May 12, 2011

Little State, Big Problem

Justin Katz

Rhode Islanders are used to thinking in proportional terms. When state-to-state comparisons are made, we look for the percentages and ratios because absolute numbers typically mean little. Sure, Massachusetts' government spending is many times Rhode Island's, but the question is how much it amounts to per capita.

So, at first glance, one may very well misread the numbers in the following:

The tab comes in at $9.4 billion for the unfunded liability for 155 separate plans run by state and municipal entities in Rhode Island, according to a Providence Journal analysis of pension-plan financial reports.

The total in New York state: $45.8 million, less than 1 percent of Rhode Island's.

That's right: our state of around a million people is talking billions while a nearby state twenty times the size is talking millions. Frankly, Rhode Island can muck with its tax system all it wants — making "revenue neutral" changes that shift the burden from productive people to less productive ones, lowering sales taxes in such a way as to create an actual and massive tax increase, whatever — but the powers who be really must hope that people who might invest in Rhode Island by moving or setting up shop here don't look too much beyond quick-glance FAQs about the state.

As Monique's post inherently hints around the edges, even staring down the throat of this leviathan, Rhode Island's leaders are most likely to do what they've done consistently over the last decade and more: do anything just to get through another year. The main difference is that we've now shifted from one-time fixes to futile hopes that problems will go away.

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It would be really nice if the state sent out a 'prospectus' to registered voters every two years or so. Even if it was just an email or a link to a website. I find that most Rhode Islanders really have very little knowledge of where the money is coming from or going.

As for the unfunded liability... It's my understanding that the way muni/state pensions are supposed to work is that at 100% funding, workers pitch in around 10% of pay over their careers, the state 'matches' 20%, and interest on the fund pays the lion's share of the payments. With an underfunded liability, there's less 'interest' so the payments need to rely more on direct taxation, which is bad. Still, there's no reason things must be 'fully-funded', but it's a big signal to investors and taxpayers that we're bad at managing money.

What are the options for straightening this out, on a structural, long-term level? Do we need judges or finance experts with veto power on budgets? Laws that demand the state and municipalities to put aside enough to meet their needs?

Posted by: mangeek at May 12, 2011 8:49 AM

Mangeek, the problem is that "most", meaning an overwhelming majority, of Rhode Islanders don't care. Their ignorance is exceeded only by their apathy.

I have reluctantly concluded that this state is hopeless and going Galt is the only rational course of action.

Posted by: BobN at May 12, 2011 8:53 AM

Bob's right. The voters of this state are both ignorant and apathetic. Two deadly combinations.

However, to Justin's post, NY is usually #2 in the country for tax burden. So maybe that's part of the reason that their pension system is funded better. Maybe if we implement all of NY's taxes, we can meet our obligations. Justin, is that what you're arguing for? I wouldn't think so, but if you're going to look at the effect, we also have to look at some possible causes.

Posted by: Patrick at May 12, 2011 9:51 AM

In my opinion, higher taxes to responsibly deliver the government people voted for are far preferred to lower taxes and a gaping fiscal hole that must be fed continually.

People vote for politicians who make big promises? That's fine, but please for the love of God start preparing to meet those obligations; don't kick the can down to those of us who are trying to get started.

As it stands, I can't see how I can afford to raise a family responsibly here, and it's not the $300/month in property taxes, or the 4% income tax, or the 7% sales tax that's holding me back, it's the uncertainty about the fiscal future and the quality of services I can expect when all the cuts are made in things that matter in order to keep labor's plate full. Our priorities are whacked; we should be figuring out how to deliver government services, not how to insulate our employees at the expense of those services.

Posted by: mangeek at May 12, 2011 10:18 AM

I maybe in the minority but I have no problem contributing more taxes as long as there is at least an equal effort, if not more, to cut the budget and reform the pension system. And yes, I know that's a pipe dream.

Posted by: Max Diesel at May 12, 2011 11:35 AM


One high-tax state has 20 times the population, yet 1/100 of the unfunded pension liability in absolute terms, than another high-tax state. Does it seem likely that tax-level is anywhere near the most significant factor?



higher taxes to responsibly deliver the government people voted for are far preferred to lower taxes and a gaping fiscal hole that must be fed continually

The problem is that the whole reason pensions are a catastrophe is that politicians new that they were giving away a level of remuneration to employees for which the people did not vote and would not vote.

Posted by: Justin Katz at May 12, 2011 12:25 PM

"they were giving away a level of remuneration to employees for which the people did not vote and would not vote."

That's why there needs to be some sort of technocratic veto of budgets that take a 'keep digging' mentality. I think we're at a point where the average voter would gladly take the easy path today even if it meant paying twice for it tomorrow. Now that we're starting to feel the burn from decades of mismanagement, and it's clear that the voters -aren't- able to make tough choices, it's time to put more checks-and-balances on long-term finances of cities and states. City councils and legislatures shouldn't be -allowed- to pass budgets that kick the can on 'basics' like worker compensation, infrastructure upkeep, and materials.

I really hate saying this, because I'm rather anti-authoritarian by nature, but it seems we've reached a level where voters and politicians just aren't acting like responsible adults. I'm not saying we should hand the keys over to a tyrant, just codify some basics and require the budgets to meet them before getting voted on.

Posted by: mangeek at May 12, 2011 12:44 PM


I'm not saying that NY's tax structure *is* the reason that their pension system is funded better. But I think it's not right to just point at population numbers and try to derive anything. Just because they have more people doesn't say anything. Does the difference in taxation make any difference in the pension system? I don't know.

mangeek, then who should be in charge of all this if we don't want to leave it up to voters and the politicians we elect? I think there was some intent involved here but I'm sure there was also some incompetence involved as well. Look who we elect. We have a part-time legislature and some of them may not be the brightest bulbs. Don't forget Hanlon's Razor...

Posted by: Patrick at May 12, 2011 1:07 PM

Leaving Rhode Island is leaving an abusive relationship. Difficult at first; an immense relief after. The best revenge truly is living well, and in this case with lower taxes and less government interference in your life.

Now that I am clear of the blast radius, I can watch the destruction occur from afar in shock, sadness, and awe. Rhode Island is a sobering reminder of where progressives and unionists would lead this entire country without the eternal vigilance of those who still value liberty, personal responsibility, and limited government.

All that will eventually be left of the state is a pedestal in a hollowed-out business graveyard reading, "We are proud progressives. Look on our works, ye racists, and despair!" Nothing beside will remain.

Posted by: Dan at May 12, 2011 8:55 PM

"who should be in charge of all this if we don't want to leave it up to voters and the politicians we elect?"

The politicians would still draft and vote on budgets, but there would be an additional 'check' of an authority who could reject it and send it back to the drawing board.

Posted by: mangeek at May 13, 2011 4:00 PM
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