages.

Bring public sector employees up to a standard 40 hour workweek (instead of the current 35) - this would allow us to reduce the workforce by almost 15% with no reduction in "man hours." Huge savings now, and for decades to come.

Additional reductions could be realized through technology (think kiosks like we have at airports for ticketing).

Heck, after that we could end up with a surplus!

Funny how New Hampshire operates just fine without a sales or income tax. If they can do it, so can we.

Posted by: Tom W at June 5, 2008 9:47 PM

By the time the dust clears, RI will be $10 billion in the hole, at a minimum.

RI will be a shining example of Regressive politics for the entire country.

Might there be a benefit to reformers in having the state file for bankruptcy now? Who has the authority to do that?

Posted by: Citizen Critic at June 5, 2008 9:50 PM

I have a family member that lives in New Hampshire.

New Hampshire has a income tax and one of the highest rate property tax in New England.

Is this the way you want RI to go?

Posted by: Ken at June 5, 2008 10:15 PM


Since when has NH had an income tax? That's news to me.

As for property taxes, I don't know how NH compares to RI, but we're in the Top 5 or so, so we have no bragging rights in that regard.

In any case, surveys of total tax burden show NH to be below average, if not among the lowest, whereas Rhode Island is above average, indeed among the highest.

Posted by: Tom W at June 5, 2008 10:44 PM


Tom W,

I believe you can’t go back on a contractually and legally established pension system by law but you can go forward (that’s why you have As & Bs) with future changes so trying to freeze all retirees now vested in the system would end up in a very costly legal battle that would suck valuable money out of the budget.

They idea of laying off more state employees is fine as long as critical operations are not affected and replacing those worker you can layoff with kiosks is a great idea, but the State of RI is still operating 35 year old computer systems and networks. RI information technology was not a line item in the state budget. As a matter of fact it was an orphan child of library services just like RIEMA is an orphan child of RI National Guard with no budget.

State workers working 40 hours. That would be interesting to see. If you check, state workers currently work 7 hours a days 5 days a week and are allowed 2 breaks and a lunch break for a total 35 hours a week. Contractors and TEMPS currently work 8 hours a day 40 hours a week with 2 breaks and lunch break a day. Don’t forget, currently there are over 500 TEMPS working for the state (many over 3 years) some with salaries as high as $200K. The other thing to remember, RI has never has had the number of over $100K management employees it does now in its history. There is an enormous amount of management overhead now in the state.

If you are going to rely more on technology to save budget deficit, how many millions do you have to bring the state of RI technology infrastructure up to 21st century? Just like how many millions do you have to bring roads and bridges up to 21st century?

Good ideas Tom W but when you take a closer look, there are hundreds of millions dollars that first must be outlay just to get to basic operational level where you can start cutting back.

Posted by: Ken at June 5, 2008 11:00 PM

Tom W

New Hampshire's personal income tax system is one of the nation's most simple and inexpensive systems. With no separate tax brackets, New Hampshire's 5% flat income tax only applies to dividend and interest income. As a result many citizens have little or no income tax liability. New Hampshire's 2005 individual income tax collections were $52 per person, which ranked 42nd highest nationally.
SOURCE: The Tax Foundation

New Hampshire Property Taxes
Local property taxes, based upon assessed valuation, are assessed, levied and collected by municipalities.

A state education property tax rate of $2.24 (2007) per $1,000 of total equalized valuation is assessed on all New Hampshire property owners. It will be $2.14 for tax year 2008
SOURCE: Retirement Living Information Center

Posted by: Ken at June 6, 2008 12:46 AM


Tom W

State and Local Property Tax Collections Per Household and Per Capita by State, Fiscal Year 2005

New Hampshire $5,332 collections per household; Ranking 3
New Hampshire $2,034 collections per Capita; Ranking 3

Rhode Island $4,480 collections per household; Ranking 6
Rhode Island $1,706 collections per Capita; Ranking 6
SOURCE: Tax Foundation

Posted by: Ken at June 6, 2008 1:06 AM

"I note also the study just looked at costs of the changeover - no critique of the GA's shameful performance of the past few decades - they wouldn't pay for that, would they?"

