December 14, 2004

Rhode Island Politics & Taxation, Part III

This posting builds on the Part II posting of earlier today.

Achieving a rigorous public debate in Rhode Island about politics and taxation issues is a necessary first step toward bringing significant changes and fixing the mess in this state.

The tone of the debate in Rhode Island began to change in Fall 2003 when Cranston Mayor Steve Laffey highlighted the outrageous costs of crossing guards in his community.

2004 has been a year in which the state faced another huge state budget deficit, a large shortfall in pension funding, and more politics-as-usual. Let’s use some of the year's news and related editorials as a way to highlight how some politicians, bureaucrats and public sector unions just don't get it. Until these players are held to a higher level of accountability for their behavior, we will continue to experience the same miserable quality in this public debate.

Actions by union leaders prior to the September 2004 primary in Cranston showed how the public sector unions are committed to minimizing any opposition to their strong influence - and how residents said "no way" by a 3-to-1 margin.

Backing up to last February and in response to a nearly $200 million budget deficit, Governor Carcieri proposed numerous budget changes. His proposal increased the overall education budget by $11 million but cut state aid to local education by $8 million while increasing state aid to charter schools by nearly $6 million. The proposal generated the predictably ridiculous responses. Governor Carcieri responded to the attacks and the Providence Journal published an editorial on the topic.

I also responded to the whining of various public sector officials with an editorial, saying:

In the last three years, state spending in Rhode Island has exceeded revenues by $582 million. We have covered the deficit by spending all of our surplus tobacco-settlement and federal-grant money – each a one-time source of funds. With the state facing a $190 million deficit for next year, the free ride is over.

Governor Carcieri's budget proposal recognizes this reality. In that context, he has proposed reducing total state aid to local education from $638 million to $630 million, a 1.25-percent reduction. Some funding crisis!

The $630 million proposal needs to be viewed with the proper perspective of time, too. State aid has climbed from $480 million to $638 million in just the last five years.

The real debate should be about why state aid increased by $158 million, or 33 percent -- nearly twice the rate of increase in taxpayers' personal incomes. You can thank outrageous demands by public employees and the spineless responses by politicians and bureaucrats for such irresponsible increases.

The editorial continued:

Why do we spend so many dollars for such poor performance? As a former School Committee member in East Greenwich, I'll offer examples of why our problem is overspending, and not a lack of funding.

When the School Committee approved the hiring of Supt. Michael Jolin, in the fall of 2002, major employment terms were discussed by the committee: an annual salary of $127,000; standard health-insurance benefits; and a three-year contract.

Somehow, Mr. Jolin was given an automatic rolling three-year employment contract without the entire committee's either discussing or approving such a provision...

The School Committee also neither discussed nor approved the following terms in his contract:

• 25 vacation days and 30 sick days from his first day of employment
• 25 vacation days every year thereafter
• Conversion of up to 15 unused vacation days into cash every year
• Unlimited number of accrued vacation days
• Accrual of 15 sick days per year, up to a maximum of 120 days
• An additional $7,000 to $10,000 per year put into an annuity
• Up to one year's salary if he is fired for just cause (e.g., after committing a crime).

The editorial then pointed out how that committee had also awarded: (i) 9-12% annual salary increases and a zero co-payment on health insurance to the teachers for the fifth consecutive year; (ii) 7% salary increases to all principals; and, (iii) an 11.4% salary increase to one administrator.

Do you know any working people or retirees who receive such salaries and benefits? Is that kind of compensation fair to hardworking taxpayers?

In a follow-on article, the East Greenwich School Committee Chair had the audacity to say that it was no big deal to grant those contract terms to the Superintendent while completely ignoring the governance problem of how they were awarded in the first place. I wrote a letter in response to the article.

When people are losing the public debate, a common technique is to try to change the subject. And that is just what George Nee and 12 other AFL-CIO leaders tried to do in an editorial:

Cervantes taught in his novel Don Quixote de la Mancha how one can be foolishly impractical in the pursuit of a perceived ideal. Unfortunately, The Providence Journal editorial board and Governor Carcieri never learned that lesson…

Over the past few months, we have tried to reach out to the governor, to work together in a spirit of cooperation. Unfortunately, the governor, supported by The Journal's editorial board, has chosen a different path. He has chosen to demonize unions and embark on personal attacks. This approach is not in the long-term interest of our great state. It is time for the governor and the Journal editorial board to come down from their high horses.

Their attacks on unions and their leaders are as ill-advised as Quixote's tilts at windmills. The attacks are unreasonable and impractical. Further, the attacks send us down a path of confrontation unprecedented in our state's history.

In response to that nonsensical argument, I wrote an editorial saying:

While great literary fiction lifts the soul, economic fiction destroys families and societies. And economic fiction is what Mr. Nee promotes.

As unions demagogue the issues, let's – once again – bring the debate back to facts that working families live with every day.

The unions say they represent working people. Test that claim with this nonfiction test. If you are a working person or retired working person, has your work environment included:

• Annual salary increases up to 12 percent?
• Automatic increases simply for showing up, not based on merit?
• Additional longevity bonuses, just for showing up?
• No-layoff provisions?
• Seniority valued more than expertise or organizational need?
• Zero co-payments on insurance premiums?
• Eleven weeks of paid time off per year?
• A pension equal to 60 to 80 percent of your salary for the rest of your life, starting immediately after retirement and with as little as 28 years of service, regardless of your age?