See, the time for finger-pointing is over, ChuckR.

Posted by: Monique at June 6, 2008 7:35 AM

Ken, I think you'll find that for combined state and local tax burden, New Hampshire and Rhode Island are ranked on opposite ends of the scale.

According to your source, the Tax Foundation, NH has the second lowest combined taxes in the country and has maintained that ranking for the last three decades.

"New Hampshire's State/Local Tax Burden Among Nation's Lowest in 2007"

Contrast this with Rhode Island, which has the fourth highest taxes:

"Rhode Island's State/Local Tax Burden Among Nation's Highest in 2007"

New Hampshire link:


Rhode Island link:


Posted by: Monique at June 6, 2008 7:57 AM

NH also has "zero" sales tax. Contrast Hawaii, where in Oahu (where 90% of the people live) there is a 4.5% sales tax on literally EVERYTHING-gasoline, groceries, any service imaginable and every article of clothing.
Yes, Joe Trillo-even underwear!


Posted by: MIke at June 6, 2008 9:46 AM


Tom W and I were talking individual taxes as applied not total state-wide collective tax programs,

Question was does NH have an income tax which answer is yes and I added that property taxes are high maybe higher than RI.


Yes Mike, NH does not have a sales tax but NH makes up the difference via other taxes. The state receives substantial revenue from taxes on property, lodging, restaurant meals, two-way communications, motor fuels, tobacco products, alcoholic beverages sold through the state liquor stores, and pari-mutuel betting.

Hawaii does not have a sales tax. Hawaii has a broad based excise tax which is the simplest form of a tax. Hawaii does not normally grant exceptions to the tax in order not to show preferential treatment. However, the only exception ever granted is to prescription drugs. The excise tax is 4% on all goods and services except on the island of Oahu where .05% was added Jan 2007 making tax 4.5% in order to “PRE-PAY CONSTRUCTION” of the $3.7 billion 20 mile long elevated light rail transit system. The .05% tax is to be rescinded year 2022. So far the .05% has collected over $230 million towards the new public transit system slated for construction starting 2009.

Hawaii’s broad based excise tax is levied on business which it is up to the business to pass on to consumer and if there is a tax problem the business is held libel not the consumer.

Unlike RI which has a 7% sales tax with many exemptions adding to administration costs and is levied upon the individual consumer so if there is a tax problem the individual consumer is held libel. RI income tax has a section where the individual consumer reports all non-paid state and out of state sales taxes and adds those taxes to their income tax or be held libel during an audit.

Assume spending $20,000/yr on "taxable items" in RI at 7% which equals $1,400.00 in tax.

Assume spending $20,000/yr on "taxable items" in HI at 4.5% which equals $900.00 in tax.

I’ll take the HI 4.5% excise tax over the RI 7% sales tax any day Mike.

Also Hawaii has had a budget surplus for the last three years (Republican Governor and Democratic General Assembly) and under Hawaii Constitution any budget surplus must be returned to the taxpayers. Which rebate checks are in the mail to taxpayers for this year. Also City Council rebated $200 last year from property tax to owners and will rebate $100 this year and voted not to raise property taxes.

How much in tax dollars will RI cities/towns and state be rebating you this year Mike?

Posted by: Ken at June 6, 2008 7:45 PM

I am more concerned with advising family members on re-location. Young couples with few assets, kids and under $100,000 in gross income.
It ain't RI with its high taxes and exponentially increasing Third World demographics.
It ain't Hawaii with its high taxes (food, gas and underwear included), its $600,000 starter homes and its violent anti-white public schools (Kill Haole Day)
It is places like Idaho, Arkansas, Utah and other places south and west. NH if they insist on staying in the northeast.

Posted by: Mike at June 6, 2008 8:45 PM

Chuck R,

I am looking for the report I read last year by RI Secretary of State that quoted him as saying everything was on track and OK for the pension unfunded liability pay down in 22 years if RI stayed its course per your request.

Of note, there appears to be a proposal made by NEA Walsh to GA to sell RI Lottery gaming futures netting a supposed ESTIMATED $4-4.4 billion to use accelerating the pay down of the pension unfunded liability thus releasing (I guess this is the amount RI is paying for 22 year pay down) an ESTIMATED $223 million to be used against the current budget deficit cutting it almost in half.