…These terms are the dirty little secret of government. Unions and their partners in government thrive by being largely invisible to taxpayers. That invisibility is finally being destroyed now – and that explains their vehement reactions…

Even so, this debate is about more than current taxation levels and today's family budgets. It is about freedom and opportunity for all – and family budgets in the future. The greatness of our country is that people can live the American dream through the power of education and hard work.

High taxation and mediocre public education create a disincentive for new-business formation in Rhode Island. That means fewer new jobs, and less of a chance for working people to realize the American dream. It also means people have an economic incentive to leave the state – and the ones who can afford to do so will continue to leave.

Unfortunately, the ones who cannot afford to leave are the people who can least afford the crushing blow of high taxation and mediocre education. The status quo dooms these families to an ongoing decline in their standard of living. That is unjust.

The unions have political power on their side today. They will, no doubt, win some short-term battles. But, like all those clinging to untenable economic models, they are on the wrong side of history and will lose the war over time. The only question is how much economic pain they will inflict on the state's residents along the way.

We are at a crossroads in Rhode Island. If we tackle issues now, a turnaround with only some pain is possible. If we delay, we will doom multiple generations of working families and retirees to further tax hell and a reduction in their standard of living. That is wrong.

This public debate is about breaking the chains of bondage and giving all citizens the freedom to live the American dream here in Rhode Island. What greater legacy can we leave for our children than a fair shot at the American dream here in their state?

The number of freedom fighters is growing, so please join this noble cause. Let's tear down this wall of economic fiction, and let freedom ring out across the state. Let's make Rhode Island a vibrant land of freedom and opportunity, for all working families.

Shortly after that editorial was published, the statewide pension problem surfaced publicly, highlighting dire financial consequences:

State and local taxpayers should pay a whopping $121.6 million more next year toward the pensions of state employees and public school teachers…

That advice, from the state's pension-funding adviser, sent shock waves through the hearing room where top labor and government officials gathered…

In late June, the deadlocked panel voted 6-6, defeating a series of moves recommended either by Carcieri, a Republican, or state treasurer Paul Tavares, a Democrat, to rein in the escalating cost of public-employee pensions, such as the adoption of a mininum retirement age.

But yesterday's news seemed to surprise some of the union leaders who had resisted any changes in pension eligibility and benefit levels…

The warning was the result of a reexamination, by the state's actuarial advisers at Gabriel Roeder and Smith, of the assumptions that determine how much money must be set aside now to cover all the promises made to current and future retirees.

After looking back seven years, the firm concluded the state has been overestimating investment returns; underestimating the salary increases, averaging 4.5 percent annually, over the seven years that ended on June 30, 2003; and failing to account for the disproportionately large number of Rhode Island public employees who stay in their jobs long enough to qualify for pensions.

Another article reinforced the magnitude of the problem:

"We are not bleeding, we are hemorrhaging," said Daniel Beardsley, executive director of the Rhode Island League of Cities and Towns, which represents local governments in the state's 39 communities…

Local pension systems in some of the state's communities are also in trouble - especially those in Cranston and Providence, according to estimates by the Rhode Island Public Expenditure Council.

Rhode Island labor leaders have long resisted changes that would cut benefits for employees and teachers.

Subsequently, a retired teacher named Mr. Hosey wrote a letter in response to my editorial. You can read its pathetic and factually wrong content. Those problems did not stop either the RI AFL-CIO website or their public relations arm, WorkingRI, website from posting the letter without either my initial editorial or subsequent response.

David Sweeney, an attorney who has negotiated teachers’ union contracts, wrote a letter in response to Mr. Hosey:

Former teachers who enter the real work world from the warm womb of the education industry are consistently shocked by the work demands of employers who must compete to survive. Unfortunately, these same people are teaching our children that everyone is "entitled" to all the benefits of a comfortable life, from annual pay increases to lifetime health care, without regard to individual talent or effort.

That economic philosophy is called socialism, and it hasn't worked anywhere in the world to date.

I followed with another editorial response, in which I pointed out errors in Mr. Hosey's letter and also said the following:

Test who is truly willing to engage in an open, public debate of the facts. Here's how:

• Demand that your community and school officials post all public-sector union contracts on their Web sites, so that the facts are transparently obvious.
• Hold political candidates accountable for knowing and publicly discussing the terms of those contracts. They should say, on the record, whether such terms are acceptable.
• Vote for candidates – regardless of party – who are responsive. Throw out those who are not.

This is not simply a rhetorical debate about esoteric contract terms. We ignore the fundamental laws of economics at our peril. Working families and retirees eventually pay for every excessive contract.

The unrelenting burden of outrageous public-sector-union contracts reduces everyone's standard of living in Rhode Island without improving the mediocre quality of our public services.

We cannot afford the status quo, financially or morally.

And that is the bottom line.

It is high government spending that drives high taxation in Rhode Island. To understand the problem with excessive government spending requires a closer look at public sector salaries, healthcare benefits and pension benefits.

More details on those topics will follow in subsequent postings as we further open up the public debate.


Marc has a new posting on the news about the new Providence crossing guards contract. Once again, we have politicians touting union contract deals that would never pass a smell test for a family budget. In the same posting, Marc notes how a January decision by the courts affirmed Cranston Mayor Laffey's right to fire crossing guards. Isn't it amazing that people have to go to court to exert basic management rights on behalf of the taxpayers whose hard-earned salaries fund these activities? It just never stops here in Rhode Island. Or, as Marc put it so well:

Until taxpayers start taking elected officials to task, by either voicing their complaints or kicking the Gollums out of office, Shelob will engorge herself and continue to grow, ever looking for more.