The proposal almost makes sense except, who is going to purchase the gaming futures, how long will it take to sell and how much does RI loose? The pension fund would be back on stable footing allowing a move forward towards 401 (k) however RI would still need over $151 million plus increase it’s contributions to the pension fund (55% back to 75%) for vested As and Bs to stay on level ground

That would mean the proposed quick fix by NEA and a move to create defined contribution pension would leave the state with a budget deficit of $362 million instead of $434 million but the pension fund would be stable and moved to defined contribution.

There is only a difference of $72 million. That can be eaten up with a short fall in sales and property tax bringing RI back to where it was originally in 1 year with the budget deficit.

The current budget supplemental fix missed $50 million in short fall receipts, it cost RI over $90 million to treat 17 yr olds as adults instead of saving ESTIMATED $45 million and it’s only going to get worst because the so called 6 employee furlough days are not happening thus adding ESTIMATED $14 million to projected budget deficit. Which means RI did not balance the budget as required by law this year and starts next year with $64 million added on to the ESTIMATED $434 which equals $498 million or rounded to $ ½ billion dollar budget short fall plus a $5 billion unfunded pension liability and still growing.

The only thing good about NEA Walsh’s proposal is it would allow RI to move to a defined contribution plan and balance the budget but in 1 year RI would be back at the deficit table maybe in worst shape because of required out of state control payments to defined contribution plan.

There seems to be no unified planning and a lot of under ESTIMATED budget numbers coming out of Smith Hill. All elected officials on Smith hill must start working together or be voted out and replaced.

Posted by: Ken at June 6, 2008 11:06 PM


A city Councilman just this week was publicly censured on TV and in newspapers for using the word “wetback” referring to undocumented immigrants. Now there is a public outcry to oust/force the councilman from office for not being sensitive to other ethnic races.

Everyone living in Hawaii is considered a minority and there are no ethnic neighborhoods because Hawaii as a state is 96% ethnically diverse in its population. Highest in USA.

I’m a little in awe and appalled after visiting Hawaii almost every year since 1960s and retiring to Hawaii on a “fixed retirement income” to read someone’s writing “It ain't Hawaii with its high taxes (food, gas and underwear included), its $600,000 starter homes and its violent anti-white public schools (Kill Haole Day)”

That is lower 48 states talk and lower 48 states racial bias and it indicates a person’s 21st century intelligence level. Only on the mainland do you find such exaggerated talk.

Yes our homes “average $635K” but that is average which means 50% are under that price and if you want a big house like on the mainland you will pay for it in the upper 50%. There is no winter home heating bills which also means no winter wardrobe to purchase.

Yes some of our food is high priced (75 cents to $1 over mainland prices) but only if you want to eat in a five star restaurant or shipped in mainland food every day like a tourist. I eat local farm grown vegetables, fruits which last longer and farm raised meats, poultry and fresh caught fish no preservatives except flown in Maine lobster and Ipswich soft shell clams when I feel the need to reconnect to New England.

Hawaii has one of the lowest unemployment rates in the nation. The children go to school year round with longest summer break of 7 weeks (summer school is run during that break)

Honolulu was just ranked as the #1 city in the United States to raise a family by Best Magazine, #2 cleanest city in the world by Forbes Magazine, #1 ranked city with smallest carbon foot print in USA (but also the largest city in the world stretching half way across the 48 contiguous states) by the Brookings Institution, Hawaii is the only state closest to providing universal healthcare to all residents and has the longest living population in the US.

Posted by: Ken at June 7, 2008 12:29 AM


Chuck R

“I am looking for the report I read last year by RI Secretary of State that quoted him as saying everything was on track and OK for the pension unfunded liability pay down in 22 years if RI stayed its course per your request.”

Should read:

I am looking for the report I read last year by RI State of Treasure that quoted him as saying everything was on track and OK for the pension unfunded liability pay down in 22 years if RI stayed its course per your request.

I will catch up with your posts once I find it and drop it in middle of Blog conversation.

Posted by: Ken at June 7, 2008 1:03 AM
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